6 Apr 2022 , 05:55 PM
Given the capacity utilization levels and freight rates seen in FY2022, used vehicle operating economics are better than new vehicles from a financier’ perspective
If the capital utilization remains at the current levels, operators would need to pass through 45-65% of the incremental fuel costs to be able to meet their EMI servicing obligations.
Commercial vehicle (CV) financiers have been one of the more affected segments in the NBFC space since the start of the pandemic. Borrowers in this segment faced multi-dimensional headwinds from factors such as depressed load availability and increase in fuel prices. This led to a deterioration in the operating profile for these borrowers with diminished ability to generate surplus cash flows. While the borrowers were protected to an extent during the first wave with the option for moratorium on loan servicing, such a measure was unavailable during the second wave.
The CV financiers therefore were faced with increased stress resulting in a sharp increase in delinquencies and high portfolio restructuring.
R. Srinivasan, Vice President – Financial Sector Ratings, ICRA Limited said, “Small fleet operators, who were more reliant on the spot freight market, faced the brunt of the market volatility since March 2020. While freight availability and rates in the spot markets declined during the first and second wave, the same could not be said for operational costs. In fact, diesel prices have moved up by more than 50% over the last two years and could increase by another 5-15% in the near team. Incrementally, in our estimates, fleet operators would require passing through at least 45-65% of the incremental fuel costs to be able to meet their EMI servicing obligations.”
Amidst these headwinds, CV financiers are estimated to have grown their assets under management (AUM) at a slower pace of about 2.5% during 9MFY2022. Within CV financiers, used vehicles as an asset class performed better, with AUM growth of around 11% in 9MFY2022, compared to new vehicles, for which AUM declined by 5% during the period. This could be attributed to the better unit economics for used vehicles, whereby they could have generated almost double the post-EMI cash flow surpluses as compared to new vehicles on an average.
Further, while the delinquencies in used vehicles segment remained largely range-bound, the same for new vehicles increased sharply.
Further, CV financiers undertook significantly higher restructuring than overall NBFC industry on average, demonstrating the stress faced by CV fleet operators.
“In ICRA’s view, the AUM growth of CV financiers is expected to pick up to 7-9% in FY2023. Further, the asset quality of CV financiers is also expected to improve with the improvement and stabilisation in the overall economic activities. Ability of the borrowers to pass through the fuel cost escalations adequately in the near term would remain critical,” Srinivasan concluded.
Related Tags
IIFL Customer Care Number
(Gold/NCD/NBFC/Insurance/NPS)
1860-267-3000 / 7039-050-000
IIFL Capital Services Support WhatsApp Number
+91 9892691696
IIFL Capital Services Limited - Stock Broker SEBI Regn. No: INZ000164132, PMS SEBI Regn. No: INP000002213,IA SEBI Regn. No: INA000000623, SEBI RA Regn. No: INH000000248
ARN NO : 47791 (AMFI Registered Mutual Fund Distributor)
This Certificate Demonstrates That IIFL As An Organization Has Defined And Put In Place Best-Practice Information Security Processes.