Used vehicle financier Shriram Transport Finance Corp. Ltd is optimistic that both growth and asset quality will improve in FY22, as originally anticipated, despite the ongoing second wave of the pandemic.
The company’s March quarter performance didn’t impress, though. Overall assets under management showed 6.85% growth. Operating profit hardly grew for the quarter. The company increased its provisions towards stressed loans, which meant that net profit, too, was largely flat.
Nevertheless, analysts believe the vehicle financier would show an increase in earnings in FY22 despite the pandemic.
The management remains optimistic about growth in the new financial year. Umesh Revankar, managing director of the company, said that movement of goods has not been affected in the current wave of the pandemic.
“There is no challenge in movement of vehicles. The only restriction is people movement. Goods movement is going on and even infra projects have not stopped. As of now I don’t see much challenge ahead,” he said.
To be sure, he expects the first quarter to disappoint in terms of growth, but pent-up demand may come to the rescue from June onwards.
For FY21, the company’s assets under management grew by 6.83%. Much of the damage was in the first half of the year due to the nationwide lockdown. Revankar is confident of 10-12% growth in FY22.
“We are still looking at double-digit growth for FY22. There is pent up demand and this pent-up demand is just being temporarily postponed,” he said.
However, investors don’t seem to share this optimism. Shares of the company were down 5% on Friday. One concern over asset quality would be that stage-three assets or bad loans remain elevated at 7% of the total book.
Adding its restructured loan pile, which is 2% of the book, stressed loans stand at 9%.
The provision coverage ratio of 42% hardly gives comfort. Shriram Transport Finance needs to bring down its bad loan pile in the coming quarters. While its collections have improved to pre-pandemic levels, they need to sustain. Until then, despite modest valuations, the stock may find it difficult to break through.