Shriram Transport Finance - Growth Improves; Seasonal Blip In Asset Quality; Result Update Q2FY15 :: Edelweiss, PDF link

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Shriram Transport Finance’s (SHTF) Q2FY15 PAT of INR3bn was flat QoQ and down 7% YoY. Since Q2 is seasonally weak for the commercial vehicle industry, the quarter saw some uptick in GNPLs (up INR1.3bn QoQ in absolute terms, though in percentage terms steady at 3.74% given 9% QoQ growth in on-book AUMs). Credit cost thereby came in at INR3.0bn compared to quarterly average run rate of INR2.7bn. On other hand, growth green shoots is a healthy development-AUMs rose (up 2.2% QoQ) to INR555bn, second consecutive quarter of growth, stemming the decline post H2FY14. Management is confident of recovery in overall business and we share the optimism as: (1) economic upturn benefits CVs the most, which portends growth; and (2) reduction in diesel price will lower the cash flow stress at truck operators’ level and asset quality trend should improve henceforth. Culmination of these vectors will propel RoA/RoE to 2.7%/19% in FY16 and valuations to 2.5x FY16E P/ABV.

AUMs growth on track; outlook positive

Disbursement during Q2FY15 gained traction surging 10% QoQ largely following 9% QoQ rise in the pre-owned segment. As a result, AUMs (pre-owned CV) grew 3.3% QoQ (currently forms 89% of AUMs). On the other hand, though on-book AUMs registered healthy growth of 9%, the overall damper has been the run-down in off-book assets (down 17.6% QoQ) as SHTF securitised mere INR7bn in H1FY15 compared to INR107bn in FY15 (as only 2 deals have been done). Management expects securitisation volumes to pickup in H2 (back-ended) - expects further INR50-60bn in H2FY15. Management expects double digit AUM growth in FY15 following: (a) pick up in infra activities to have positive momentum especially in AP; (b) South India is expected to grow faster as monsoon has been good; and (c) positive trend in cement transportation.

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