However, the weakness in overall volume growth coupled with liquidity crunch has increased the problems for financiers. As an immediate impact, analysts at Antique Stock Broking point out that the second half of FY19 may witness growth slowdown. Analysts believe their earlier growth estimates of 15–18 per cent have been revised downwards by at least 300 basis points (bps). This would, in turn, make them susceptible to fall in profitability as in a declining sales trend financiers may have to cede some ground to ensure loan growth.
However, that would also depend on how the financiers manage to reprice their liabilities. For Shriram Transport only 8 per cent of its liabilities is funded by commercial papers (CP). Therefore, even if the liability is rolled over at a higher price, the overall cost impact may not be much. CIFC, which has 10 per cent exposure to CP, is also shielded. M&M Finance, on the other hand, has about 17 per cent exposure to CP. Therefore, pressure on margins may be more prominent for this financier. Vehicle financiers currently work with 7.5-8.5 per cent net interest margins (NIM). The Street is already factoring in 30–75 basis point (bps) compression for the remainder of FY19.
With money getting expensive, as first signs of caution, vehicle financiers have trimmed their lending limit to loan assets. Known as loan to value (LTV), a report by Edelweiss Research indicates that the metric is either stagnating or reducing in most cases. While this gives the lenders extra cushion in case of defaults, it may have a negative bearing on loan outstanding. Another disturbing factor that analysts at Kotak Institutional Equities point out is the tenure of loans is increasing across vehicle financiers. With about 56 per cent of financiers having a loan tenure of five years, it increases the risk of default.
That said, all the three-vehicle financiers remain in the ‘buy’ list of analysts. “CIFC has the most diversified portfolio and Shriram Transport is headed for best earnings recovery. Mahindra Finance
remains a deep cyclical play but valuations don't leave much upside,” analysts at Antique Stock Broking point out. But with two dull months behind the CV lenders, analysts await the December quarter results to gauge the pain ahead.