SHRIRAM TRANSPORT

Steady track record to drive profit numbers

THE quarter ending December 2009 turned out to be the best quarter for Shriram Transport Finance in the current fiscal. The company, which is a market leader in the used commercial vehicle financing, had posted a 20% year-on-year profit growth in the first half of FY10. Backed by high growth in disbursements, improvement in net interest margin (NIM) and moderation in operating expenses, the company ended December 2009 quarter with a 59% profit growth. 

   Shriram Transport's disbursements were up 70% in the December 2009 quarter, thanks to a recovery in the new commercial vehicle (CV) market. The sales of new CVs are on upward trend and even the freight rates have moved up. Consequently, the demand for financing of new CVs too has gone up. However, the growth number is a bit skewed because in the corresponding period last year, the new CV sales had dipped due to the slowdown. Meanwhile, the company posted an impressive 50% growth in disbursements in its niche segment of used CV financing. 

   The company reported a NIM of 7.33% in December 2009 quarter compared to 6.95% in December 2008 quarter and 7.07% in the September 2009 quarter. The liquidity conditions, which had worsened in the corresponding period last year, have recovered totally, helping in expansion of NIM. A part of improvement in NIMs was due to change in the business-mix also. Typically, used CV loan constitute 75% of total disbursements, but in the December 2009 quarter, it constituted 80% of total disbursements. Since old CV loans are high yielding than loans on new CVs, NIMs got an upward thrust. So, a bit of improvement in NIMs was due to one-time factor. However, NIM has returned to the normal range and liquidity conditions continue to be healthy. Therefore, it's unlikely that there will be any pressure on NIMs in the coming months. Meanwhile, the company's operating expenses including salaries, provisions and write-offs grew by 14% in December 2009 quarter compared to 18% growth in the six months ending September 2009. 

   On the business side, the recovery in the CV market has started. Since it is a cyclical industry, the current recovery phase is expected to continue for a couple of years. That coupled with the company's steady record in used CV financing will help it in maintaining a high profit growth, going forward.