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MOSL: Morning India (10/April/18): 1. Shriram Transport Finance: Riding the CV wave; 2. India Strategy : Earnings recovery imminent; 3. Fuel or Engines (Economy)

MOrning India (10/April/18): 1. Shriram Transport Finance: Riding the CV wave; 2. India Strategy : Earnings recovery imminent; 3. Fuel or Engines (Economy)

 

Today’s top research idea

Shriram Transport Finance: Riding the CV wave; Best-in-class RoE; 30%+ PAT CAGR

• Over the past few years, while CV volumes have been stagnant, there has been a marked shift in mix towards higher-tonnage vehicles. In addition, price hikes in the past two years have been healthy (18-20% on new vehicles). While the addressable market size for SHTF in terms of volumes will remain largely stable, we believe better pricing and mix will drive disbursement and AUM growth.
• AUM is likely to grow 18-19% in FY18 as compared to the management’s earlier guidance of 15% growth.
• After seven years of unchanged profits (INR12b-13b), we expect SHTF to report INR18b PAT in FY18, and subsequently, INR25b/INR31b in FY19/FY20. RoA (on AUM)/RoE should improve from the lows of 1.7%/11.7% in FY17 to 2.7%/19% in FY20. At 2.0x FY20E BV, we believe the stock is attractively priced.

Piping hot news

Coal shortage at power plants may push up spot prices in summer

• Coal shortage is still affecting the efficacy or capacity utilisation (Plant Load Factor) of independent power projects in the country, which may lead to a spike in spot prices of electricity on exchanges this summer, according to experts. "Earlier last year, the shortage of coal prices resulted in surge in spot power prices at energy exchanges to as high Rs 11 per unit and the rate may increase again with the onset of summers when demand touches its peak," power sector experts said.