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Shriram Transport Finance
Strong 3Q earnings; attractive risk-return, Reiterate Buy
„3Q earnings miss by <2%, but adj. earnings beat est. by 9%
STFC reported earnings of Rs3bn, a 27% yoy growth. While reported earnings
were 2% below estimates, earnings include ~Rs552mn or 25bps of standard
asset provisions (as required by RBI). Adjusted for this, earnings would have been
+9-10% ahead of estimates. Topline grew +43% yoy (+13-14% ahead of est.) on
20% volume growth (AUM) and 150bps yoy margin expansion (60bps qoq) on
higher securitization and lower funding costs. Disbursement growth strong at 30%
yoy. Asset quality remains manageable with prov. cover at +81%.
Earnings growth to sustain at +25% through FY12/13
We have tweaked our earnings by <1% for FY11/12/13. We expect earnings to
sustain +25% growth in FY12/13 on top of 33% in FY11 led by +20-21% volume
growth (AUM). We are building in normalization of margins (AUM) to +7.9-8.0% in
FY13 (8.9% in 3Q). But, margins likely to sustain at estimated levels owing to
higher securitization (higher spread), higher share of pre-owned (high-yielding),
utilizing cash balances and leveraging capital.
Cut PO to factor in rising macro headwinds
We cut our PO to Rs900 to factor in rising macro headwinds (assuming higher
CoE). We believe the recent underperformance of STFC (vs. markets) by 11-12%
(3 months) is unwarranted as 1) visibility of earnings growth sustaining at +25% in
FY12/13; 2) RoAs and RoEs at +5.0% and +28-29%, resp. in FY12/13, highest
and; 3) comfort on asset quality (net NPLs at 0.5%; cover at +80%). Hence, we
believe stock trading at +3.3-3.4x FY11E book can sustain these multiples in
FY12. Alternatively, on P/E, stock is trading at <10x FY12E EPS, it can trade up
to ~13x FY12, still a +15% discount to market multiples.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Shriram Transport Finance
Strong 3Q earnings; attractive risk-return, Reiterate Buy
„3Q earnings miss by <2%, but adj. earnings beat est. by 9%
STFC reported earnings of Rs3bn, a 27% yoy growth. While reported earnings
were 2% below estimates, earnings include ~Rs552mn or 25bps of standard
asset provisions (as required by RBI). Adjusted for this, earnings would have been
+9-10% ahead of estimates. Topline grew +43% yoy (+13-14% ahead of est.) on
20% volume growth (AUM) and 150bps yoy margin expansion (60bps qoq) on
higher securitization and lower funding costs. Disbursement growth strong at 30%
yoy. Asset quality remains manageable with prov. cover at +81%.
Earnings growth to sustain at +25% through FY12/13
We have tweaked our earnings by <1% for FY11/12/13. We expect earnings to
sustain +25% growth in FY12/13 on top of 33% in FY11 led by +20-21% volume
growth (AUM). We are building in normalization of margins (AUM) to +7.9-8.0% in
FY13 (8.9% in 3Q). But, margins likely to sustain at estimated levels owing to
higher securitization (higher spread), higher share of pre-owned (high-yielding),
utilizing cash balances and leveraging capital.
Cut PO to factor in rising macro headwinds
We cut our PO to Rs900 to factor in rising macro headwinds (assuming higher
CoE). We believe the recent underperformance of STFC (vs. markets) by 11-12%
(3 months) is unwarranted as 1) visibility of earnings growth sustaining at +25% in
FY12/13; 2) RoAs and RoEs at +5.0% and +28-29%, resp. in FY12/13, highest
and; 3) comfort on asset quality (net NPLs at 0.5%; cover at +80%). Hence, we
believe stock trading at +3.3-3.4x FY11E book can sustain these multiples in
FY12. Alternatively, on P/E, stock is trading at <10x FY12E EPS, it can trade up
to ~13x FY12, still a +15% discount to market multiples.
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