JM Financial: Shriram Transport : Q2 results in line

Visit http://indiaer.blogspot.com/ for complete details �� ��

Shriram Transport : Q2 results in line


􀂄 2Q11 profits up 44% YoY to `2.99bn, 3% ahead of JMFe: SHTF reported
2Q11 net profit 3% ahead of JMFe at `2.99bn (JMFe `2.91bn). NII grew 38%
YoY (in-line with JMFe), driven by 23% YoY AUM growth and YoY improvement
in NII/AUM. Credit costs were stable on a sequential basis while operating
expenses were higher than estimated.
􀂄 Securitisation income drives NII growth: 2Q11 NII grew 38% YoY to `7.3bn
driven by significantly higher securitisation income (up 240% YoY), 23% YoY
AUM growth and 95bps YoY improvement (8bps decline QoQ) in margins
(NII/AUM). AUM grew 23% on robust disbursements in new CVs (up 55% YoY
and 72% QoQ and accounted for 24% of disbursements) and pre-owned CVs
(up 21% YoY). NII/AUM improved 95bps YoY (declined 8bps QoQ) to 9.4%
primarily due to higher loan yields. We factor in 21% CAGR in NII led by 19%
CAGR in AUM and c.20bps improvement in NII/AUM over FY10-13E.
􀂄 Opex up 51% YoY on higher employee cost and brokerage charges: Opex
increased 51% YoY (6% QoQ) mainly due to higher employee addition cost
(74% YoY, 9% QoQ); c.3,000 and 700 employees on YoY and QoQ basis
respectively. Brokerage costs were also higher due to expenses incurred on
c.`6bn deposits raised by the company under ‘Unnati Scheme’.
􀂄 Asset quality remained stable with gross NPLs at 2.54% (2Q10: 2.29%) and
net NPLs of 0.49% (2Q10:0.66%). Coverage ratio improved to 81% vs 71% in
2Q10. Consequently, loan loss provisions remained stable on a sequential
basis at `1.26bn. We have conservatively factored in higher credit costs of
c.240bps over the next 3 years vs 185 bps and 229 bps in FY09 and FY10
respectively.
􀂄 ROE to remain strong at c.26%, maintain BUY with TP of `910: We forecast
earnings CAGR of 24% over FY10-13E driven by robust AUM growth, margin
expansion and stable asset quality trends. Consequently, we expect SHTF to
deliver superior return ratios with ROA of c.4.0% and ROE of c.26% by FY13E.
We value SHTF at 13x Dec’12 EPS, implying Dec’11 target price of `910.
􀂄 Key risks are regulatory change in securitisation guidelines, spike in interest
rates and higher than expected delinquencies.