Shriram Transport Finance Stable operating performance but risks remain:: Prabhudas Lilladher,

SHTF’s Q2FY13 PAT of Rs3.4bn was in line with expectations, with relatively stable
asset quality and better‐than‐expected pick up in used/new CV disbursements.
Operating performance seems to be stabilising now, with stable margins and credit
costs. Though growth has surprised and valuations at 1.6x FY14 book is reasonable
considering SHTF’s used CV book facing lower competitive intensity, we are not as
sanguine as the management on the CV cycle and there is a possible impact from
impending regulations and hence, maintain our ‘Accumulate’ rating with a PT of
Rs650/share

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􀂄 Strong operating quarter; stable asset quality: Q2FY13 was a strong quarter
operationally, with ~30% YoY disbursement growth though of a low base. Not
only has SHTF seen a pick in used CVs but even disbursements in new CVs
surprisingly inched up. Margin improved ~25bps QoQ in line with expectations
due to lower investment surplus and higher share of used CV business. Asset
quality was stable with credit costs of ~200bps and management does not
expect any material pick up in slippages over the next 2-3 quarters.
􀂄 Key Analyst meet highlights: (1) Pick-up in used CV disbursements was largely
driven by LCVs as the LCV population is ageing and Shriram has not inched up
LTVs (2) New CV pick-up has been due to upgradation by existing used CV users
and SHTF is not competing with banks in financing new CVs (3) SHTF did Rs3.9bn
of securitisation through PTC route and participating banks have not asked for
tax indemnity (4) Shriram continues to withdraw from mining segment and has
only little exposure left in Orissa (overall mining <2 currently="currently" of="of" p="p" portfolio="portfolio">􀂄 Valuations reasonable but risks remain: Q2FY13 results surprised on AUM
growth and current valuation at 1.6x FY14 book seem reasonable for a largely
used CV book facing low competition among all retail asset classes. Diesel price
hike has not caused a material impact on asset quality but slowdown is
impacting freight availability and we remain cautious on CV cycle at the margin.
Also, regulatory risks from faster NPA recognition remain (180 to 90 days).