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UBS Investment Research
Key Call: Shriram Transport Finance
Sound quarter
„ Event: Q4 earnings in line with estimates
SHTF reported PAT of Rs 3.4 bn (29% Y/Y) in line with estimates while NII too
came in line at Rs 8.1 bn (26% Y/Y). Key highlights of the quarter were 1) Strong
disbursements (59% Y/Y) and asset growth (24% Y/Y) 2) NIM declined ~80 bps
q/q 3) Aggressive portfolio sale, off balance sheet asset now 45% of AUM 4) CI
ratio of 24% in Q4 5) Asset quality stable; provisioning coverage now at 85%.
Equipment finance subsidiary broke even during the year and has AUM of ~6 bn.
„ Impact: Maintain estimates; NIMs to see a recovery in H1FY12E
We largely maintain our estimates for FY12/13E. NIM for SHTF is typically
volatile QoQ as securitization income (50% of NII) is amortized; so the impact of
securitization activity done during the Q reflects in the income with a lag. We
expect with securitization activity witnessed in Q4, benefits will flow in H1FY12.
„ Action: Reiterate BUY; consistently delivering
We continue to maintain our positive view on SHTF; Earnings growth over FY11-
13E is estimated to 23% CAGR with average RoA of 3.1% and average RoE of
28%. We expect AUM growth of 20% over next two years lower compared to 24%
witnessed in FY11. Change in securitization guidelines is a risk on earnings in near
term; we are building in lower issuance going forward.
„ Valuation: Buy (Key call) with PT of Rs 950
We derive our price target of Rs 950based on a residual income model. Our price
target implies 3.5x FY12E P/BV and 14x FY12E PE.
Q Shriram Transport Finance
Shriram Transport Finance Corporation Ltd, established in 1979 and listed in
June 1999 on the NSE, is part of the Chennai-based Shriram Group. The Group
has a 41% stake in Shriram. The company is engaged in financing new and
second-hand commercial vehicles, commercial passenger vehicles, three
wheelers, tractors and construction equipment. Shriram Transport Finance has
pan-India coverage with a network of 484 branches and 60 strategic business
units. It raised Rs5.8bn through a Qualified Institutional Placement in January
2010.
Q Statement of Risk
We believe a slowdown in economic growth, industrial production and
consequent decline in the freight market would impact borrowers’ ability to
repay, in addition to impacting the company’s growth outlook. A change in
securitisation guidelines is also a risk, in our view.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Key Call: Shriram Transport Finance
Sound quarter
„ Event: Q4 earnings in line with estimates
SHTF reported PAT of Rs 3.4 bn (29% Y/Y) in line with estimates while NII too
came in line at Rs 8.1 bn (26% Y/Y). Key highlights of the quarter were 1) Strong
disbursements (59% Y/Y) and asset growth (24% Y/Y) 2) NIM declined ~80 bps
q/q 3) Aggressive portfolio sale, off balance sheet asset now 45% of AUM 4) CI
ratio of 24% in Q4 5) Asset quality stable; provisioning coverage now at 85%.
Equipment finance subsidiary broke even during the year and has AUM of ~6 bn.
„ Impact: Maintain estimates; NIMs to see a recovery in H1FY12E
We largely maintain our estimates for FY12/13E. NIM for SHTF is typically
volatile QoQ as securitization income (50% of NII) is amortized; so the impact of
securitization activity done during the Q reflects in the income with a lag. We
expect with securitization activity witnessed in Q4, benefits will flow in H1FY12.
„ Action: Reiterate BUY; consistently delivering
We continue to maintain our positive view on SHTF; Earnings growth over FY11-
13E is estimated to 23% CAGR with average RoA of 3.1% and average RoE of
28%. We expect AUM growth of 20% over next two years lower compared to 24%
witnessed in FY11. Change in securitization guidelines is a risk on earnings in near
term; we are building in lower issuance going forward.
„ Valuation: Buy (Key call) with PT of Rs 950
We derive our price target of Rs 950based on a residual income model. Our price
target implies 3.5x FY12E P/BV and 14x FY12E PE.
Q Shriram Transport Finance
Shriram Transport Finance Corporation Ltd, established in 1979 and listed in
June 1999 on the NSE, is part of the Chennai-based Shriram Group. The Group
has a 41% stake in Shriram. The company is engaged in financing new and
second-hand commercial vehicles, commercial passenger vehicles, three
wheelers, tractors and construction equipment. Shriram Transport Finance has
pan-India coverage with a network of 484 branches and 60 strategic business
units. It raised Rs5.8bn through a Qualified Institutional Placement in January
2010.
Q Statement of Risk
We believe a slowdown in economic growth, industrial production and
consequent decline in the freight market would impact borrowers’ ability to
repay, in addition to impacting the company’s growth outlook. A change in
securitisation guidelines is also a risk, in our view.
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