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MOSL: SHRIRAM TRANSPORT FINANCE (Buy)-Asset quality surprises positively-upgrade estimates by ~8%

Shriram Transport Finance: Asset quality surprises positively; upgrade estimates by ~8%

(SHTF IN, Mkt Cap USD3.1b, CMP INR987, TP INR1385, 40% Upside, Buy)

 

• SHTF reported 38% YoY growth in PAT to INR8.8b (27% beat). While operating profit was flat YoY at INR16.3b (3% beat), a 30% YoY decline in credit costs (34% beat) led to the strong PAT performance. NIM shrank 5bp/30bp QoQ/YoY to 7.14%
• GNPL ratio improved 10bp QoQ, driven by lower net slippages (-45% YoY to INR5.3b), while PCR was stable at 32%. AUM growth remained modest at 5% YoY (AUM of INR1.08t), impacted by a 14% YoY drop in new CV financing. Used CV book growth was in line with past trends (8% YoY). Share of other loans remained stable at ~5.4%.
• We upgrade our EPS estimates by 8-9% on the back of lower credit costs. Overall, we expect PAT CAGR of ~10% over FY20-22 and RoA/RoE of ~2.7%/16%. Maintain Buy. 

AUM growth remains muted

• Disbursements increased 19% YoY to INR114b off the low base of 3QFY19. Note that disbursements have been largely range bound at INR110-130b for the past few quarters, reflecting both liability and asset-side pressure.
• AUM growth was modest at 1% QoQ/5% YoY to INR1.09t. Rural AUM grew 3% QoQ/17% YoY to INR435b. Share of rural in overall AUM increased to 40% from 36% a year ago and 39% a quarter ago.