MOSL: SHRIRAM TRANSPORT FINANCE (Buy)-AUM growth surprises positively-Ind-AS transition raises BV by ~8%

Shriram Transport Finance: AUM growth surprises positively; Ind-AS transition raises BV by ~8%

(SHTF IN, Mkt Cap USD4.7b, CMP INR1410, TP INR1650, 17% Upside, Buy)

• Shriram Transport Finance (SHTF) reported PdAT of INR5.73b under Ind-AS (25% YoY growth), helped by strong AUM growth, largely flattish margins (7.41% v/s 7.44% a year ago) and provisioning expenses (+4% YoY).
• Key positives: (a) Strong AUM/disbursement growth of 22%/24% YoY. b) Stable GNPA (under earlier accounting) QoQ of INR76b, albeit helped by higher write-off of INR5.2b (2% of AUM annualized). c) Sharp reduction in ECL-based provisioning requirement.
• AUM grew 22% YoY to INR1t in 1QFY19, led by growth across segments (used CV was the slowest growing segment at 17% YoY). The company is rapidly scaling up its business loans portfolio, which now stands at 3% of the total loan book. Calculated margin shrank 10bp YoY to 7.7%, resulting in 20% YoY NII growth. However, opex growth came in higher than expected at 34% YoY.
• Credit costs for the quarter were up only 4% YoY to INR5.33b. This could be due to the fact that Gross Stage 3 loans increased only 2% YoY in 1QFY19, as against 22% AUM growth. Overall ECL provisions against Stage 1, 2 and 3 loans stood at INR56.6b in 1QFY19 v/s INR56.5b in 4QFY18 and INR55.4b in 1QFY18. Our calculations suggest that SHTF wrote-off INR5.2b in the quarter - a tad higher than our expectation of INR4.5b per quarter.