Shriram Finance Ltd. share price target

Shriram Transport Finance Company (STFC) has consistently been showing improvement on major operating front led by higher disbursement and higher operating profit. Its disbursement grew by 64.7% YoY and 8.1% QoQ to Rs133.8bn owing to strong growth in new CV financing and healthy growth in used CV segment. Consequently, AUM improved by 18% YoY and 5.3% QoQ to Rs900bn. Reported NIM on AUM remained almost stable at 7.5% QoQ (+31bps YoY) led by decline in cost of fund. As a result, STFC's operating profit grew by 18.3% YoY and 2.5% QoQ to Rs13.5bn. Further, asset quality remained stable at 120 days recognition, as gross and net NPA ratio stood at 7.98% and 2.45% in 3QFY18 vs. 8.06% and 2.5%, respectively in 2QFY18....

Maintain BUY with a TP of Rs 1,669 (2.75x Dec-19E ABV of Rs 607) SHTF continued to exhibit its dominance in the used CV space with yet another solid show. Disbursements hit an all-time high (+65/8% YoY/QoQ) driven by higher demand for new CVs. Lower provisioning (down 4% YoY) and better asset quality performance (GNPA down 8bps QoQ) led to a net earnings growth of 43% YoY. Sticky NIMs, (7.5%) despite the fall in yields was a positive surprise

SHTF had a good 3QFY18. The quarter was marked by strong AUM growth, margin expansion and stable asset quality. This biggest positive surprise in the quarter was AUM growth of 18% YoY -the highest in over 15 quarters. This was driven by 17% YoY growth in used CV loans and 26% YoY growth in new CV loans. Going product-wise, growth was largely driven by the M&HCV segment (20%+), while growth in passenger cars & tractors was modest. Disbursement growth of 65% YoY was very strong, despite the low base. Yield on AUM compressed 25bp YoY to 13.97%. This is explained partly by coreyield compression and partly due to higher share of off-BS assets. On the other hand, CoF was largely stable QoQ and down 50bp YoY ??? this drove 35bp YoY NIM expansion in the quarter.

CV sales augmented AUM growth (q-o-q) to 4.7% (Rs 85462.57 crs / $13076.5 m in Q2FY18 from Rs 81611.95 crs / $12606.5m). Share of new vehicle financing increased a tad bit to 10.1% last quarter from 9.9% in Q1FY18, while its core business used vehicle financing declined marginally by 47 bps to 86.6% of its total AUM to Rs 74013.90...

Also, we reiterate our stance that SHTF will be a big beneficiary of CoF reduction due to a large share of high-cost legacy borrowings. Thus, contrary to investor fears of a margin contraction due to rapid migration toward lower-vintage vehicle financing,...

SHTFs Q2 PAT of Rs 4.8 bn (up 24% YoY) was marginally ahead of our estimate, backed by lower than expected provisions. Asset quality was stable with 120-dpd GNPAs at 8.1%. Management continues to guide for GNPAs of 9.5% on transitioning to 90-dpd by Q4.

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...