Shriram Transport Finance posts sharpest fall in 19-months; stock tanks 18%

The stock tanked 18% to Rs 1,066, its sharpest intra-day fall since November 9, 2016.

Shriram Transport Finance has tanked 18% to Rs 1,066, its sharpest fall in past 19-months on the BSE on concerns of a possible default in payment of interest on its non-convertible debentures (NCDs).

The management, however, has clarified regarding the issue.

The stock has underperformed the market by falling 31% from its recent high of Rs 1,543 on May 28, 2018, as compared to 0.51% rise in the S&P BSE Sensex.

As per financial year 2017-18 (FY18) annual report released recently, Shriram Transport Finance has provided a guarantee of Rs 8.7 billion in FY16 in favour of SVL (erstwhile Shriram Industrial Holdings Ltd), unlisted Holding Co of non financial businesses of Shriram Group.

SVL had issued Rs 6.5 billion of zero coupon NCDs in June 2015 (11.25% IRR), maturing on 28 June 19 (redemption value Rs 9.9 billion at maturity). The bond had a put/ call option on 28th June 18, which was likely exercised and refinanced. Outstanding guarantee of Rs 8.7 billion as on March 18 includes accrued interest. Shriram Transport Finance's prior years' annual reports do not include disclosure around the guarantee, analysts at Jefferies said in company note.

“With SVL /subsidiaries likely under financial stress, NCD repayment may be an issue. Other group companies could aid in repayment, but if guarantee is invoked & liability devolves on Shriram Transport Finance, its book value (BV) may be hit by 4-5%. Additional provision may be needed under IndAS, but we await clarity,” the brokerage firm said in a note.

Cash flows at SVL, subsidiaries may be inadequate to service the NCD, but other companies within Shriram group may potentially refinance/aid in repayment. However, if SVL defaults on the NCDs and the guarantee is invoked, potential hit to Shriram Transport Finance's BV (book value) could be around 4% post tax (Rs 29/ share), the note says.

At 10:24 am; the stock was down 15% at Rs 1,108 on the BSE, as compared to 0.11% decline in the S&P BSE Sensex. The trading volumes on the counter more than 9-folds with a combined 5.72 million shares changed hands on the BSE and NSE so far. Earlier, on November 9, 2016, the stock had tanked 20% in intra-day trade, finally settled 2% lower at end of the day.