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Apr 09, 2013, 01.56 PM IST | Source: CNBC-TV18

CV segment seen struggling; but no alarms yet: Experts

Credit rating agency CRISIL expects loans to Indian truck and bus operators show signs of weakness, which will be a first in nearly three years, underlining the scale of the slowdown in country’s transportation industry as economic growth stutters.

Credit rating agency CRISIL expects loans to Indian truck and bus operators show signs of weakness, which will be a first in nearly three years , underlining the scale of the slowdown in country’s transportation industry as economic growth stutters.

Repayments on loans by commercial vehicle owners have fallen significantly over the past year, according to the CRISIL report, raising fears of a rise in non-performing assets (NPAs) as the industry battles rising fuel costs and slowing freight demand.

"We found that recently the collection efficiency trends have actually been showing a declining trend and for the first time in three years they have dipped below 95 percent, which is a level that we last saw in 2009 and that was the period immediately after the economic shock that we saw," Pawan Agrawal, director, CRISIL Ratings told CNBC-TV18 in an interview.

Sales of medium and heavy goods vehicles in India fell by about 25 percent in the first 11 months of the financial year that ended in March, according to industry data, as sluggish economic growth curbed sales for companies such as Tata Motors , Ashok Leyland and Eicher Motors .

A protracted slowdown in India's mining industry and sluggish industrial output growth have compounded the fall in heavy goods vehicle sales, as company's delay or abandon upgrades to their fleets.

However, Vellayan Subbiah, MD, Cholamandalam Investment says the quality of CV assets is still good and there is nothing "alarming" going on in the segment. "We might be getting a bit caught up with a base effect issue here because last year was a historic low for the industry. We are definitely in the better half of the cycle because we are still significantly lower than our mean," he highlights.

Below is the verbatim transcript of his interview to CNBC-TV18

Q: Take us through the nuances of this. When you say Commercial Vehicles (CV) do you mean the entire range? Do you mean there is more in Light Commercial Vehicles (LCV) and less in the Heavy Commercial Vehicles (HCV) or is it the other way around? After all sectors like mining were affected, is it that HCVs suffer, but LCVs are doing decent?


Agrawal: This study is something that we did, based on the securitization and the tracking of securitization performance that we do. We have about 80 pools that we have securitized, that together amount to about Rs 18,000 crore of assets. We track in these pools on a monthly basis, what is the collection efficiency and how is it panning out.

When we noticed the collection efficiency trends, we found that recently the collection efficiency trends have actually been showing a declining trend. For the first time in three years they have dipped below 95 percent, which is a level that we last saw in 2009. That was the period immediately after the economic shock that we saw.

Q: Would it be fair to assume that this segment is dominated more by Non-Banking Financial Companies (NBFC) than by banks?

Agrawal: If one looks at the originators primarily this is where a lot of large NBFCs have a good and strong presence. We also have some of the private sector banks, which also have a presence.

However, from a bank’s perspective this is an asset class, which is relatively small. It is primarily much more relevant and larger for the NBFC segment.

Q: Do you agree with research which is done by CRISIL? Have collection ratios of securitization pool worsened a bit in the month of March? How are you viewing the trends? Is there a possibility of a rise in Non-Performing Asset (NPA) levels on the back of this?

Subbiah: My take is that the quality of CV assets is still very good. Based on our historic data average credit losses over the cycle for these assets have ranged between 0.75 and 0.9 percent. Currently for Chola they are running at 0.62 percent.

So, we are still well below what we see in terms of our historic data, as our means including the data points in 2009. So, first off we are definitely in the better half of the cycle because we are still significantly lower than our mean. We might be getting a bit caught up with a base effect issue here, because last year was a historic low for the industry.

Our net credit losses were at 0.54 percent, which is way off the industry average. So, one could basically say it is the best performing year we have ever seen in the history of CVs. So, part of what you might be seeing from Pawan’s report is basically to compare it to last year, when we are a bit worse off, but I do not think there is anything alarming.

CRISIL stock price

On November 26, 2014, CRISIL closed at Rs 1877.00, up Rs 28.70, or 1.55 percent. The 52-week high of the share was Rs 2258.00 and the 52-week low was Rs 1010.00.


The company's trailing 12-month (TTM) EPS was at Rs 30.09 per share as per the quarter ended September 2014. The stock's price-to-earnings (P/E) ratio was 62.38. The latest book value of the company is Rs 85.33 per share. At current value, the price-to-book value of the company is 22.00.

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