Shriram Transport Finance's Q1FY19 results (Neutral) - A strong quarter

Q1FY19 result highlights

• STFC’s PAT of Rs5.8bn was 6% higher than our estimate and grew strongly at 24% yoy and 295% qoq (on a low base).  Disbursement and AUM growth remain strong. Disbursements grew 24% yoy but declined 11% qoq due to seasonality. AUMs grew 22% yoy and 6% qoq. The company has disclosed working capital and business loans separately. The two segments combined total to Rs49bn/4.8% of AUMs and have grown 101% yoy. AUMs for new vehicles grew strongly at 48% yoy while used AUMs grew 18% yoy. Rural AUMs grew 23% yoy while urban AUMS grew 21%.
• NIM remained stable yoy and qoq at 7.44%. Driven by strong AUM growth and stable NIMs, NII grew 20% yoy and 2% qoq
• The company migrated to IndAS in 1Q19 and has restated 1Q18 earnings. However 4Q earnings are still under IndGAAP so qoq nos are strictly not comparable.
• PAT under IndAS is higher by 6% in 1Q19 and 2.5% in 1Q18 compared to IGAAP. The provisions under ECL are Rs499M lower than those required under Ind GAAP in 1Q19. Mgmt indicated that going ahead the quarterly difference between Ind GAAP and IndAS provisions would be around Rs250-300M.
• There has been a huge increase in net worth due to the transition to Ind AS. Net worth has increased by 9.1bn or 7%.
• NPLs under IndAS are 22% higher than Indian GAAP because they include NPLs of securitized loans as well. NPLs on securitized book are Rs11.2bn. Overall NPLs have increased by a low 1% qoq driven by better borrower cash flows.  STFC has considered 4 years data for LGD

Valuation and view

We revise our earnings by 2%/11% in FY19/20E based on lower credit cost guidance under IndAS. Further opening net worth for 1Q19 has already increased by 7% under Ind AS due to lower provisioning which will increase BV. Based on higher BV we upgrade our target price to Rs1393 (our target PBV is unchanged at 1.8x). We maintain Neutral despite strong growth due to frequent corporate governance issues.