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SHRIRAM TRANSPORT FINANCE CO LTD (STFC)
RECOMMENDATION: BUY
TARGET PRICE: RS.885
FY12 P/E: 11.6X; P/ABV: 3.0X
q STFC reported strong earnings during Q3FY11 led by robust
securitization income, traction in disbursements and improvement in
NIM (on AUM). This has come despite of Rs.553 mn provisions done to
comply with RBI guidelines on standard asset provisions by NBFCs.
q STFC has more than three decade of experience in CV financing and is
well placed in environment when banks are vying to buy its truck loans
to meet their priority sector requirements. Recent move by RBI to keep
gold loans out of PSL category is likely to further help them in negotiating
better terms of originations.
q We are slightly tweaking earning estimates for FY11 & FY12. The stock
currently trades at 11.6x its FY12 earnings and 3.0x its FY12 ABV. STFC
enjoys leadership position in niche play and has been consistently delivering
strong return ratios (~28% RoE), which justifies its premium valuation.
Hence, we upgrade the stock to BUY from ACCUMULATE earlier
with unchanged TP of Rs.885.
Strong earnings growth; NIM (on AUM basis) improved QoQ
Net Income (including income from securitization) surged by 45.3% to Rs.8.37 bn in
Q3FY11 as against Rs.5.76 in Q3FY10. During Q3FY11, STFC booked Rs.3.98 bn of
securitisation income as compared to only Rs.1.21 bn in Q3FY10. This was also
aided by NIM expansion - 57 bps QoQ and 154 bps YoY to 8.91% in Q3FY11, as
cost of funds declined by 63 bps QoQ and utilisation of excess liquidity improved (liquid
investments declined 16% QoQ).
Strong disbursements; borrowings down with utilisation of excess
liquidity and higher securitization
STFC reported strong disbursements growth (30.4% YoY; 12.7% QoQ) during
Q3FY11 on back of higher new vehicle financing (up 36.3% QoQ and 111.7% YoY).
During the same period, old CV financing rose 12.6% YoY and 5.2% QoQ. Its AUM
stood at Rs.337.8 bn at the end of Q3FY11, witnessing healthy growth of 19.9%
YoY and 6.5% QoQ.
During Q3FY11, STFC resorted to lower borrowings due to utilisation of excess liquidity
(liquid investments declined 16.0% QoQ) and higher securitization.
Asset quality remained largely stable; coverage ratio at 81%
Gross non-performing assets (NPAs) as a percentage of gross advances improved
slightly to 2.40% in Q3FY11, as against 2.43% in Q3FY10 and 2.54% in Q2FY11. Its
net NPA also improved to 0.47% in Q3FY11, as against 0.68% in Q3FY10 and
0.49% in Q2FY11.
It is comfortable with a coverage ratio of 80.7% at the end of Q3FY11. Its provision
towards NPAs/bad debts written off (excluding standard asset provision) stood at
1.6% of total assets as against 1.8% in 2QFY11 and 1.5% in 3QFY10.
During Q3FY11, STFC also provided Rs.553 mn on account of standard assets provisioning
to comply with the RBI guidelines for NBFCs - standard asset provisioning
requirement @0.25% of the loan books.
Focus on optimal funding mix in hardening interest environment
STFC has been focusing on securitisation to improve its funding mix. In the past,
STFC's funding mix comprised of ~50% fixed loans and rest ~50% floating loans. To
mitigate the interest rate risk, it has been resorting to securitization and has almost
reached to a level where proportion of its fixed cost funds has reached to 70-75%
levels.
Although funding mix is largely biased towards institutional sources, management is
focusing on diversification and garnering more retail deposits. This has led to improvement
in the share of retail borrowing in total borrowings to 20.2% in Q3FY11
from 14.4% in Q3FY10 and 19.1% in Q2FY11.
STFC has more than three decade of experience in CV financing and is well placed
in environment when banks are vying to buy its truck loans to meet their priority
sector requirements. Recent move by RBI to keep gold loans out of PSL category is
likely to further help them in negotiating better terms of originations.
Valuation and recommendation
We are slightly tweaking earning estimates for FY11 & FY12. We now expect full
year profits of Rs.12.59 bn and Rs.14.39 bn for FY11E and FY12E, respectively. This
would result into an EPS of Rs.56.6 and Rs.64.6 for FY11E and FY12E, respectivesly.
During the same period, adjusted book value is estimated at Rs.204.7 and Rs.247.6,
respectively.
