Shriram Transport Finance :: Avendus 2012 top ideas

Please Share::  India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Impact of regulatory headwinds manageable
 SHTF’s underperformance over the past year was driven by a cyclical
decline in profitability and a combination of structural changes in
regulations. The impact of these forces is likely to result in lower asset
growth, contraction in NIM and a rise in NPLs and provisions. Our
forecasts for FY12 amply reflect these adversities. Profitability is likely
to stabilize at a level well above peers due to higher fees and lower
operating expenses. We estimate a three‐year CAGR of 17% in net
profit, with ROA well above 3%. The underperformance may reverse as
regulatory headwinds recede and the core strengths of SHTF receive
attention. Our TP is a weighted average, based on the DCF, P/E and
P/B methods. We revise our Dec12 TP to INR710, which translates into
a potential upside of 60%. Maintain Buy.
High potential upside once headwinds recede
SHTF has a potential upside of 60% from our Dec12TP of INR710. Our Dec12 TP
is a weighted average of the mean for the DCF, P/B and P/E‐based fair values
for the past year. The TP values SHTF at 2.1x one‐year forward P/B. If the P/B
returns to normal ‐ the mean of 2.5x during FY10‐FY11 ‐ the potential upside
could be even larger, at 70%.
Regulatory headwinds led to underperformance
The underperformance of SHTF over the past year was driven by a cyclical
decline in profitability and a combination of structural changes in regulations.
The impact of these forces is likely to result in lower asset growth, contraction
in NIM and a rise in NPLs and provisions. Our forecasts for FY12 amply reflect
these adversities. Profitability is likely to stabilize at a level well above peers
due to higher fees and lower operating expenses. We estimate a three‐year
CAGR of 17% in net profit, with ROA well above 3%. We maintain our credit
cost forecast at a mean of 2.3% of loans over FY12‐FY14. The
underperformance may reverse as regulatory headwinds recede and the core
strengths of SHTF receive attention.
Impact of proposed regulatory changes likely to be manageable
The working committee constituted by the Central bank has recommended
aligning asset classification and provisioning norms for NBFCs with those
currently followed for banks. The provision cover for large asset financials is
higher than that for banks and is unlikely to fall materially after the new norms.
The shift from 180‐dpd (days past due) asset recognition norms to 90‐dpd asset
recognition would expand NPLs by up to 12%. We estimate a maximum
one‐time erosion of 20% in profitability. Sensitivity to securitization volumes
suggests ROE may stay above 20% in the extreme case of nil securitization.
Maintain Buy, rollover TP to Dec12
We maintain our forecasts for SHTF. Our Dec12 TP is a weighted average, based
on the DCF, P/E and P/B methods. We revise our TP to INR710, as we roll it
forward to Dec12. We maintain our Buy rating. Higher NPL provisions and
lower growth are the key risk factors.


Link to main report and other companies

Deep value holds promise of strong rebound :: Avendus