Fitch Ratings has affirmed Shriram Transport Finance Co Ltd's (STFC's) long-term issuer default rating (IDR) at BB plus with a stable outlook.
STFC's IDR is driven by its standalone creditworthiness which reflects its dominant position in used commercial-vehicle financing, adequate management quality and established record.
Fitch said STFC has a monoline business model. But this risk is partly offset by the company's understanding of the business and customer dynamics, given its four decades of experience, as highlighted by its manageable credit losses and satisfactory earnings.
STFC does not face meaningful competition in its core segment as not many companies understand the used commercial-vehicle customer profile, which usually entails a lack of credit history and higher risk.
"Some fragmented competitors exist in regional pockets, which we believe are likely to shift towards organised non-bank finance lending over the long term," Fitch added.
Risk mitigation is mainly through clear underwriting guidelines with respect to the borrower and asset valuation and ensuring that processes and procedures are tightly adhered to.
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The company's presence at key transport hubs across India, as well as its client interface policies, help to closely track customers, who are primarily first-time buyers or small road-transport operators.
STFC's managers have, on average, spent many years with the company, which gives them a solid understanding of the business, said Fitch.
It added that STFC's high non-performing loans of 8.4 per cent in the financial year ending March (FY19) were commensurate with the riskier asset and borrower class and were not unusual for this business.