Shriram Finance Ltd. share price target

3 February 2020 SHTF reported 38% YoY growth in PAT to INR8.8b (27% beat). 5bp/30bp QoQ/YoY to 7.14% at 5% YoY (AUM of INR1.08t), impacted by a 14% YoY drop in new CV financing. Share of other loans remained stable at ~5.4%. We upgrade our EPS estimates by 8-9% on the back of lower credit costs. Overall, we expect PAT CAGR of ~10% over FY20-22 and RoA/RoE of ~2.7%/16%. Maintain Disbursements increased 19% YoY to INR114b off the low base of 3QFY19. AUM growth was modest at 1% QoQ/5% YoY to INR1.09t. Rural AUM grew 3% QoQ/17% YoY to INR435b. Share of rural in overall AUM increased to 40% from 36% a year ago and 39% a quarter ago.

Dominant Market Position in Pre-owned CV Financing,Stabilizing Asset Quality and Network Expansion to DriveFuture Growth: yyShriram Transport Finance Company (STFC) enjoys a dominant position in thepre-owned CV

(7%QoQ/9%YoY) and steady asset quality (8.8% Stage 3 assets), SHTF impressive defying market challenges. While funding pressures sustained for past couple of quarters, they have seemingly appeared to be subsiding as margins stand stable (719bps vs 716bps QoQ) and Management confident of...

Our stance on SHTF remains unchanged after yet another in-line (albeit soft) qtr, with some silver linings (higher used CV disbursals, upbeat commentary on availability of funds). Commentary suggests that constraints imposed by availability of debt capital on SHTF's growth, seem to be lifting (gradually). We continue to like SHTF's niche presence in the used CV financing space, but are a tad weary of the possible 3-way merger within the group. SHTFs growth moderated, as expected, in 2QFY20. Stable margins and higher used CV disbursals were positives, while the bump-up in GS-III disappointed. Maintain BUY (TP of Rs 1,523, 1.75x Sept-21E ABV of Rs 870).

Shriram Transport Finance Company Ltd. (SHTF) reported largely in line numbers as compared to our estimates with a slightly higher slippage.

Shriram Transport Finance Company Ltd. (SHTF) reported largely in line numbers as compared to our estimates with stable asset quality.

An in line 1Q (with excusable seasonal trends) is a positive. Strong upcountry presence and focus on the niche used CV mkt give SHTF an edge over other asset financiers. Availability of funds and risks stemming from uncertain macros are monitorables. We reiterate that the possible 3-way merger within the group is undesirable from SHTF's point of view. Maintain BUY with TP of Rs 1,375 (1.75x June-21E ABV of Rs 786. An in line 1Q performance, across parameters (asset quality, growth and margins) impressed. MAINTAIN BUY (TP of Rs 1,375, 1.75x Jun-21E ABV of Rs 786).

As a result, AUM grew 2% QoQ/ 6% YoY to INR1.06t. Growth in M&LCV; remains healthy at 15% YoY, while it was subdued in other products. Tractor finance AUM declined 13% YoY. Portfolio mix remained largely stable QoQ with HCV comprising 46% of AUM and M&LCV;/passenger vehicles comprising 22-23% of AUM each. During the quarter, SHTF raised ~INR35b in foreign currency borrowings. As these borrowings were at a higher cost, the overall cost of funds increased ~65bp QoQ to 9.2%. However, the company managed to pass...

An unparalleled upcountry presence and niche product offering make SHTF stand out from other asset financiers. In spite of these virtues, its growth prospects are challenged on a/c of slowing CV sales, election uncertainties and a deficient monsoon forecast. The possible 3-way merger is undesirable from SHTF's point of view. We have thus downgraded our multiples (from 2x to 1.75x). Leading indicators of an uptick in CV demand and the evolving liquidity situation should be watched for. Subpar growth and NIM compression disappointed. However, a strong business model and attractive valuations warrant a BUY (TP of Rs 1,308, 1.75x FY21E ABV of Rs 747).

Shriram Transport Finance Company Ltd. (SHTF) reported 3% YoY growth in net interest income to INR 19.1bn aided by 9% YoY growth in AUM to INR 1,045bn.