Buy Shriram Transport Finance Company Ltd.
Price Rs501.00
Target Price Rs635
Results surpass expectations
- Operating performance improves: Shriram Transport Finance Corporation (STFC) reported PAT of Rs2.37bn, higher than our estimate of Rs2.04bn. Higher-than-expected topline growth, containment of operating costs and provisions trickled down into higher bottomline. AUMs increased by 23.6% YoY and 9.1% QoQ as the disbursal growth maintained healthy momentum (71.4% YoY and 10.3% QoQ). During the quarter, STFC acquired Rs11.05bn CV loan portfolio from GE Capital, excluding which the AUM growth stood at 18.7% YoY.
- Higher margins and disbursals boost topline: Net operating income at Rs5.73bn was up 34.9% YoY and 8.8% QoQ, higher than our estimate of Rs5.53bn. Shifting of loan mix towards used CVs and lower cost of funds resulted into 20bps QoQ improvement in the calculated net interest margins. This, coupled with higher-than-expected disbursal growth and 9.1% QoQ increase in AUMs, boosted the topline growth.
- Asset quality deteriorates, but likely to improve: GNPAs increased by 13.4% QoQ to Rs5.25bn as higher GNPAs in the acquired loan portfolio affected the overall asset quality. However, with aggressive provisioning policy, STFC’s provision coverage improved to 72.6% as compared to 64.5% in the previous quarter. With the CV industry witnessing signs of revival and freight rates stabilizing, we believe that the asset quality is likely to improve, going forward.
- Valuations: We believe that an improvement in asset quality, along with higher disbursals, will provide positive triggers for the stock. At the CMP, the stock is trading at 11x FY11E EPS, 2.7x FY11E BV and 2.8x FY11E ABV. We remain positive on STFC’s long term growth prospects. We maintain our ‘BUY’ rating on the stock with a revised price target of Rs635 (2.8x FY12E ABV).
Report card
| Attribute | Value | Date |
|---|---|---|
| PE ratio | 16.66 | 22/01/10 |
| EPS (Rs) | 30.09 | Mar, 09 |
| Sales (Rs crore) | 1,155.31 | Dec, 09 |
| Face Value (Rs) | 10 | |
| Net profit margin (%) | 16.43 | Mar, 09 |
| Last dividend (%) | 20 | 08/10/09 |
| Return on average equity | 26.96 | Mar, 09 |
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One of my friends who working in STFC says the company running towards crisis since their collection portfolio becomes too low.
To avoid they are giving personal loans to its customers through IDBI and forcing the customers for reagreement to show their portfolio good in this financial year.
Number of seized vehicles become more and they are facing the huge loss.So be cautious before investing.
Mandhar Deshmuk
Mumbai