CMP Rs770, Target Rs870, Upside 13.0%
Source: Company, India Infoline Research
- 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.
|(Rs mn)||Q3 FY13||Q2 FY13||% qoq||Q3 FY12||% yoy|
|Total Interest Income||16,735||15,937||5.0||14,345||16.7|
|Net Interest Income||9,317||9,035||3.1||7,995||16.5|
|(Rs bn)||Q3 FY13||Q2 FY13||% qoq||Q3 FY12||% yoy|
|Key Ratios||Q3 FY13||Q2 FY13||chg qoq||Q3 FY12||chg yoy|
|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)|
|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)|
|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|
|yoy growth (%)||2.2||9.6||17.6||7.2|
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