Shriram Transport dips 12% on NCD interest default fears

Shares of Shriram Transport Finance Company (STFC) tanked 19 per cent to ~1,047 during intra-day deals to record its sharpest fall in 19 months on the BSE.

The fall comes on the back of concerns of a possible default in payment of interest on non-convertible debentures (NCDs) of an unlisted Shriram Group company, SVL Ltd, for which Shriram Transport extended guarantees. Though the management assuaged investor concerns, the market was clearly not in a mood to listen – at least on Wednesday. The stock ended the day at ~1,145 levels, down 12 per cent, as compared to 0.75 per cent rise in the S&P BSE Sensex.

In FY16, STFC had provided a guarantee on loans worth ~8.7 billion taken by SVL (erstwhile Shriram Industrial Holdings Ltd), the unlisted holding company of the non-financial businesses of the Shriram Group. This was revealed in the company's annual report recently.

Analysts at Jefferies believe cash flows at SVL and other subsidiaries may be inadequate to service the NCD, but other companies within the Shriram fold may potentially refinance/ in repayment.

“With SVL/subsidiaries likely under financial stress, NCD repayment may be an issue. Other group companies could aid in repayment, but if guarantee is invoked and liability devolves on Shriram Transport Finance, its book value (BV) may be hit by 4 – 5 per cent (Rs 29 per share). Additional provision may be needed under IndAS, but we are awaiting clarity,” Bhaskar Basu and Harshit Toshniwal of Jefferies said in a note while maintaining a buy rating on the stock with a target price of ~1,890. The promoters of STFC are also addressing the issue with the SVL Group to get the settlement of dues on or before the promised date, failing which, the promoters/promoter group of the company will use alternate mechanisms to settle the dues, SFTC said on Wednesday.

G Chokkalingam, founder and managing director at Equinomics Research, believes that markets have been too harsh on the stock. “The impact of this could be around ~30 per share, while the counter slipped nearly ~154 on Wednesday. This is a much bigger punishment than what it deserves,” he said.

Analysts at Angel Broking, too, remain bullish on the stock and have a price target of ~1,760. The domestic brokerage expects Shriram Transport's assets under management to grow at a compounded annual growth rate of 20 per cent over FY18–20.