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The liquidity crisis following IL&FS default, speculation over the impending BS VI emission norms, and high cost of funding are some of the broad factors that weighed on the NBFC sector in FY19, said a senior official with Sundaram Finance (SFL).
Announcing the fourth quarter results of the company, TT Srinivasaraghavan, Managing Director, Sundaram Finance, said the medium and heavy commercial vehicle (MHCV) segment witnessed runaway growth in the first half of FY19 but reversed from October and failed to revive during the festival season and until March.
“As a result, overcapacity, coupled with high diesel prices and liquidity squeeze in the NBFC sector, put activities on the slow lane,” said Srinivasaraghavan.
SFL registered a net profit of ₹675 crore during the fourth quarter of FY19, against a net profit of ₹138 crore recorded during the same period last year. However, the spurt in net profit includes an exceptional income of ₹522 crore on account of sale of shares in Royal Sundaram General Insurance. In FY19, SFL signed a joint venture agreement with Ageas Insurance International to divest 40 per cent of its stake in Royal Sundaram. Consequently, SFL’s stake in the insurance company came down to 50 per cent.
Term-funding options
For FY20, the company is expecting to raise ₹11,000 crore through various term-funding options, including securitisation. Last year, SFL raised ₹10,200 crore through term-funding from banks, mutual funds, insurance companies, and in the form of non-convertible debentures (NCDs).
“We are definitely evaluating the options of external commercial borrowing (ECB), but it all depends on when the exchange rate and exchange premia become favourable,” said Srinivasaraghavan. He also added that the interest rate arbitrage between fully-hedged ECB and domestic borrowing is currently not favourable. SFL’s disbursement for Q4 grew by 24 per cent to ₹4,437 crore (₹3,585 crore), while revenue from operations increased 11 per cent to ₹881 crore (₹788 crore) during the period.
“We achieved a reasonable growth in disbursements in FY19, driven by intermediate commercial vehicle (ICV), construction equipment, and used vehicle segments,” said Srinivasaraghavan.
For the full year, SFL recorded a net profit of ₹1,126 crore (including Royal Sundaram stake sale), as on March 2019, against ₹563 crore recorded a year earlier. Revenue for the full year stood at ₹3,398 crore (₹2,806 crore), while disbursements grew by 9.8 per cent to ₹17,170 crore (₹15,632 crore).
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