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Shriram Transport's (SHTF) 3QFY11 PAT grew 27% YoY to Rs3b, driven by 45% YoY growth in net income (including
income from securitization). This was led by disbursement growth of 30% YoY and NIM improvement (on AUM) by 57bp
QoQ to 8.91%. In 3QFY11 SHTF provided Rs552.7m to comply with recent RBI guidelines to provide 25bp on standard
assets. Key highlights are:
SHTF reported 3QFY11 PAT growth of 27% YoY at Rs3b (against our estimate of Rs3.3b, 41% YoY). Adjusted for
provision on standard assets, PAT would have been higher at Rs3.4b (in line with our estimate).
Net income (including income from securitization of Rs4b) was up 45% YoY at Rs8.5b. NIMs on AUM improved to
8.91% (7.37% in 3QFY10 and 8.34% in 2QFY11). The decline in cost of funds by 80bp and utilization of excess
liquidity helped to improve NIM on AUM. Yield on funds declined 40b QoQ to 18.5% due to an increase in disbursements
towards new vehicle loans to 29.2% from 24.1% in 2QFY11 and 18% in 3QFY10.
Utilization of excess liquidity and resort to securitization led to lower borrowings in 3QFY11. Borrowings were down
6.3% YoY (up 3.9% QoQ) at Rs211b. At the end of 3QFY11, 74-75% of the liabilities were on a fixed rate basis.
Operating expenses grew 67% YoY and 8.1% QoQ. Cost to income ratio was sequentially stable at 25.7% (22.3%
in 3QFY10). Absolute increase in operating expenses was largely due to brokerage/commission charges paid for
raising retail liabilities (up 9.4% QoQ). SHTF recruited 1,011 employees during the quarter.
Gross NPA declined QoQ to 2.4% from 2.54% at the end of 2QFY11. Provision coverage ratio was 80.7%. Provision
towards NPAs/bad debts written off (excluding standard asset provision) as a percentage of total assets was 1.63%
against 1.8% in 2QFY11 and 1.5% in 3QFY10.
The stock trades at 2.5x FY12E BV. Maintain Buy with a target price of Rs930 (2.8x FY13E BV).
AUM up 20% YoY, off balance sheet AUM up 72% YoY
Overall disbursements grew 30% YoY and 12.6% QoQ to Rs51.4b. The proportion of
used CV disbursements to total disbursements was lower at 70.8% in 3QFY11 (against
76% in 2QFY11 and 82% in 3QFY10). Incremental disbursement in new CV sales
was higher as SHTF benefited from strong demand for new CVs.
Despite strong disbursals, AUM on books increased by 4% YoY and 9.6% QoQ to
Rs224.5b as SHTF continued with its strategy of securitizing a large proportion of its
new CV portfolio. SHTF securitized Rs15.6b loans in 3QFY11 against Rs25.5b in
2QFY11 due to which AUM off books increased 71.1% YoY (on a lower base) and
10.4% QoQ to Rs113.7b.
Overall AUM grew 20% YoY (up 6.5% QoQ) to Rs337.7b. Used truck AUM grew
23.6% YoY (5.3% QoQ) to Rs258.4b. The share of new vehicle finance in overall
AUM improved by 9bp to 23.5% YoY.
Earning visibility strong; maintain Buy
Strong origination capabilities, a loyal customer base and improved economic activity
will lead to healthy AUM growth for SHTF. Besides, with a strong ALM position,
securitization of assets and adequate liquidity on the books, SHTF is well placed in a
rising interest rate scenario.
We model 23% CAGR in disbursements over FY10-13 and expect SHTF to report
EPS of Rs55 in FY11, Rs66 in FY12 and Rs78 in FY13. BV will be Rs269 in FY12E
and Rs333 in FY13E.
SHTF has been generating high RoEs of 27-28% and its business growth is likely to
be 20-25%. Even adjusting for a payout ratio of 20%, SHTF will be left with sufficient
funds to manage its growth without diluting returns for shareholders.
