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Shriram Transport Finance Co (Q4 FY13)

India Infoline Research Team / 11:25 , May 08, 2013

CMP Rs742, Target price Rs839, Upside 13.1%

  • Sequential acceleration in AUM growth continued for STFC aided by robust disbursements in its mainstay used CV segment. AUM growth at 6.7% qoq/23.5% yoy was above street and our expectations. While the used CV AUM grew by strong 28% yoy, new CV AUM growth was muted at 5% yoy tracking the weakness in CV sales. Total disbursements for the quarter stood at Rs77bn implying an impressive growth of 55% yoy. Disbursements of used CV loans remained strong at Rs66bn (up 66% yoy) while that of new CV loans continue to be modest at Rs11bn (up 10% yoy). The share of used CV disbursements in the overall disbursements increased to multi-quarter high of 86%. STFC has been focussing on the younger used CV (2-5 year old) financing segment which has seen strong demand due to its multiple applications, better technology, lower maintenance and higher fuel efficiency. Management has cautiously guided for 12-15% AUM growth in the current fiscal. 
  • The revival in disbursements is largely attributable to company’s rural penetration drive, improving traction from Automalls and enhanced focus on younger CV financing. STFC plans to go deeper in the rural areas by adding more centres. Automalls are increasingly becoming popular with buyers and sellers of pre‐owned CVs due to transparency and efficiency in transacting. During Q4 FY13, securitization stood at Rs36bn. Company intends to maintain 34-36% of AUM outside the balance sheet.
  • NIM corrected sequentially by 30bps qoq to 7.2% as gross spreads came-off by 65bps qoq to 9.1%. Though this looks ironical in the context of shift in AUM mix towards used CV loans, company’s intense focus on the younger used CV financing partially explains this. In this segment, the ticket size is much larger and lending rates are ~200bps lower than older CV financing. STFC expects NIM to sustain near current levels in the medium term. Cost/income ratio for the quarter stood at 22%, lower than 22.5% in the previous quarter. The improvement could be attributed to improving maturity/productivity of the rural centres opened in the past 12-15 months. 
  • Asset quality deteriorated with Gross NPLs rising 13% qoq and the ratio increasing to 3.2%. Credit Cost was marginally lower than the previous quarter at annualized 1.8% and therefore provisioning cover declined to 76% and the Net NPA level inched-up to 0.8%. Based on RBI’s draft guidelines on NPA recognition and standard asset provisioning, STFC’s GNPL ratio and credit cost could materially increase in the coming three years. This would however be a one‐time adjustment to comply with more stringent norms.
  • We cut earnings estimates for FY14/15 factoring slower AUM growth and lower margins. We believe STFC is well equipped to deal with near-term challenges around growth and asset quality. Retain BUY with a 9-month price target of Rs839.
Result table
(Rs mn) Q4 FY13 Q3 FY13 % qoq Q4 FY12 % yoy
Total Interest Income 17,752 16,771 5.9 14,836 19.7
Interest expended (8,175) (7,418) 10.2 (6,209) 31.7
Net Interest Income 9,577 9,353 2.4 8,627 11.0
Other income 18 11 66.4 18 (2.7)
Total Income 9,594 9,364 2.5 8,645 11.0
Operating expenses (2,115) (2,104) 0.6 (2,105) 0.5
Provisions (2,214) (2,138) 3.5 (1,930) 14.7
PBT 5,266 5,122 2.8 4,611 14.2
Tax (1,713) (1,662) 3.1 (1,530) 12.0
Reported PAT 3,552 3,460 2.7 3,081 15.3
EPS 62.6 61.0 2.7 54.4 15.0
 
(Rs bn) Q4 FY13 Q3 FY13 % qoq Q4 FY12 % yoy
AUM 496.8 465.4 6.7 402.1 23.5
Pre-owned CVs 398.3 367.8 8.3 310.4 28.3
New CVs 95.3 95.3 (0.1) 90.9 4.9
Disbursement 77.0 70.0 10.1 49.8 54.6
Pre-owned CVs 66.0 58.8 12.2 39.8 65.7
New CVs 11.0 11.2 (1.4) 10.0 10.4

Key  Ratios Q4 FY13 Q3 FY13 chg qoq Q4 FY12 chg yoy
NIM (%) 7.2 7.5 (0.3) 7.2 (0.0)
Gross Spread (%) 9.1 9.8 (0.6) 9.8 (0.7)
Net Spread (%) 5.0 5.3 (0.4) 5.3 (0.3)
Cost to Income (%) 22.0 22.5 (0.4) 24.3 (2.3)
Provisions/Income (%) 23.1 22.8 0.2 22.3 0.7
BV (Rs) 315.6 304.5 11.1 263.1 52.5
RoE (%) 20.1 20.4 (0.3) 20.9 (0.8)
RoA (%) 3.3 3.6 (0.2) 3.5 (0.2)
CAR (%) 20.6 19.2 1.4 24.3 (3.7)
Gross NPA (%) 3.2 2.9 0.3 3.1 0.1
Net NPA (%) 0.8 0.6 0.1 0.4 0.3
Provision Coverage Ratio (%) 76.4 78.9 (2.4) 85.9 (9.5)
Source: Company, India Infoline Research

Financial Summary
Y/e 31 Mar (Rs m) FY12 FY13 FY14E FY15E
Total operating income 34,343 36,948 43,305 50,396
yoy growth (%) 8.7 7.6 17.2 16.4
Operating profit (pre-provisions) 26,508 28,686 34,010 39,800
Net profit 12,591 13,622 15,308 16,023
yoy growth (%) 2.2 8.2 12.4 4.7





EPS (Rs) 55.6 60.0 67.5 70.6
Adj. BVPS (Rs) 260.4 306.5 359.8 390.2
P/E (x) 13.3 12.4 11.0 10.5
P/BV (x) 2.8 2.4 2.1 1.9
ROE (%) 23.1 20.7 19.5 17.4
ROA (%) 2.8 2.6 2.6 2.3
Dividend yield (%) 0.9 1.0 1.1 1.2
Source: Company, India Infoline Research