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UBS Investment Research
Shriram Transport Finance
M odest performance
Event: Q1 earnings above estimates but NPLs increase
Shriram Transport Finance (SHTF) reported net profit of Rs 3.47 bn (20% y/y) on
back of strong securitisation income and high other income. After a benign FY11,
gross NPLs increased 18%y/y, 14% q/q. Credit costs also increased to 1.9% of AUM
in Q1FY12 as compared to 1.5% in Q4. SHTF reclassified costs pertaining to
mobilizing resources from operating costs to NII. Consequently previous numbers
are not comparable. Other highlights 1) NIMs improved 26 bps q/q on securitisation
income; 2) AUM growth of 22% y/y in line, disbursements grew 11%.
Impact: Maintain estimates
We maintain our loan growth estimate at 16% CAGR over FY12-13 however we
believe evolving macro conditions could present a risk. We are building in lower
securitisation issuances given the impending regulatory change and factor in higher
provisioning in anticipation of slowing macro. Our estimates imply average RoE of
25% and an EPS CAGR of 17% in FY12-13.
Action: Buy, Cyclically Soft patch but franchise attractive
We like SHTF for its strong business model and recommend buying as we believe
valuations look attractive considering medium term growth and profitability.
Business environment is challenging with slower growth and pressure on NIMs but
secular growth in used CVs and high pricing power are some positives. We
maintain our Buy rating with Rs 800 price target.
Valuation: 2.5x FY12E book, 11x FY12E earnings
Our price target, derived using a residual income model, implies 2.4x FY13E book.
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.
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
Shriram Transport Finance
M odest performance
Event: Q1 earnings above estimates but NPLs increase
Shriram Transport Finance (SHTF) reported net profit of Rs 3.47 bn (20% y/y) on
back of strong securitisation income and high other income. After a benign FY11,
gross NPLs increased 18%y/y, 14% q/q. Credit costs also increased to 1.9% of AUM
in Q1FY12 as compared to 1.5% in Q4. SHTF reclassified costs pertaining to
mobilizing resources from operating costs to NII. Consequently previous numbers
are not comparable. Other highlights 1) NIMs improved 26 bps q/q on securitisation
income; 2) AUM growth of 22% y/y in line, disbursements grew 11%.
Impact: Maintain estimates
We maintain our loan growth estimate at 16% CAGR over FY12-13 however we
believe evolving macro conditions could present a risk. We are building in lower
securitisation issuances given the impending regulatory change and factor in higher
provisioning in anticipation of slowing macro. Our estimates imply average RoE of
25% and an EPS CAGR of 17% in FY12-13.
Action: Buy, Cyclically Soft patch but franchise attractive
We like SHTF for its strong business model and recommend buying as we believe
valuations look attractive considering medium term growth and profitability.
Business environment is challenging with slower growth and pressure on NIMs but
secular growth in used CVs and high pricing power are some positives. We
maintain our Buy rating with Rs 800 price target.
Valuation: 2.5x FY12E book, 11x FY12E earnings
Our price target, derived using a residual income model, implies 2.4x FY13E book.
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.
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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