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Shriram Transport Finance (SRTR.BO; Rs672.25; 2M)
Shriram Transport Finance presented at our India conference today. Key
takeaways are as below:
Impact of recent regulatory changes - Management suggests that impact of
the recent change in classification norms for bank lending to NBFCs is not
material for Shriram's net interest margins. NIMs could decline marginally by
around 10-15bps more in 1Q12, however, they should stabilise between 7.5-8%
levels. Assuming priority sector benefits are also disallowed for securitised loans
(one third of total assets), the impact on NIMs is likely to be around 50bps, over a
period of 2-3 years.
Loan growth likely to remain around 15-20% levels - Management expects
near term loan growth to remain around 15-20% levels (and maintains its
guidance of Rs500bn of total loan assets by end FY13). While new CV growth is
expected to slow down to 10-15% levels in FY12, Shriram expects used CV
growth to remain strong and the kicker to come from its newer portfolio of
construction-equipment loans.
No near-term threat on asset quality - Shriram's loan book remains quite
niche, which suggests asset quality is not a function of interest rates as its loans
are fixed rate in nature and an inflationary environment is beneficial for the
borrowers' income (with interest payments fixed). The key to asset quality would
be the impact on the overall economic growth environment, especially in the rural
segments. So far, management does not see any pockets of asset-quality
pressure and NPLs remain well under control.
Capital is not a concern - Shriram's capital adequacy remains quite comfortable
with Tier 1 ratios over 15% currently and ROEs comfortably in excess of 20%
levels. Even with some moderation in NIMs and ROEs, management expects
ROEs to remain above 20-22% levels and should also remain ahead of expected
loan growth levels. This suggests it is not likely to need additional capital over the
medium term.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Shriram Transport Finance (SRTR.BO; Rs672.25; 2M)
Shriram Transport Finance presented at our India conference today. Key
takeaways are as below:
Impact of recent regulatory changes - Management suggests that impact of
the recent change in classification norms for bank lending to NBFCs is not
material for Shriram's net interest margins. NIMs could decline marginally by
around 10-15bps more in 1Q12, however, they should stabilise between 7.5-8%
levels. Assuming priority sector benefits are also disallowed for securitised loans
(one third of total assets), the impact on NIMs is likely to be around 50bps, over a
period of 2-3 years.
Loan growth likely to remain around 15-20% levels - Management expects
near term loan growth to remain around 15-20% levels (and maintains its
guidance of Rs500bn of total loan assets by end FY13). While new CV growth is
expected to slow down to 10-15% levels in FY12, Shriram expects used CV
growth to remain strong and the kicker to come from its newer portfolio of
construction-equipment loans.
No near-term threat on asset quality - Shriram's loan book remains quite
niche, which suggests asset quality is not a function of interest rates as its loans
are fixed rate in nature and an inflationary environment is beneficial for the
borrowers' income (with interest payments fixed). The key to asset quality would
be the impact on the overall economic growth environment, especially in the rural
segments. So far, management does not see any pockets of asset-quality
pressure and NPLs remain well under control.
Capital is not a concern - Shriram's capital adequacy remains quite comfortable
with Tier 1 ratios over 15% currently and ROEs comfortably in excess of 20%
levels. Even with some moderation in NIMs and ROEs, management expects
ROEs to remain above 20-22% levels and should also remain ahead of expected
loan growth levels. This suggests it is not likely to need additional capital over the
medium term.
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