Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Shriram Transport (SHTF)
Banks/Financial Institutions
Hitting rough weathers. Shriram Transport (STFC) reported PAT of Rs2.99 bn (stable
yoy and 17% below estimates) on the back of higher provisions even as loan growth
was stable at 20%. STFC’s provisions increased 87% yoy in 2QFY12 due to 9% qoq
increase in gross NPLs and large write-offs from stressed portfolio. We are reducing our
estimates to factor lower growth and higher credit cost. Retain REDUCE with price
target of Rs630 (Rs700 earlier).
Rise in provisions and NPLs pulls down earnings
STFC reported gross NPLs of 2.7% (Rs6.6 bn) as compared to 2.5% (Rs5.2 bn) in 2QFY11 and
2.7% (Rs6 bn) in 1QFY12. Gross NPLs increased 9% qoq thereby driving credit cost for the
quarter. The company has also made write-offs of Rs1.1 bn in its portfolio from select stressed
locations, viz. Bellary in Karnataka, Goa and AP. Notably, the transportation business in several
locations has been affected by ban on sand quarrying and mining activities.
We are raising our estimates for credit cost by 8% and 4% for FY2012E and FY2013E,
respectively. The management has highlighted that provisions will moderate from 3QFY12E as a
large part of the stressed portfolio has already been written off.
Reducing estimates, retain REDUCE
We are reducing our estimates by 7-8% to factor higher provisions (primarily in 2012E) and lower
growth in the business. We are now assuming loan growth of 14% in 2012E from 19% earlier. In
light of the challenging operating environment (i.e. lower demand for freight) and likely stress in
business, STFC has tightened its lending requirements (reduced minimum LTV ratio for new loans)
which will put pressure on loan growth. The improvement in the overall demand remains a key
sensitivity to our estimates.
We are reducing our price target to Rs630 from Rs700 earlier. At our price target, STFC will trade
at 2X PBR and 9.3X PER FY2013E for 12% EPS CAGR and about 24% RoE in the medium term.
We believe that the impact of slowdown in CVs, stress in select locations and continued ambiguity
on the regulatory front constrains stock performance in the near term. While we build in margin
compression in our estimates (to factor higher borrowings cost and lower economics to STFC from
loan sell-down transaction), we find it challenging to accurately ascertain the same; this can
provide upside or downside to our estimates.
NII growth moderates in 2QFY12
STFC reported NII growth of 11% yoy in 2QFY12 on the back of 20% growth in loan book
and compression in NIM (KS estimates)—8.9% versus 9.6% in 2QFY11. The company has
regrouped its securitization income (the securitization income for 2QFY12 is net of operating
expenses). Adjusting for this regrouping, NIM was flat yoy.
In light of high margins in FY2011 and moderation in loan growth, NII growth will likely be
subdued in 2HFY12E. We expect margins to improve as the company has already passed on
rise in borrowings cost to its customers.
Operating expenses remain low
Operating expenses declined 12% yoy. Even after adjusting for the regrouping, operating
expenses were down 4% yoy. The company has shifted its focus to cost control from
growth; the overall employees declined by 82 to 16,404 on the back of 16,486 in March
2011.
Construction equipment finance business grows rapidly
STFC’s construction equipment finance subsidiary has reported a loan book of Rs13 bn from
Rs9 bn in June and Rs6.5 bn in March 2011. The company proposes to scale up to Rs20 bn
by March 2012. The company has already been capitalized with an equity base of Rs2.6 bn.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Shriram Transport (SHTF)
Banks/Financial Institutions
Hitting rough weathers. Shriram Transport (STFC) reported PAT of Rs2.99 bn (stable
yoy and 17% below estimates) on the back of higher provisions even as loan growth
was stable at 20%. STFC’s provisions increased 87% yoy in 2QFY12 due to 9% qoq
increase in gross NPLs and large write-offs from stressed portfolio. We are reducing our
estimates to factor lower growth and higher credit cost. Retain REDUCE with price
target of Rs630 (Rs700 earlier).
Rise in provisions and NPLs pulls down earnings
STFC reported gross NPLs of 2.7% (Rs6.6 bn) as compared to 2.5% (Rs5.2 bn) in 2QFY11 and
2.7% (Rs6 bn) in 1QFY12. Gross NPLs increased 9% qoq thereby driving credit cost for the
quarter. The company has also made write-offs of Rs1.1 bn in its portfolio from select stressed
locations, viz. Bellary in Karnataka, Goa and AP. Notably, the transportation business in several
locations has been affected by ban on sand quarrying and mining activities.
We are raising our estimates for credit cost by 8% and 4% for FY2012E and FY2013E,
respectively. The management has highlighted that provisions will moderate from 3QFY12E as a
large part of the stressed portfolio has already been written off.
Reducing estimates, retain REDUCE
We are reducing our estimates by 7-8% to factor higher provisions (primarily in 2012E) and lower
growth in the business. We are now assuming loan growth of 14% in 2012E from 19% earlier. In
light of the challenging operating environment (i.e. lower demand for freight) and likely stress in
business, STFC has tightened its lending requirements (reduced minimum LTV ratio for new loans)
which will put pressure on loan growth. The improvement in the overall demand remains a key
sensitivity to our estimates.
We are reducing our price target to Rs630 from Rs700 earlier. At our price target, STFC will trade
at 2X PBR and 9.3X PER FY2013E for 12% EPS CAGR and about 24% RoE in the medium term.
We believe that the impact of slowdown in CVs, stress in select locations and continued ambiguity
on the regulatory front constrains stock performance in the near term. While we build in margin
compression in our estimates (to factor higher borrowings cost and lower economics to STFC from
loan sell-down transaction), we find it challenging to accurately ascertain the same; this can
provide upside or downside to our estimates.
NII growth moderates in 2QFY12
STFC reported NII growth of 11% yoy in 2QFY12 on the back of 20% growth in loan book
and compression in NIM (KS estimates)—8.9% versus 9.6% in 2QFY11. The company has
regrouped its securitization income (the securitization income for 2QFY12 is net of operating
expenses). Adjusting for this regrouping, NIM was flat yoy.
In light of high margins in FY2011 and moderation in loan growth, NII growth will likely be
subdued in 2HFY12E. We expect margins to improve as the company has already passed on
rise in borrowings cost to its customers.
Operating expenses remain low
Operating expenses declined 12% yoy. Even after adjusting for the regrouping, operating
expenses were down 4% yoy. The company has shifted its focus to cost control from
growth; the overall employees declined by 82 to 16,404 on the back of 16,486 in March
2011.
Construction equipment finance business grows rapidly
STFC’s construction equipment finance subsidiary has reported a loan book of Rs13 bn from
Rs9 bn in June and Rs6.5 bn in March 2011. The company proposes to scale up to Rs20 bn
by March 2012. The company has already been capitalized with an equity base of Rs2.6 bn.
No comments:
Post a Comment