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Shriram Transport Finance
Reuters: SRTR.BO Bloomberg: SHTF IN Exchange: BSE Ticker: SRTR
Continues to grow profitably; maintaining Buy
Profitability among the best; preferred pick among mid-caps
Shriram Transport is well positioned to tide over the current high-interest-rate
environment and grow profitably. While FY12E loan growth may moderate and
NIM may contract YoY in line with the sector, it remains among the most
profitable franchises, with average RoE of c.25%E over the next 3 years. The
stock is down about 7% in the past 6 months on concerns over securitisation,
which are overdone, in our view. Current valuation looks attractive at 2.4x FY12E
P/B with FY12E RoE of 27%. We maintain Buy with a target price of INR840.
1QFY12 results – NIM expands sequentially, disbursements rise YoY
Net profit of INR3.47bn (+20% YoY, +2% QoQ) was in line with consensus and
c.16% ahead of our estimates. The NIM calculation methodology was changed
from 1QFY12, with fund-raising expenses now part of interest expense, and
previous quarters’ NIMs have been restated. The revised NIM (on AuM) at 7.91%
was up 26bps QoQ, aided by income from securitisation. Disbursements were up
20% YoY but down 23% QoQ due to the high base of 4QFY11.
Volume growth may moderate, risk-reward looks favourable at current level
Management indicated that FY12E volume growth is likely to be about 15-20%.
The commercial equipment subsidiary currently has an AuM of roughly INR10bn,
and management expects it to grow to about INR60bn by FY13. While
securitisation regulations could change, portfolio purchases done by banks can be
treated as the priority sector. We believe that even if securitisation benefits are
removed, the risk-reward for STFC is favourable at the current level. Asset quality
remains in check, with GNPL at 2.5% and NPL coverage of roughly 80%.
P/BV-RoE valuation; inability to pass on rise in funding costs a key risk
We lower our FY12E/FY13E earnings estimates by 5%/7% to factor in lower
volume growth and NIM, and lower our target price by c.6% to INR840. We value
STFC on a single-stage Gordon Growth Model P/BV = (RoE – g)/ (CoE – g), and
multiply the resultant theoretical P/BV by one-year forward adjusted BVPS to arrive
at our target price. Risks are an inability to pass on any increase in funding costs
and large cash collections, exposing STFC to misappropriation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Shriram Transport Finance
Reuters: SRTR.BO Bloomberg: SHTF IN Exchange: BSE Ticker: SRTR
Continues to grow profitably; maintaining Buy
Profitability among the best; preferred pick among mid-caps
Shriram Transport is well positioned to tide over the current high-interest-rate
environment and grow profitably. While FY12E loan growth may moderate and
NIM may contract YoY in line with the sector, it remains among the most
profitable franchises, with average RoE of c.25%E over the next 3 years. The
stock is down about 7% in the past 6 months on concerns over securitisation,
which are overdone, in our view. Current valuation looks attractive at 2.4x FY12E
P/B with FY12E RoE of 27%. We maintain Buy with a target price of INR840.
1QFY12 results – NIM expands sequentially, disbursements rise YoY
Net profit of INR3.47bn (+20% YoY, +2% QoQ) was in line with consensus and
c.16% ahead of our estimates. The NIM calculation methodology was changed
from 1QFY12, with fund-raising expenses now part of interest expense, and
previous quarters’ NIMs have been restated. The revised NIM (on AuM) at 7.91%
was up 26bps QoQ, aided by income from securitisation. Disbursements were up
20% YoY but down 23% QoQ due to the high base of 4QFY11.
Volume growth may moderate, risk-reward looks favourable at current level
Management indicated that FY12E volume growth is likely to be about 15-20%.
The commercial equipment subsidiary currently has an AuM of roughly INR10bn,
and management expects it to grow to about INR60bn by FY13. While
securitisation regulations could change, portfolio purchases done by banks can be
treated as the priority sector. We believe that even if securitisation benefits are
removed, the risk-reward for STFC is favourable at the current level. Asset quality
remains in check, with GNPL at 2.5% and NPL coverage of roughly 80%.
P/BV-RoE valuation; inability to pass on rise in funding costs a key risk
We lower our FY12E/FY13E earnings estimates by 5%/7% to factor in lower
volume growth and NIM, and lower our target price by c.6% to INR840. We value
STFC on a single-stage Gordon Growth Model P/BV = (RoE – g)/ (CoE – g), and
multiply the resultant theoretical P/BV by one-year forward adjusted BVPS to arrive
at our target price. Risks are an inability to pass on any increase in funding costs
and large cash collections, exposing STFC to misappropriation.
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