Shares of Shriram Transport Finance tanked nearly 4 per cent on Friday before recovering after a top executive clarified that the company will not be affected by group firm Shriram Ventures (SVL) being referred for insolvency proceedings.
Shriram Transport Finance has no lending exposure to SVL, the holding company for the group’s non-finance business, but has supported SVL’s Rs 870-crore worth of NCDs with corporate guarantees. Earlier in the day, global brokerage house Credit Suisse had said in a report that with the SVL case being filed in the National Company Law Tribunal, its board would lose control over the assets and operations to the interim resolution professional. There was also a likelihood of Shriram Transport Finance’s corporate guarantees being invoked, it said.
“Going by past cases, we see a high likelihood of corporate guarantees like the one SHTF has issued supporting SVL bonds getting invoked,” said CS in the report. “At the very least, the probability of making a provision against this guarantee under Ind AS goes up materially.” The market reacted to the report sending Shriram Transport Finance’s shares down by almost 4 per cent in early trade. However, Shriram Transport Finance MD Umesh Revankar said the amount is unlikely to impact the company. “The dispute is between one of the subsidiaries of SVL and the customer of that company. It is about a small amount of Rs 6 crore, which we expect SVL will be able to settle,” he told ET. Revankar said Shriram Transport will not have to make any additional provisions under the new accounting standards, Ind AS, as the filing of case does not invoke corporate guarantee.
By end of trade, shares of Shriram Transport Finance closed 3.28 per cent up on the BSE at Rs 1,213.65. In the first-quarter annual report, Shriram Transport Finance had disclosed guarantees to a group company. In 2015, the truck financier provided guarantees to NCDs issued by SVL.
In its report, CS had raised credit cost estimates and cut growth expectations, leading to 8-17 per cent cut to their 2019-21E EPS for SHTF. On lower TP (target price) to Rs 1,250 (from Rs 1,500), the research report maintained ‘NEUTRAL’ with a cautious stance.
Source: Economic Times