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Shriram Transport Finance Co Ltd -------------------------------------Maintain OUTPERFORM
Weak quarterly results
● Shriram Transport reported 4Q FY11 results today. Net profit at
Rs3,406 mn was 8% below our expectations.
● Revenue growth was weaker than expected. Total income
dropped on a QoQ basis from Rs8.55 bn to Rs8.29 bn, despite
7% growth in Assets Under Management (AUM) and significantly
higher mix of securitisation in the AUM. Management is confident
that the spread compression will reverse in the next quarter.
However, this will be an important metric to be watched.
● Performance on operating cost, credit costs (and credit quality)
was strong. Cost:income ratio declined and the NPA provision
expense grew only modestly (4% QoQ), even as the coverage
ratio improved (now 86%) and net NPAs declined to 0.38%.
● The company expects to grow AUM by 15-20% over the next few
years, and given its profitability (ROE 25+%) should not require
external capital.
● We are reducing our FY 12 and FY 13 estimates based on slightly
lower margin expectations.
Revenues low due to margin pressure
Total income declined 3% QoQ despite 7% AUM growth and 1150 bp
increase in the share of securitised assets (higher spread) in the AUM,
as Shriram experienced asset repricing lags and as the lower yielding
‘new vehicle loans grew faster (11% QoQ) than the used vehicle loans
(5% QoQ). Management is confident that the spread compression is
temporary. Shriram does have pricing power in its markets and has
historically demonstrated its ability to raise prices. Being able to raise
prices going forward will be key as securitisation cannot be used to
further boost spreads. Securitisation has already been used
aggressively and at 45% (as a proportion of AUM) is already above
management’s target (33%)
Opex low and asset quality remains strong
Operating costs declined QoQ from Rs2.2 bn to Rs1.96, partly due to
lower deposit mobilisation commissions. Credit quality remained
strong. Gross NPA’s declined from Rs5.4 to Rs5.2 bn. Net NPAs
declined 29% QoQ. Bad debt charges increased only 4%(QoQ), even
as the coverage ratio was increased from 81% to 86%
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Shriram Transport Finance Co Ltd -------------------------------------Maintain OUTPERFORM
Weak quarterly results
● Shriram Transport reported 4Q FY11 results today. Net profit at
Rs3,406 mn was 8% below our expectations.
● Revenue growth was weaker than expected. Total income
dropped on a QoQ basis from Rs8.55 bn to Rs8.29 bn, despite
7% growth in Assets Under Management (AUM) and significantly
higher mix of securitisation in the AUM. Management is confident
that the spread compression will reverse in the next quarter.
However, this will be an important metric to be watched.
● Performance on operating cost, credit costs (and credit quality)
was strong. Cost:income ratio declined and the NPA provision
expense grew only modestly (4% QoQ), even as the coverage
ratio improved (now 86%) and net NPAs declined to 0.38%.
● The company expects to grow AUM by 15-20% over the next few
years, and given its profitability (ROE 25+%) should not require
external capital.
● We are reducing our FY 12 and FY 13 estimates based on slightly
lower margin expectations.
Revenues low due to margin pressure
Total income declined 3% QoQ despite 7% AUM growth and 1150 bp
increase in the share of securitised assets (higher spread) in the AUM,
as Shriram experienced asset repricing lags and as the lower yielding
‘new vehicle loans grew faster (11% QoQ) than the used vehicle loans
(5% QoQ). Management is confident that the spread compression is
temporary. Shriram does have pricing power in its markets and has
historically demonstrated its ability to raise prices. Being able to raise
prices going forward will be key as securitisation cannot be used to
further boost spreads. Securitisation has already been used
aggressively and at 45% (as a proportion of AUM) is already above
management’s target (33%)
Opex low and asset quality remains strong
Operating costs declined QoQ from Rs2.2 bn to Rs1.96, partly due to
lower deposit mobilisation commissions. Credit quality remained
strong. Gross NPA’s declined from Rs5.4 to Rs5.2 bn. Net NPAs
declined 29% QoQ. Bad debt charges increased only 4%(QoQ), even
as the coverage ratio was increased from 81% to 86%
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