seen Shriram Finance NCDs on almost every bond platform. yields look decent, 8.5 to 9 percent range depending on tenure, CRISIL AA+ rating. but Shriram is an NBFC focused on used commercial vehicle financing. that sounds like a fairly specific and potentially cyclical business. is the AA+ rating enough to feel comfortable or should I be reading more into the business?
Shriram Finance is one of the largest and most established NBFCs in India. They were formed from the merger of Shriram Transport Finance, Shriram City Union Finance, and Shriram Capital in 2022. The combined entity has AUM of around Rs 2.5 lakh crore, primarily vehicle financing including used commercial vehicles, two-wheelers, and personal loans. They have been operating since 1979. The AA+ from CRISIL reflects a very long track record of meeting obligations, diversified product mix, and comfortable liquidity buffers. This is not a small or new NBFC.
but used commercial vehicle financing yaar. that sounds risky. if the economy slows down truck operators stop paying EMIs right?
That is a legitimate concern and it is exactly what the rating agencies model when they assign AA+. Shriram’s borrower base is mostly owner operators of commercial vehicles, people whose livelihood depends on the vehicle running. The repayment incentive is strong because defaulting means losing their vehicle and income. Shriram also has deep expertise in collections in this specific segment built over 45 years. Their gross NPA has stayed in the 5 to 6 percent range historically, which is high by corporate lending standards but is considered normal and managed for vehicle finance NBFCs. The credit losses are priced into their lending rates and provisioning.
so the 5 to 6 percent NPA is not alarming for this type of business. good context.
Correct. The comparison point is not AAA PSU bonds with near zero NPA. It is other vehicle finance NBFCs. In that context Shriram’s track record is solid. The unsecured nature of their NCDs is worth noting though. Most Shriram retail bonds are unsecured. So if something went badly wrong you are a general creditor without a specific asset claim. For a company of this size and track record the unsecured nature is less alarming than it would be for a smaller NBFC, but it is worth understanding before you invest.
the practical question is whether you want NBFC exposure in your portfolio at all. if yes Shriram is among the better quality options at this rating level. the 8.5 to 9 percent yield is roughly 150 to 200 bps above a AAA PSU bond for comparable tenure. that spread is compensation for the credit and liquidity difference. whether that compensation is adequate depends on your own risk appetite. I hold some but not more than 15 to 20 percent of my bond portfolio in any single NBFC name.
Useful thread. Summary of what I am taking from this: established NBFC with 45 year track record, AA+ rating, AUM of Rs 2.5 lakh crore, vehicle finance NPA in normal range for the segment, bonds are unsecured so check that before buying, yield premium over AAA PSU is real compensation not a red flag. Disc: going to read the latest rating rationale before deciding.