Shriram Transport Finance::Takeaways Motilal Oswal Annual Global Investor Conferences

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Key Takeaways
Regulatory uncertainty clouds outlook
 Although the RBI has maintained status quo on the priority sector status over
securitized assets for companies like Shriram Transport Finance (SHTF), regulatory
uncertainty clouds the near-term outlook.
Growth guidance maintained
 In 1QFY12, SHTF posted 22% YoY growth in its AUM to INR 370b. The management
has guided for AUM target of INR420b (translating into 15-16% YoY growth in FY12).
 The management has indicated that FY12 asset growth could slowdown to 12-15%.
However, they would re-visit their guidance only after 1HFY12, once more clarity
emerges over macro issues. However, the management remains confident of growing
at faster pace than the industry.
 Disbursement trends have been better than expected in June and July, though not
quantified by the management.
Asset quality likely to remain healthy
 In 1QFY12 gross NPAs increased 14% QoQ, which was largely seasonal in nature.
 The management is not unduly worried about the asset quality as it believes that
the freight rates are holding up and no major stress has been witnessed so far.
 Regarding ongoing issues pertaining to transport irregularities in mining areas, SHTF's
exposure is negligible and is running off.
Margins likely to remain under pressure
 Withdrawal of priority sector status on loans given by banks to NBFCs by the RBI has
resulted in an increase in SHTF's borrowing costs.
 Reported NIM during 1QFY12 improved by 26bp to 7.91%. The management expects
margins to remain steady at current levels. However, change in securitization norms
for NBFCs could act as a drag on margins.
Other highlights
 The management expects to maintain its RoE at 27-28%. However, the management
remained confident that even in case of complete disallowing of securitization by
NBFCs the RoE's are unlikely to fall below 23-24%.
Valuation and view
 We expect SHTF to report EPS of INR61 and INR69 in FY12 and FY13 respectively
with superior RoAs of ~3% (including off books loans). The stock trades at 2.2x and
1.8x its FY12E and FY13E ABV respectively. While return ratios remain strong,
concerns over slowdown in growth and uncertainty from the regulatory perspective
could weigh on the stock performance in the near term. Maintain Buy.