At a time when sales of new commercial vehicles (CVs) have been weak, Shriram Transport Finance’s March 2009 quarter numbers have been reasonably good. The near 27 per cent year-on-year rise in interest income, however, was far lower than the 50-70 per cent growth seen in the first three quarters of 2008-09.
About 70-80 per cent of Shiram’s outstanding loans are accounted for by second-hand trucks and, in the March 2009 quarter too, most of the money was lent for used trucks. Higher interest expenses pushed down the net interest margin to 6.89 per cent and capped the rise in the net interest income to 18 per cent. While gross non performing loans were up by nearly 50 basis points to 2.14 per cent year-on –year, the loan book is relatively clean and that’s creditable given that most of its customers are individuals.
Since money is more easy to access and has become cheaper, life could be easier for Shriram Transport from now on. The company lent more in the March quarter than it did in the December 2008 quarter and its possible it could lend about 20 per cent more this year than it did last year.
That could mean an increase in net profits of a compounded 20-22 per cent in the next couple of years, given that the economic environment appears to be getting better. At the current price of Rs 275, the stock trades at just under two times price to estimated 2009-10 adjusted book value.