The stock trades at 2.5x FY12E BV with ROAs (on AUM) expected to remain to
firm above 3%. Maintain Buy with a target price of Rs930 (2.8x FY13E BV).
Company description
Shriram Transport Finance Co Ltd (SHTF), incorporated
in 1979, is India's largest asset financing NBFC with total
assets under management (AUM) of Rs317b. A flagship
company of Chennai-based Shriram Group, SHTF provides
commercial vehicle (CV) finance to more than 700,000
customers through 487 branches in India.
Key investment arguments
SHTF's loan book growth will stay strong, aided by
robust economic scenario, partnering with local
financiers and freight-bill-discounting initiatives.
To augment its fee income, SHTF has started organizing
truck bazaars, bringing together customers and sellers
of pre-owned trucks. In FY11 it will set up 6-7 auto
malls, where repossessed vehicles can be refurbished
and sold at auctions.
A high PCR would position SHTF to absorb negative
shocks on asset quality.
Key investment risks
Increase in fuel prices without an accompanying
increase in freight costs could reduce profitability for
truck operators, and increase stress on asset quality.
A slowdown in economic growth could impact SHTF's
business.
Recent developments
Nil.
Valuation and view
We model 23% CAGR in disbursements over FY10-
FY13 and expect SHTF to report EPS of Rs55 in FY11,
Rs66 in FY12 and Rs78 in FY13. BV will be Rs269 in
FY12E and Rs333 in FY13E.
The stock trades at 2.5x FY12E BV with ROAs (on
AUM) expected to remain to firm above 3%. Maintain
Buy with a target price of Rs930 (2.8x FY13E BV).
Sector view
In FY10 the CV industry rebounded with new vehicle
sales rising 34.6% YoY (in volume terms) against a 22%
drop in FY09.
In line with heightened manufacturing activity, buoyant
consumption, evolving distribution and service networks,
easy availability of finance and road development
programs the growth in new CV sales is expected to
be strong in FY11.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Shriram Transport's (SHTF) 3QFY11 PAT grew 27% YoY to Rs3b, driven by 45% YoY growth in net income (including
income from securitization). This was led by disbursement growth of 30% YoY and NIM improvement (on AUM) by 57bp
QoQ to 8.91%. In 3QFY11 SHTF provided Rs552.7m to comply with recent RBI guidelines to provide 25bp on standard
assets. Key highlights are:
SHTF reported 3QFY11 PAT growth of 27% YoY at Rs3b (against our estimate of Rs3.3b, 41% YoY). Adjusted for
provision on standard assets, PAT would have been higher at Rs3.4b (in line with our estimate).
Net income (including income from securitization of Rs4b) was up 45% YoY at Rs8.5b. NIMs on AUM improved to
8.91% (7.37% in 3QFY10 and 8.34% in 2QFY11). The decline in cost of funds by 80bp and utilization of excess
liquidity helped to improve NIM on AUM. Yield on funds declined 40b QoQ to 18.5% due to an increase in disbursements
towards new vehicle loans to 29.2% from 24.1% in 2QFY11 and 18% in 3QFY10.
Utilization of excess liquidity and resort to securitization led to lower borrowings in 3QFY11. Borrowings were down
6.3% YoY (up 3.9% QoQ) at Rs211b. At the end of 3QFY11, 74-75% of the liabilities were on a fixed rate basis.
Operating expenses grew 67% YoY and 8.1% QoQ. Cost to income ratio was sequentially stable at 25.7% (22.3%
in 3QFY10). Absolute increase in operating expenses was largely due to brokerage/commission charges paid for
raising retail liabilities (up 9.4% QoQ). SHTF recruited 1,011 employees during the quarter.
Gross NPA declined QoQ to 2.4% from 2.54% at the end of 2QFY11. Provision coverage ratio was 80.7%. Provision
towards NPAs/bad debts written off (excluding standard asset provision) as a percentage of total assets was 1.63%
against 1.8% in 2QFY11 and 1.5% in 3QFY10.
