Shriram Finance Ltd. share price target

SHTF is well placed for NIM expansion, given (1) A fixed rate book, (2) 2/3rd of the bank borrowings are linked to MCLR and (3) gradual decline in interest rates. However, the shift to 120/90DPD, and focus on relatively newer vehicles (low yielding) will keep NIMs under check. We expect NIMs to decline ~50bps to 7.3% (FY16-19E).

Though management seems optimistic on growth, we expect it to be challenging given the backdrop of rising competition from banks, NBFCs and new players (SFBs).

Although SHTF's operating profits were above estimates, ~32% QoQ rise in provisions dragged PAT down 8% YoY. Growth in AUM moderated to 15% YoY, as disbursements fell 23% YoY (impact of demonetization).

SHTFs 3Q results were a mixed bag. With RBIs dispensation, GNPA (70bps) and provisions (Rs 3.4bn) were lower. However, SHTF has provided an additional Rs 2.1bn to shore up PCR to 75% (500bps QoQ) - one of the best in its class.

XX Gross NPA remained stable as several customers opted for special RBI dispensation during the quarter. Management indicated that had the RBI dispensation not been utilized, the gross NPA ratio would have been higher by 70bps to 7.3% on 150-days overdue basis and further ~100bps higher on 120-days overdue basis. The Company...

Subdued M&HCV; sales had a bearing on the AUM growth in Q2FY17 from that of the first quarter (growth of mere 0.7%). After looking to push the new vehicle financing at the onset of this fiscal, STFC has restored its spotlight on its core business (used vehicle financing) whose share increased from 89.2% in Q1 to 89.9% in Q2. This restricted further drop in...

SHTFs 2Q earnings met expectations on all fronts. AUM grew ~19% led by sustained momentum in used CVs, even as the new vehicle portfolio saw a sharp drop. PV (25% of AUM) continues to witness strong traction and HCV saw some pick up sequentially. To our surprise, tractors portfolio was flat YoY.

We acknowledge that the company is highly levered to the economy. Yet, given its (a) niche, difficult-to-replicate business model, (b) virtual monopoly in the old vehicle (7+ years vintage) financing business and (c) 15%+ AUM growth rate and 17-19%...

SHTFs 1Q earnings include the CE subsidiary merger and thus, are not comparable. Healthy AUM growth continued ( 23% YoY, 21% ex-merger, an 11-quarter high) with sustained momentum in used CVs. Among segments, PV (24% of AUM) and PVs (~5.6% of AUM) reported strong growth.

NII grew 18% yoy to Rs 13.5bn led by 23% AUM growth and 60bps yoy expansion in NIMs to 7.35%, which in turn was led by lower borrowing costs. AUM growth (Ex Equipment Subsidiary) remained stable at 21% led by HCV (26%yoy), passenger segment(31%),andtractors(24%),evenasM&LCV;declined6%. 9 Disbursementgrewby15%yoyledby62%growthinnewvehiclesand11%growthin...