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Shares of Shriram Transport Finance Corporation were affected on Wednesday due to concerns over NCD payments by its subsidiary.
According to the annual report recently issued by the company, the company has provided a guarantee of 870 rupees. crore for non convertible debentures (TNMs) issued by SVL, an unlisted entity belonging to the financial conglomerate.
The management of Shriram Transport has tried to dispel the fears of investors, but the Street may not be very convinced. The stock has maintained its slowdown.
"The maturity of the loans is still a year away and we are pretty confident of their service.We also do not see the need for supply," said Umesh Revankar, MD and CEO of Shriram Transport Finance, in an interview with CNBC-TV.18 He added that there are adequate safeguards against the guarantees given by the company.
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Brokerage: Jefferies | Note: Buy | Target: Rs 1,890
The research firm Jefferies, in its research note, explained that SVL had issued zero-coupon NTMs of 650 rupees in June 2015, maturing next year. "The cash flows of SVL, the subsidiaries may be insufficient to service the DTM, but other companies of the Shriram group can potentially refinance / badist in the repayment. However, if SVL is defaulting on NTMs and the guarantee is invoked, the potential risk for BV BV of Shriram Transport could be about 4% after tax (Rs 29 / share), "wrote badysts at The company
also sees the need to raise additional capital as provisions could increase for the NBFC.
There is a lack of clarity as to whether ShriramTransport should make provisions This potential 100% provisioning could affect Tier I capital (14.2% T418) by 50 basis points, thereby accelerating the need for a capital increase.
Brokerage: Morgan Stanley Rating: Overweight Target: Rs 2,000
The global research firm expects more clarity on the issue, but believes that financial exposure aspects.
"Shrira m EPC is a subsidiary of SVL Ltd. Shriram EPC has been referred to NCLT There is therefore a significant risk that this off-balance sheet exposure will become a liability for STFC, which represents 3.8% and 3.2% of our BVPS FY19e and FY20e, up to 21% and increase credit costs of 19%. by 85 bps. Morgan Stanley's report
stated
Therefore, it expects a delay in profit recovery and inventory revaluation too.This could also weigh on the performance of equities. "We note that STFC has made significant provisions in recent years (NPL coverage of 70% on unproductive loans of 90dpd and 175% on nonperforming loans of 180dpd.) We expect more clarity from the company on the issue. exposure and potential adaptation measures. Analyst: Manish Sonthalia of Motilal Oswal
The expert believes that the event regarding Shriram Transport could be a one-time event, it is not too worried about credit problems with names such as Shriram Transport.
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