The stock currently trades at 11.6x its FY12 earnings and 3.0x its FY12 ABV. STFC
enjoys leadership position in niche play and has been consistently delivering strong
return ratios (~28% RoE), which justifies its premium valuation. Hence, we upgrade
the stock to BUY from ACCUMULATE earlier with unchanged TP of Rs.885.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
SHRIRAM TRANSPORT FINANCE CO LTD (STFC)
RECOMMENDATION: BUY
TARGET PRICE: RS.885
FY12 P/E: 11.6X; P/ABV: 3.0X
q STFC reported strong earnings during Q3FY11 led by robust
securitization income, traction in disbursements and improvement in
NIM (on AUM). This has come despite of Rs.553 mn provisions done to
comply with RBI guidelines on standard asset provisions by NBFCs.
q STFC has more than three decade of experience in CV financing and is
well placed in environment when banks are vying to buy its truck loans
to meet their priority sector requirements. Recent move by RBI to keep
gold loans out of PSL category is likely to further help them in negotiating
better terms of originations.
q We are slightly tweaking earning estimates for FY11 & FY12. The stock
currently trades at 11.6x its FY12 earnings and 3.0x its FY12 ABV. STFC
enjoys leadership position in niche play and has been consistently delivering
strong return ratios (~28% RoE), which justifies its premium valuation.
Hence, we upgrade the stock to BUY from ACCUMULATE earlier
with unchanged TP of Rs.885.
Strong earnings growth; NIM (on AUM basis) improved QoQ
Net Income (including income from securitization) surged by 45.3% to Rs.8.37 bn in
Q3FY11 as against Rs.5.76 in Q3FY10. During Q3FY11, STFC booked Rs.3.98 bn of
securitisation income as compared to only Rs.1.21 bn in Q3FY10. This was also
aided by NIM expansion - 57 bps QoQ and 154 bps YoY to 8.91% in Q3FY11, as
cost of funds declined by 63 bps QoQ and utilisation of excess liquidity improved (liquid
investments declined 16% QoQ).
Strong disbursements; borrowings down with utilisation of excess
liquidity and higher securitization
STFC reported strong disbursements growth (30.4% YoY; 12.7% QoQ) during
Q3FY11 on back of higher new vehicle financing (up 36.3% QoQ and 111.7% YoY).
During the same period, old CV financing rose 12.6% YoY and 5.2% QoQ. Its AUM
stood at Rs.337.8 bn at the end of Q3FY11, witnessing healthy growth of 19.9%
YoY and 6.5% QoQ.
During Q3FY11, STFC resorted to lower borrowings due to utilisation of excess liquidity
(liquid investments declined 16.0% QoQ) and higher securitization.
Asset quality remained largely stable; coverage ratio at 81%
Gross non-performing assets (NPAs) as a percentage of gross advances improved
slightly to 2.40% in Q3FY11, as against 2.43% in Q3FY10 and 2.54% in Q2FY11. Its
net NPA also improved to 0.47% in Q3FY11, as against 0.68% in Q3FY10 and
0.49% in Q2FY11.
It is comfortable with a coverage ratio of 80.7% at the end of Q3FY11. Its provision
towards NPAs/bad debts written off (excluding standard asset provision) stood at
1.6% of total assets as against 1.8% in 2QFY11 and 1.5% in 3QFY10.
During Q3FY11, STFC also provided Rs.553 mn on account of standard assets provisioning
to comply with the RBI guidelines for NBFCs - standard asset provisioning
requirement @0.25% of the loan books.
Focus on optimal funding mix in hardening interest environment
STFC has been focusing on securitisation to improve its funding mix. In the past,
STFC's funding mix comprised of ~50% fixed loans and rest ~50% floating loans. To
mitigate the interest rate risk, it has been resorting to securitization and has almost
reached to a level where proportion of its fixed cost funds has reached to 70-75%
levels.
Although funding mix is largely biased towards institutional sources, management is
focusing on diversification and garnering more retail deposits. This has led to improvement
in the share of retail borrowing in total borrowings to 20.2% in Q3FY11
from 14.4% in Q3FY10 and 19.1% in Q2FY11.
STFC has more than three decade of experience in CV financing and is well placed
in environment when banks are vying to buy its truck loans to meet their priority
sector requirements. Recent move by RBI to keep gold loans out of PSL category is
likely to further help them in negotiating better terms of originations.
Valuation and recommendation
We are slightly tweaking earning estimates for FY11 & FY12. We now expect full
year profits of Rs.12.59 bn and Rs.14.39 bn for FY11E and FY12E, respectively. This
would result into an EPS of Rs.56.6 and Rs.64.6 for FY11E and FY12E, respectivesly.
During the same period, adjusted book value is estimated at Rs.204.7 and Rs.247.6,
respectively.
The stock currently trades at 11.6x its FY12 earnings and 3.0x its FY12 ABV. STFC
enjoys leadership position in niche play and has been consistently delivering strong
return ratios (~28% RoE), which justifies its premium valuation. Hence, we upgrade
the stock to BUY from ACCUMULATE earlier with unchanged TP of Rs.885.
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