Shriram Finance Ltd. share price target

Co. has been able to collect from 84%/23%/52%/71%/73%/78% borrowers in the month of Mar/Apr/May/Jun/Jul/Aug'20 respectively. Q2FY21 earnings stood mixed with better clarity on asset quality expected to emerge in forthcoming quarter. While provisioning run-rate declines and collections gain pace, our FY21 EPS estimates stand higher by 9%. With additional provision of Rs23bn pushing ECL coverage to ~40%, provisions run-rate now has come down to Rs7bn as against Rs10-11bn over past two...

Over the last four decades, Shriram Transport Finance (SHTF) has built a pan-India network in a fragmented used-CV market (~16% CV market share).

dispensation is still masking the true asset quality picture. Quarter surprised used CV financing. We reckon pent-up demand and better rural scenario aided used CV traction. Same translated into higher than expected NII although Co. could not escape NIM compression on account of excess...

Additional covidrelated prov. of Rs9.6bn weighed on earnings, while asset quality was stable due to standstill. CumulativecovidbufferatRs18.7bn(1.7%ofonbookAUM). Conservativebuiltupofprov.alsoreflectedinECLcoverof...

14 August2020 Shriram Transport Finance (SHTF)s 1QFY21 PAT halved to INR3.2b (6% miss). While growth was muted, collection efficiency improved MoM. SHTF also cut opex by 30% QoQ. We modestly increase FY21 estimates to factor higher AUM and lower opex. Our credit cost estimate of 3.5% for FY21 remains unchanged. on the books stood at INR115b as of 12 Aug20. With the COVID-19 provisions, SHTF has increased its Stage-3 PCR from 35% to 39% and Stage-1/2 PCR from 3.1% to 3.7% QoQ. Less than 10% of customers would need restructuring, according to management. Due to a change in accounting policy, the fair value of hedges is now routed through OCI rather than the P&L.; Since the IL&FS; crisis, the company has diversified into new borrowing sources such as retail NCDs and ECBs. The share of ECBs in total borrowings increased meaningfully to 18% YoY from 10%.

Only when we thought asset quality was on mend and liquidity overhang subsiding for SHTF, the pandemic shocks knocked both the aforesaid parameters yet again putting near term earnings under pressure. Q4FY20 witnessed 70%+ decline in PAT both YoY/QoQ to Rs2.2bn (PLe:Rs7.9bn) largely on account of Rs9.1bn COVID provisioning. Business trends stood weaker than expectations for 81-day quarter with AUMs at Rs1097bn (PLe:Rs1117bn) growing flattish QoQ (5% up YoY) led by slowing pace of...

11 June 2020 SHTFs 4QFY20 PAT declined 70% YoY to INR2.2b (65% miss). While operating profit missed our estimates by 8% due to lower-than-expected NII, higher COVID-19 related provisions of INR9.1b led to the PAT miss. PAT declined 2% YoY in FY20 while RoA/RoE stood at 2.3%/15%. The company collected money from 84%/23%/52% of its customers in Mar/Apr/May20 and in value terms it stood at ~15%/30% of Apr/May20 collections. NIMs declined 38bp QoQ to 6.76% as the currency movement on forex borrowings and higher excess liquidity impacted margins. GS3 remained stable YoY and declined 36bp QoQ to 8.36% We downgrade our EPS estimates by 11% for FY21E on the back of lower loan book growth. Our channel checks indicate that the used CV and driver- cum-operator segments (which are SHTFs target segments) are doing much better than other segments in CV financing. AUM was flat QoQ and grew 5% YoY to INR1.1t.

Shriram Transport Finance Company Ltd. (SHTF) reported largely in line operating numbers, however, credit cost came in much lower leading to a significant beat on PAT.

Our stance on SHTF remains unchanged as operational performance was in line with expectations. News on the asset quality front is positive, but we watch for sustainability, considering the broader economic environment. An improvement in demand and better availability of funds could improve SHTF's growth prospects. The possibility of a 3-way merger within the group remains an overhang. Tepid AUM growth at ~5% YoY (flat QoQ) was on expected lines. Asset quality was surprisingly stable QoQ and this is contextually impressive. Consequently, lower provisions led to a 25% PAT beat. Maintain BUY (TP of Rs 1,524, 1.75x Dec-21E ABV of Rs 871).

We did highlight a quarter ago that SHTF balance sheet is on the path of mend and Q3FY20 healthy earnings set corroborates our stance. Amidst sectoral headwinds and funding challenges, SHTF put up decent 5%YoY AUM growth, remaining flat QoQ largely led by used CV loans that grew healthy 7.5%YoY/ 1.5%QoQ. The used CV mix inched up 207bps YoY to 85% supporting margins and growth alike. While funding pressures sustained for past couple of quarters, Q3 witnessed slight higher overseas borrowing costs coupled with...