MOSL: SHRIRAM TRANSPORT FINANCE (Buy)-Growth surprises positively-well-prepared for Ind-AS transition

Shriram Transport Finance: Growth surprises positively; well-prepared for Ind-AS transition, if any

(shtf IN, Mkt Cap USD5.6b, CMP INR1632, TP INR1950, 19% Upside, Buy)

• For SHTF, 4QFY18 was marked by better-than-expected AUM growth, margin expansion and high provisioning expenses.
• This biggest positive surprise in the quarter was AUM growth of 21% YoY – the highest in 18 quarters. Overloading ban in some markets, coupled with a pick-up in infra activities, led to strong AUM growth.
• Growth was broad-based, with 17% YoY growth in used CV loans and 37% YoY growth in new CV loans. Management guided for 18% YoY AUM growth in FY19. The company is witnessing strong growth in rural areas, where it is opening more branches incrementally. Note that SHTF opened more branches in FY18 than it did in FY15, FY16 and FY17 combined. The company is likely to open 200 new branches (including conversion of rural centers) in FY19.
• Calculated margins improved 50bp YoY to 7.8%, driven equally by higher yields and lower CoF. Tightening of liquidity may have some impact going forward, but re-pricing of high-cost NCDs in FY19 would provide further room for a reduction in cost of funds, in our view.
• GNPL ratio increased 120bp QoQ to 9.15% due to transition to 90dpd. More importantly, the company maintained its PCR at ~70% as a conservative measure in anticipation of transition to Ind-AS.