While loans to used vehicles carry lower value against loans to new vehicles in a market where demand for used vehicles is marginally better, the company’s ability to switch focus has helped mitigate the slowdown in the commercial vehicles (CV) space.
The firm also increased its preference towards funding light CVs, demand of which is better compared to other segments. Increasing focus on working capital loans such as funding for replacement of tyres, insurance premium, fuel costs — which would enable the fleet operator for seamless functioning of business — has helped Shriram Transport, though they make up only a small proportion of its loan book, says the management.
Analysts at Edelweiss say Shriram Transport’s niche positioning and sustained investment in building franchise should lead to a relatively better H2FY20.
Chola Finance, whose loan book is smaller than Shriram Transport’s and traditionally caters to heavy CVs and cars, altered its focus, which helped its loan disbursements grow 22 per cent YoY in the quarter.
This is the highest growth posted by an NBFC so far. Increasing loan exposure to light CVs, two-wheelers, and used CVs has helped Chola Finance
in Q1. This strategy has also led to market share gains in segments in which it wasn’t very dominant earlier.
The problem for both CV lenders is that of cost of funds. At about 9.0-9.5 per cent, analysts say costs have almost petered out and therefore net interest margin (NIM) should stabilise at 6.5 per cent for Chola Finance
and 7.5 per cent for Shriram Transport.
Consequently, Rajiv Mehta of YES Securities says that the two stocks are attractive at current levels — Shriram Transport for trading at 1.2 times its FY21 book value, and Chola Finance
for its ability to ride out a tough pace.