Author: CP

Shriram Transport Finance (STFC) has bought loan receivables from GE Capital Services India and GE Capital Financial Services for a consideration of about Rs11 bn. The book value of these loans is about Rs12 bn (loans backed by new CVs of about Rs9 bn and new construction equipment loans of about Rs3 bn), thereby implying a high yield of ~23-24% on the transaction for STFC (as against a coupon rate of 13-14% on new vehicle loans).

STFC will service the aforesaid loans as the originator plans to reduce its focus on CV finance business. STFC’s strong franchisee network of about 480 branches, assets of Rs260 bn, across the country will likely enable it to service the loans. According to the management, all the loans are current (non-delinquent) and have a balance maturity of about two years.

The transaction will imply faster disbursements and higher loan growth at STFC. The loan pool (Rs11 bn) is approximately equal to one month of STFC’s disbursements. STFC will earn a yield of ~23-24% on the transaction though the operating and credit costs may be somewhat higher than loans originated by STFC.

Colgate continues to witness steady toothpaste volume growth of 12-13%. The company has been witnessing market share improvement in both its flagship toothpaste brands,
Colgate Dental Cream (CDC) and Cibaca.

Management is effectively guiding for 15-16% adspend to sales ratio in H2F2010. Since Colgate’s adspend to sales ratio in H2F2009 was 13%, it is likely to witness an increase of around 180 to 380 bps rise in adspend to sales ratio in H2F2010.

Management notes that HUL has increased its adspend in the last couple of months and has taken some price correction by increasing the size of SKU at the same price points. Although, there are no market share gains by Dabur.

Although the company is open to increase its presence by introducing new product offerings from its parent’s basket, currently there is no new category that is being test marketed and the focus is solely on Oral Care.

Colgate is witnessing input cost inflation of 5-6% on yoy basis and this is on account of the increase in Sorbitol and packaging costs. The company has a forward cover on Sorbitol for the next two quarters, and hence there is unlikely to be any significant impact on gross margins.