Shriram Finance Ltd. share price target

Maintain BUY with a TP of Rs 1,346 (2.5x Sept-19E ABV of Rs 539). Robust disbursement growth (+26% YoY) and stable NIMs (~7.5%) are reflective of STHFs continued dominance in its niche. Strong PPOP (+25%) sustained the uptrend, while providing sufficient headroom for beefing up coverage (+52bps QoQ, ~71.3%). Asset quality was unchanged, despite macro headwinds. A tight leash on costs (C-I down 9bps QoQ, 20.9%) despite aggressive branch (136 in 4 quarters) and headcount additions, helped boost profitability.

As the proposed merger with IDFC has been called off, the related uncertainty seems to be over. We expect STFC's operating environment would improve further in coming quarters led by government's efforts to revive growth in infrastructure space and strong uptrend in rural economy. Further, the Management has taken adequate remedial measures to address some structural overhang i.e. moving to 90-days NPA recognition and implementation of scrappage policy. As overhang of demonetisation is behind, we expect gradual improvement in performance over next few quarters. Thus, we reiterate our BUY recommendation on the...

SHTF had an excellent 2Q. Strong disbursement growth of 14% QoQ/26% YoY led to a 14% YoY increase in AUM for the quarter. Management is confident that AUM growth for FY18 will be at the upper end of its 12-15% guidance range. To capitalize on the growth opportunity, the company opened 73 more branches in 2QFY18 the highest-ever new branch opening in the history of the company. Bulk of these branches were opened in rural areas (defined as areas with less than 0.1m population). A key highlight of the quarter: NIM on AUM (calculated) expanded 80bp YoY...

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Q1FY18 PAT was in line at Rs 1.9 bn (up 7% YoY) with AUM growth of 17.5% YoY at ~Rs 241 bn. Cost of borrowings was down 10 bps QoQ to 9.3% (expect ~30 bps more reduction in FY18) that helped NIM improve to 13.8%, though incremental benefits may be passed on.

Shriram Group & IDFC Group have entered into an agreement to explore merger of their financial services business. Under the stated plan, STFC will become fully owned subsidiary of IDFC and thus will get de-listed from the stock exchange. However, in our view the merger proposal will face multiple headwinds such as: (a) getting regulatory nod due to complex interholding; and (b) the minority shareholders of STFC may not favour the move unless they are offered a very high premium over the CMP. Further, we expect STFC's operating environment would improve after implementation of BS-IV emission norms for vehicles and GST roll-out. The government's efforts to revive growth in infrastructure space and rural economy augur well for...

Operating Income decreased by 0.18% to Rs. 2711.92 Cr in Q4FY17 when compared to the previous quarter. Also it fell by 7.43% when compared with Q4FY16.

SHTF reported a weak Q4FY17 marked by de-growth in disbursement leading to muted AUM growth, significant pressure on margin and sharp deterioration in asset quality (change in DPD).

Operating Performance In-line; Higher Provisioning Drags PAT Shriram Transport Finance Company (STFC) has reported a subdued performance in 4QFY17 with its net profit rising by mere 4% YoY (-56.7% QoQ) to Rs1.5bn. Provisioning for bad debts rose by 6.3% YoY and 44.6% QoQ to Rs6.1bn, as collections continued to remain sluggish in certain pockets along with moving to 120days NPA recognition norms. Disbursements improved by 29.5% QoQ to Rs105.2bn in 4QFY17 as against Rs81.2bn in 3QFY17 primarily due to revival of the demand post demonetization. Its AUM grew by mere 3.3% QoQ and 8.2% YoY to Rs789bn. Assets quality deteriorated as gross NPA ratio increased marginally by 154bps QoQ to 8.2%...

BUY Shriram Transport Finance Company Ltd at CMP Rs. 1086 add on dips to Rs. 1086 - 980 for the target of Rs. 1366