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Shriram Transport Finance
Macro issues to hit loan growth; we lower estimates but retain a Buy
We expect higher interest rates and a slowing economy to slow down
Shriram Transport Finance’s loan growth over the next 12 months.
Credit cost is likely to be high in FY12/13 due to problems in the
southern mining belt and RBI-proposed prudential norms. We believe,
however, that concerns over loss of priority-sector status on
securitizations are overblown. We lower FY12/13 EPS estimates by
~8% and our price target from `845 to `700. The risk-reward ratio is
favourable for a strong retail franchise. We retain a Buy.
Volume growth to slow down. Slower CV growth and high interest
rates are expected to impact loan growth in the next 12 months. Given
the higher borrowing cost, low securitization and high credit costs,
margin compression is likely to result in weak net profit growth in FY12.
We expect macro headwinds to ease and margins to rebound in FY13.
Higher credit cost in FY12/13. We expect high credit cost in FY12/13,
due to the effect of problems in the mining industry in Karnataka, Goa and
AP (exposure of ~`2bn) on truckers and the RBI-proposed changes in
prudential norms. We estimate credit cost (on average AUM) of ~1.9% for
FY12/13, compared to an average 1.6% over FY08-11.
Complete curb on regulatory arbitrage unlikely. Given the
importance of lending for used CVs in rural/semi-urban areas and the
need to meet priority-sector requirements by foreign/small private-sector
banks, a complete curb on regulatory arbitrage is unlikely.
Valuation. We expect RoA of ~3.6% and RoE of ~23% over FY12/13
despite slow net profit growth in FY12. The present 1.7x FY13e PBV is a
good entry point for a strong retail franchise. At our revised price target, the
stock trades at a PBV of 2.7x FY12e and 2.2x FY13e. Risks: Slower-thanexpected
economic growth could impact loan growth; increase in NPAs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Shriram Transport Finance
Macro issues to hit loan growth; we lower estimates but retain a Buy
We expect higher interest rates and a slowing economy to slow down
Shriram Transport Finance’s loan growth over the next 12 months.
Credit cost is likely to be high in FY12/13 due to problems in the
southern mining belt and RBI-proposed prudential norms. We believe,
however, that concerns over loss of priority-sector status on
securitizations are overblown. We lower FY12/13 EPS estimates by
~8% and our price target from `845 to `700. The risk-reward ratio is
favourable for a strong retail franchise. We retain a Buy.
Volume growth to slow down. Slower CV growth and high interest
rates are expected to impact loan growth in the next 12 months. Given
the higher borrowing cost, low securitization and high credit costs,
margin compression is likely to result in weak net profit growth in FY12.
We expect macro headwinds to ease and margins to rebound in FY13.
Higher credit cost in FY12/13. We expect high credit cost in FY12/13,
due to the effect of problems in the mining industry in Karnataka, Goa and
AP (exposure of ~`2bn) on truckers and the RBI-proposed changes in
prudential norms. We estimate credit cost (on average AUM) of ~1.9% for
FY12/13, compared to an average 1.6% over FY08-11.
Complete curb on regulatory arbitrage unlikely. Given the
importance of lending for used CVs in rural/semi-urban areas and the
need to meet priority-sector requirements by foreign/small private-sector
banks, a complete curb on regulatory arbitrage is unlikely.
Valuation. We expect RoA of ~3.6% and RoE of ~23% over FY12/13
despite slow net profit growth in FY12. The present 1.7x FY13e PBV is a
good entry point for a strong retail franchise. At our revised price target, the
stock trades at a PBV of 2.7x FY12e and 2.2x FY13e. Risks: Slower-thanexpected
economic growth could impact loan growth; increase in NPAs.
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