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Shriram Transport Finance (SHTF IN) Rating:1
2Q FY11 results: disbursement growth high, profit growth even higher
What has changed?
• The 44% YoY net-profit rise to Rs3bn was in line with our forecast. Disbursement
growth was strong at 28% YoY and 15% QoQ, the interest spread improved 19%
QoQ to 11.02%, and ROA and ROE were high at 4.25% and 28%, respectively.
Impact
• Shriram Transport Finance (SHFT) recorded a high increase in net interest income
of 43% YoY for 2Q FY11, and an improvement in its net interest margin (NIM),
both on year-on-year and quarter-on-quarter bases. The company can potentially
book Rs20bn of income from securitisation over the next few years (53% of FY10
interest income). The company securitised Rs25bn of loans in 2Q FY11, of which
around 60% was from pre-owned commercial vehicles (CV).
• Assets under management (AUM) increased by 23% YoY with securitised loans
forming 36% of the AUM (up from 21% a year ago). Disbursement growth of 28%
YoY was strong with the growth momentum in old vehicle loans largely
maintained and loan disbursements for new vehicle improving.
• Asset quality was stable, with gross and net non-performing loans (NPL) of
2.5% and net NPLs of 0.5%. We believe that, backed by a strong and effective
collection procedure, the asset quality is unlikely to face any major pressure
going forward and we forecast gross NPLs of 2.6% for FY11.
• SHTF has consistently delivered high ROA and ROE and we forecast it to record
an average ROA and ROE of 4% and 28%, respectively, for FY11-12. We expect
the high growth momentum in the same to continue, so we have revised up our EPS
forecast by 6.6% for FY11. Given the strong earnings-growth momentum that we
see, we have raised our six-month target price to Rs898 from Rs807, at a PBR of
3.3x (previously 3x) on our FY12 forecast based on our Gordon growth model.
Catalysts and action
• We maintain our 1 (Buy) rating on SHTF. A further pick-up in securitisation
income could be the key catalyst for the stock.
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