Shriram Transport Fin tumbles 14% after S&P revises outlook to negative

The rating actions reflect the increasing risks that the Indian NBFCs face due to the challenging operating conditions stemming from the COVID-19 outbreak, the agency said.

Investors in Shriram Transport Finance Company (STFC) booked profit on the counter on Monday, dragging the stock 14 per cent lower to Rs 694 on the BSE, after S&P Global Ratings lowered the rating on the non-banking finance company (NBFC) to 'BB' from 'BB+' with negative outlook.

“The rating actions reflect the increasing risks that the Indian NBFCs face due to the challenging operating conditions stemming from the COVID-19 outbreak. The economic risk for Indian financial institutions is rising. The drastic efforts to curtail the spread of the coronavirus have resulted in a sudden stoppage in economic activity,” S&P Global Rating said in statement on April 17, 2020.

According to the global rating agency, the funding conditions for STFC could tighten amid challenging operating conditions and weakness in asset quality. Therefore it revised funding assessment to moderate from adequate.

The used commercial vehicle segment is vulnerable in the current slowdown. The company's borrower profile is less resilient to the lockdown and weak economic activity. Also, collections will be more difficult for the company as it has a high reliance on collecting cash repayments, it added.

“We expect STFC's asset quality to deteriorate, which is likely to lower the availability of funding to the company. With rising risk aversion and pressure on asset quality, STFC faces higher refinancing risk than peers with stronger credit profiles and corporate or government backing. The company has regularly tapped overseas markets for funding in past quarters, which will be a challenge in the current market conditions,” S&P Global Ratings said.

At 01:04 pm, the stock of STFC was trading 13 per cent lower at Rs 698 on the BSE, as against a 0.08 per cent rise in the S&P BSE Sensex. A combined around 5.1 million shares have changed hands on the counter on the NSE and BSE till the time of writing of this report.

In the past seven trading days, the stock has rallied 54 per cent -- from a level of Rs 521 hit on April 3 to Rs 803 hit on April 17 -- as against a 14.5 per cent rise in the S&P BSE Sensex.