Buy Shriram Transport Finance 3QFY11 – Steady business growth continues;Anand Rathi

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Shriram Transport Finance
3QFY11 – Steady business growth continues; retain Buy
Shriram Transport Finance (STFC) registered 50% yoy rise in
adjusted (for one-time standard asset provisioning) net profit, led by
strong disbursements (up 30% yoy) and improving margin. We
maintain Buy on the stock as we expect the strong business growth,
superior margin and better asset quality to sustain high RoA and
RoE, of 4.2-4.3% and 27-28% respectively.

 Disbursements up 30% yoy and 13% qoq to `51bn. The used-
CV segment accounted for 71% of total disbursements. STFC
securitized loans worth `16bn in 3QFY11. AUM and loans were
up 20% yoy and 4% yoy (lower due to higher securitization in the
quarter) to `338bn and `224bn respectively.
 NIM improves; asset quality stable. NIM (on AUM) improved
154bps yoy and 57bps qoq to 8.9% due to higher securitization
income and lower liquid assets in the balance sheet. Asset quality
remained one of the best among peers, with net NPA at 0.49%
and provision coverage ratio at 81%. Credit cost (on AUM)
slightly declined to 1.63% in 3QFY11 vs. 1.73% 2QFY11. As per
RBI circular, STFC made a standard asset provision of `552m
(0.25% of standard assets).
 Sustainable superior return ratio. We expect STFC to maintain
RoA at +4% over FY10-13e led by strong loan growth, improving
margin and stable asset quality.
 Valuation and risks. At our target price of `934, STFC would
trade at 4.3x FY11e and 3.4x FY12e PBV. Risks: slowdown in
economic activity may curtail loan growth and increase NPAs.