Shriram Transport Finance Company (Q3 FY13)

India Infoline News Service | Mumbai |

Recommend BUY with 9-month price target of Rs870.

CMP Rs770, Target Rs870, Upside 13.0% 
  • Sequential acceleration in AUM growth continued for STFC aided by robust disbursements. Disbursements for the quarter stood at Rs70bn implying an impressive growth of 42% yoy. Disbursements of used CV loans have been particularly strong in the past three quarters increasing its share to 82-84%. Yoy AUM growth stood at five-quarter high of 18.6%. However, management continue to cautiously guide a 15% AUM growth in the current and next fiscal. 
  • The revival in disbursements is largely attributable to company’s rural penetration drive and improving traction from Automalls. Around 300 rural centres have added ~50,000 new customers till now. In Q3 FY13, company converted 15 centres into branches as they achieved break-even business scale. 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 Q3 FY13, securitization stood at Rs30bn. STFC expects to securitize similar quantum in the current quarter with robust demand from MNC banks for achieving their priority sector lending targets. Company intends to maintain 33% of loans outside the balance sheet.
  • NIM corrected sequentially by 20bps imitating the contraction in spreads. This was slightly surprising in the context of shift in AUM mix towards used CV loans over the past two quarters. Management however explained that within used CV financing piece, company has been off-late focusing on gaining share in 2-7 year old CV financing market where lending yields are ~200bps lower than much older CV financing due to higher competition and larger ticket size. STFC expects to sustain NIM above 7.5% in the medium term.
  • Cost/income ratio for the quarter stood at 22.5% with 20% qoq jump in overheads. This could be attributed company’s rural penetration drive and Automall initiatives. In the longer term, we expect cost/income ratio to trend below 21% aided by strong revenue growth. 
  • Asset quality was steady with the pace of sequential increase in Gross NPLs moderating to 6%. Therefore, as a ratio Gross NPLs were stable at 2.9%. Provisioning remained at ~2% of average AUM as indicated by the company previously. PCR was maintained at 80%. Given secured nature of business, ease in repossession/liquidation of asset, resilient customer segment and default‐linked incentive structure for field officers, STFC has traditionally seen moderate delinquencies across CV/rate cycles. 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
  • With regulatory hangover and worst of the credit cycle behind, we expect STFC’s valuation to re-rate gradually from current 1.9x FY15 P/adj.BV as revenue growth improves. Recommend BUY with 9-month price target of Rs870.
Result table
(Rs mn) Q3 FY13 Q2 FY13 % qoq Q3 FY12 % yoy
Total Interest Income 16,735 15,937 5.0 14,345 16.7
Interest expended (7,418) (6,902) 7.5 (6,350) 16.8
Net Interest Income 9,317 9,035 3.1 7,995 16.5
Other income 47 50 (6.6) 438 (89.4)
Total Income 9,364 9,085 3.1 8,434 11.0
Operating expenses (2,104) (1,952) 7.8 (1,969) 6.9
Provisions (2,138) (2,119) 0.9 (1,920) 11.3
PBT 5,122 5,013 2.2 4,545 12.7
Tax (1,662) (1,638) 1.5 (1,518) 9.5
Reported PAT 3,460 3,376 2.5 3,027 14.3
EPS 61.0 59.6 2.3 53.5 14.0
 
(Rs bn) Q3 FY13 Q2 FY13 % qoq Q3 FY12 % yoy
AUM 465.4 440.9 5.6 392.6 18.6
Pre-owned CVs 367.8 346.3 6.2 301.7 21.9
New CVs 95.3 94.1 1.3 89.7 6.3
Disbursement 70.0 61.7 13.4 49.3 42.0
Pre-owned CVs 58.8 50.5 16.5 41.7 41.0
New CVs 11.2 11.2 (0.5) 7.6 47.5

Key  Ratios Q3 FY13 Q2 FY13 chg qoq Q3 FY12 chg yoy
NIM (%) 7.5 7.7 (0.2) 7.4 0.1
Gross Spread (%) 9.8 10.4 (0.7) 10.0 (0.3)
Net Spread (%) 5.3 5.7 (0.4) 5.4 (0.1)
Cost to Income (%) 22.5 21.5 1.0 23.3 (0.9)
Provisions/Income (%) 22.8 23.3 (0.5) 22.8 0.1
BV (Rs) 304.5 291.9 12.6 254.0 50.5
RoE (%) 20.4 20.8 (0.5) 21.4 (1.0)
RoA (%) 3.6 3.9 (0.3) 3.6 (0.0)
CAR (%) 19.2 20.5 (1.3) 24.9 (5.8)
Gross NPA (%) 2.9 2.9 - 2.8 0.1
Net NPA (%) 0.6 0.6 0.0 0.4 0.2
Provision Coverage Ratio (%) 78.9 79.0 (0.1) 86.1 (7.3)
Source: Company, India Infoline Research

Financial Summary
Y/e 31 Mar (Rs m) FY12 FY13E FY14E FY15E
Total operating income 34,343 37,819 44,659 53,590
yoy growth (%) 8.7 10.1 18.1 20.0
Operating profit (pre-provisions) 26,508 29,358 35,183 42,786
Net profit 12,591 13,796 16,228 17,394
yoy growth (%) 2.2 9.6 17.6 7.2

***Note: This is a NSE Chart

 

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