The stock trades at 2.5x FY12E BV. Maintain Buy with a target price of Rs930 (2.8x FY13E BV).
AUM up 20% YoY, off balance sheet AUM up 72% YoY
Overall disbursements grew 30% YoY and 12.6% QoQ to Rs51.4b. The proportion of
used CV disbursements to total disbursements was lower at 70.8% in 3QFY11 (against
76% in 2QFY11 and 82% in 3QFY10). Incremental disbursement in new CV sales
was higher as SHTF benefited from strong demand for new CVs.
Despite strong disbursals, AUM on books increased by 4% YoY and 9.6% QoQ to
Rs224.5b as SHTF continued with its strategy of securitizing a large proportion of its
new CV portfolio. SHTF securitized Rs15.6b loans in 3QFY11 against Rs25.5b in
2QFY11 due to which AUM off books increased 71.1% YoY (on a lower base) and
10.4% QoQ to Rs113.7b.
Overall AUM grew 20% YoY (up 6.5% QoQ) to Rs337.7b. Used truck AUM grew
23.6% YoY (5.3% QoQ) to Rs258.4b. The share of new vehicle finance in overall
AUM improved by 9bp to 23.5% YoY.
Earning visibility strong; maintain Buy
Strong origination capabilities, a loyal customer base and improved economic activity
will lead to healthy AUM growth for SHTF. Besides, with a strong ALM position,
securitization of assets and adequate liquidity on the books, SHTF is well placed in a
rising interest rate scenario.
We model 23% CAGR in disbursements over FY10-13 and expect SHTF to report
EPS of Rs55 in FY11, Rs66 in FY12 and Rs78 in FY13. BV will be Rs269 in FY12E
and Rs333 in FY13E.
SHTF has been generating high RoEs of 27-28% and its business growth is likely to
be 20-25%. Even adjusting for a payout ratio of 20%, SHTF will be left with sufficient
funds to manage its growth without diluting returns for shareholders.
The stock trades at 2.5x FY12E BV with ROAs (on AUM) expected to remain to
firm above 3%. Maintain Buy with a target price of Rs930 (2.8x FY13E BV).
Company description
Shriram Transport Finance Co Ltd (SHTF), incorporated
in 1979, is India's largest asset financing NBFC with total
assets under management (AUM) of Rs317b. A flagship
company of Chennai-based Shriram Group, SHTF provides
commercial vehicle (CV) finance to more than 700,000
customers through 487 branches in India.
Key investment arguments
SHTF's loan book growth will stay strong, aided by
robust economic scenario, partnering with local
financiers and freight-bill-discounting initiatives.
To augment its fee income, SHTF has started organizing
truck bazaars, bringing together customers and sellers
of pre-owned trucks. In FY11 it will set up 6-7 auto
malls, where repossessed vehicles can be refurbished
and sold at auctions.
A high PCR would position SHTF to absorb negative
shocks on asset quality.
Key investment risks
Increase in fuel prices without an accompanying
increase in freight costs could reduce profitability for
truck operators, and increase stress on asset quality.
A slowdown in economic growth could impact SHTF's
business.
Recent developments
Nil.
Valuation and view
We model 23% CAGR in disbursements over FY10-
FY13 and expect SHTF to report EPS of Rs55 in FY11,
Rs66 in FY12 and Rs78 in FY13. BV will be Rs269 in
FY12E and Rs333 in FY13E.
The stock trades at 2.5x FY12E BV with ROAs (on
AUM) expected to remain to firm above 3%. Maintain
Buy with a target price of Rs930 (2.8x FY13E BV).
Sector view
In FY10 the CV industry rebounded with new vehicle
sales rising 34.6% YoY (in volume terms) against a 22%
drop in FY09.
In line with heightened manufacturing activity, buoyant
consumption, evolving distribution and service networks,
easy availability of finance and road development
programs the growth in new CV sales is expected to
be strong in FY11.
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