Lakshmi General Finance retains rating

ICRA has retained the ratings assigned to the fixed deposit and medium term non-convertible debenture programmes of Lakshmi General Finance (LGF) at MAAA. The ratings indicate highest safety over the medium term. LGF, a closely held company with more than 50 per cent of its equity being held by Sundaram Finance (SF) and its promoters, is in the same business as SF and has the same management and accounting policies. The rating factors in LGF's strong brand image on account of its association with Sundaram Finance, its low financial risk, comfortable liquidity and insignificant asset-liability mismatch.

LGF's business, which had stagnated for the past three years, registered a significant growth in 1999-2000, in line with the improvement in the road transport sector. While commercial vehicles continue to remain the main segment financed, LGF is also increasing its exposure to cars. Although there was some deterioration in LGF's asset quality during the recession years, between 1997 and 1999, the company's steps to improve asset quality, especially the strengthened credit norms, have resulted in a significant improvement in the collection efficiency and has improved its overall asset quality.

While in 1999-2000 LGF's interest spread increased because of a re-pricing of its liabilities, the increasing competition in retail financing is likely to exert downward pressure on its interest spreads over the medium term. This combined with its low gearing is likely to exert pressure on the return on net worth.

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Section  : Business
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