Very few companies can boast of creating a franchise as powerful as Shriram Transport Finance Company (SHTF), the flagship company of the Shriram Group and the largest asset financing company in India with assets under management (AUM) of Rs.85,500 crore. It has almost four decades of experience in used commercial vehicle (CV) financing and is the market leader in the business. The company has a strong and capable management team which has helped it withstand several business cycles.
Hitting a bump
However, over the past five years, the company went through a pincer. Between 2012 and 2014, following the ban on mining in several states, CV demand was severely impacted. As the company was slowly coming out of the downcycle, it was again hit by the central bank’s new guidelines on non-performing asset (NPA) recognition. All non-banking financial companies had to move from 180 days past due (dpd) non-performing asset (NPA) recognition to 90 dpd recognition over three years — FY16, FY17 and FY18. This resulted in not only NPAs increasing sharply, but also impacting the NBFC’s income statement, owing to interest reversals and increased provisioning. As a result, since FY11, profit after tax for Shriram Transport Finance has been range-bound between Rs.1,100 crore and Rs.1,300 crore.
Back on track
However, we now believe the company is on the cusp of a