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MOSL: Morning India (12/July/19): 1. Shriram Transport Finance (Growth decelerating); 2. Tata Motors; 3.Utilities; 4. India Life Insurance

MOrning India (12/July/19): 1. Shriram Transport Finance (Growth decelerating); 2. Tata Motors; 3.Utilities; 4. India Life Insurance

 

Today’s top research idea

Shriram Transport Finance: Growth decelerating; Higher write-offs drive lower stage 3%; Slippages remain elevated

• Our analysis of Shriram Transport Finance's (SHTF) FY19 annual report indicates that the company has diversified its borrowing mix by raising INR100b from ECBs and retail NCDs (largely equal). But, these sources have been more expensive - the total landed cost of ECBs is ~10%, while that of retail NCDs is 9-10%.
• After nearly doubling in FY18, slippages were largely stable YoY at INR66b in FY19. However, there has been a sharp increase in bad debt write-offs in FY19 - up 60% YoY to INR23.4b.
• Other key highlights: (a) SHTF has positive ALM with 38% (36%) of domestic loans + investments maturing in less than one year v/s 40% (38%) domestic liabilities (Borrowings + Deposits) in FY19 (FY18), (b) FY18 PAT upgraded by INR8.93b (+57%) on transition to Ind-AS from IGAAP, led by lower credit costs and additional revenue recognition, (c) Network expansion remains healthy with 335/2,800+ branch and employee addition.
• With tight liquidity and calibrated disbursements, we expect AUM growth to pick up only in 2HFY20. Margins should remain largely stable. Asset quality trends will have to be closely monitored, and thus, credit costs in FY20. We have cut estimates by 10%+ for FY20-22 due to lower AUM growth and pressure on margins. Maintain Buy with a TP of INR1,300 (1.4x June 2021 BVPS).

Piping hot news

July rainfall so far 24% above normal; overall deficit down to 12%

As rainfall in the first 11 days of this month was 24% more than ‘normal’, the overall season’s rain deficit came down to 12%, from 33% witnessed in June. Continuance of the current spell of showers for another week may help the farmers to complete the kharif sowing operations which was down by 27% until last week from the year-ago level. However, the sowing could still be less than last year.