BackAsset growth at multi-year low at Shriram Transport
The used commercial vehicle business, the mainstay of Shriram Transport, rises by a tepid 12% in June quarter
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Asset growth has slowed to a crawl at Shriram Transport Finance Co. Ltd. As poor economic activity weighed on vehicle purchases, loan growth (assets under management) fell to a multi-year low of 3.5% in the June quarter. The used commercial vehicle business, the mainstay of the company, grew by a tepid 12%. That’s in contrast to the first quarter of the previous fiscal, when this business was up almost one-third. The situation is even more precarious in the new commercial vehicle lending business. Loans to this segment fell by a steep 38%. In the year-ago period, they were down by only 1%.
Nevertheless, the double-digit growth in the core business meant interest income grew by a healthy 23% from a year ago. But the firm sold fewer assets, so securitized income dropped. As a result, net interest income grew a mere 7%. Even that did not translate into profits. Other income was low. Also, the company increased provisions for bad assets. Together, they took down stand-alone net profits by 10%. Still, the performance is better than some analysts’ expectations. April-June being seasonally a weak quarter, many expected Shriram Transport to report even lower interest income. Also, with weak economic activity weighing on income levels, many were wary that the company may report a sharp rise in bad assets. But asset quality held up rather well. Sequentially, gross non-performing assets (NPAs) are lower by 12 basis points to 3.74%, slightly lower than the 3.75%-plus Edelweiss Securities Ltd was expecting. One basis point is one-hundredth of a percentage point.
Similarly, sequential net interest margins have seen a slight uptick. They increased eight basis points, so return ratios like return on assets (RoA) and return on equity improved. Even though loan growth is decelerating, the resilience in asset quality and net interest margins is providing much needed comfort for investors. The management expects loan growth to improve in the second half of the fiscal year.
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