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Shriram Transport Finance
2QFY11 – Steady business growth, healthy margins; Buy
2QFY11 profits rise 44%. Shriram Transport Finance (STFC)
registered 44% yoy rise in net profit, led by strong disbursements
(up 28% yoy) and improving margins. We maintain Buy on the
stock as we expect the strong business growth, superior margins
and better asset quality to sustain high RoA and RoE, of 4.2-4.3%
and 27-28% respectively.
Disbursements are up 28% and 15% qoq to `46bn. The used-
CV segment accounted for 76% of total disbursements. STFC
securitized loans worth `25bn in 2QFY11 vs. `12bn in 2QFY10.
Hence, loans were largely stable yoy and qoq at `204bn. AUM was
up 23% yoy to `317bn.
NIM improves; asset quality stable. NIM (on AUM) improved
113bp yoy and 21bps qoq to 8.3% due to higher securitization
income. Cost of funds marginally declined 21bps yoy to 7.9%.
Asset quality remained one of the best among peers, with net
NPA at 0.49% and provision coverage ratio at 81%. Credit cost
(on AUM) slightly declined to 1.6% in 2QFY11 vs. 1.8% and
1.7% in 2QFY10 and 1QFY11 respectively.
Sustainable superior return ratio. We expect STFC to maintain
RoA at +4% over FY10-13e led by strong loan growth, improving
margins and stable asset quality.
Valuation and risks. At our target price, STFC would trade at
4.3x FY11e and 3.4x FY12e PBV. Risks: slowdown in economic
activity could curtail loan growth and increase NPAs.
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