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MOSL: SHRIRAM TRANSPORT FINANCE (Buy)-AUM growth modest-Margins and asset quality in line

SHRIRAM TRANSPORT FINANCE: AUM growth modest; Margins and asset quality in line

(SHTF IN, Mkt Cap USD3.2b, CMP INR986, TP INR1300, 32% Upside, Buy)

 

• 1QFY20 PAT of INR6.3b was in line with our estimates. Disbursements declined ~9% YoY to INR122b driven by ~65% decline YoY in new vehicle disbursements. After two quarters of decline, used vehicle disbursements grew 3% YoY to INR113b.
• As a result, AUM grew 2% QoQ/ 6% YoY to INR1.06t. Growth in M&LCV remains healthy at 15% YoY, while it was subdued in other products. Tractor finance AUM declined 13% YoY.
• Portfolio mix remained largely stable QoQ with HCV comprising 46% of AUM and M&LCV/passenger vehicles comprising 22-23% of AUM each.
• During the quarter, SHTF raised ~INR35b in foreign currency borrowings. As these borrowings were at a higher cost, the overall cost of funds increased ~65bp QoQ to 9.2%. However, the company managed to pass this on to borrowers, resulting in calc. NIM remaining largely stable at 8%.
• Asset quality was largely stable with GNPL ratio of 8.5%. However, PCR declined 250bp QoQ to 32%.
• Valuation and view: The recent liquidity crisis has hit NBFCs hard and SHTF is no exception. Although the company diversified into newer sources like retail NCDs and ECBs, it has had to calibrate disbursements. As liquidity still remains tight, AUM growth is likely to pick up only in 2HFY20, in our view. Margins should be largely stable, while credit costs should settle at 2-2.2%. We keep our PAT estimates for FY20/FY21 largely unchanged. Maintain Buy with a TP of INR1,300 (1.4x FY21E BVPS).