MOSL: SHRIRAM TRANSPORT FINANCE (Buy)- 2Q performance strong-Reiterating growth guidance of 18-20%

SHRIRAM TRANSPORT FINANCE: 2Q performance strong; Reiterating growth guidance of 18-20%

(SHTF IN, Mkt Cap USD3.7b, CMP INR1072, TP INR1400, 31% Upside, Buy)

• Shriram Transport Finance (SHTF) reported 2QFY19 PAT at INR6.1b, 5% ahead of our estimate (22% YoY growth), helped by strong AUM growth and slight improvement in NIM.
• Disbursements were up 12% YoY to INR138b; however, used vehicle disbursement growth was moderate at 8%. AUM grew 21% YoY to INR1.05t, led by strong growth across all segments.
• The used commercial vehicle (CV) loan book grew 15% YoY while the new CV segment and other segment registered robust growth of 46% YoY. Management commented that the used CV book will not grow faster than 15% in the medium term.
• Reported margins were up 5-10bp both QoQ and YoY. C/I ratio came in ~100bp higher on a YoY basis at 22%.
• Gross Stage 3 loans declined 1% YoY to INR91b (8.7% of AUM v/s 9.1% in the previous quarter). However, credit costs for the quarter came in at INR6.8b v/s our expectation of INR5.3b. Despite the continued rise in cost of fuel, borrowers were able to make repayments due to improved truck productivity. Trucks now run an average of 320-330km/day compared to 250km/day earlier.