Prabhudas Lilladher recommended accumulate rating on Shriram Transport Finance with a target price of Rs 805 in its research report dated August 14, 2020.
Prabhudas Lilladher's research report on Shriram Transport Finance
Q1FY21 earnings proved beat on most parameters, however, the moratorium dispensation is still masking the true asset quality picture. Quarter surprised positively on 2%QoQ AUM growth to Rs1117bn driven by similar growth in used CV financing. We reckon pent-up demand and better rural scenario aided used CV traction. Same translated into higher than expected NII although Co. could not escape NIM compression on account of excess liquidity on BS and notional loss on investments. With good part of book falling under moratorium, Q1FY21 NPAs declined 50bpsYoY/40bpsQoQ to 7.98%. Jul-month still recorded improved collections with 73% of customers either paying in part or full but recoveries still remain elusive. Hence, Co. holding cumulative Rs18.7bn COVID-related provisions created over Q4-Q1. With recent Rs15bn rights issue, Rs77bn on-BS liquidity, undrawn bank lines of Rs20bn and Rs19.5bn GoI funds, Co. expects liquidity pressures to ease aiding NIM reversals to pre-COVID levels.
Outlook
We maintain our reservations on growth (somber demand as lockdowns get extended restricting intra state activity, lower utilization levels) and asset quality (moratorium overhang) with imminent NIM pressures. Our FY21-FY22 growth target at 5%/10%YoY remains almost unchanged; we expect healthy 16%YoY growth for FY23 led by used CV financing. NPAs at 8-9% remain unchanged, however, we tweak credit costs estimates slightly higher to 300bps (earlier 260-270bps) for FY21. Consequently, our EPS estimates stand higher by 8% for FY21 but lower 4-9% over FY22-23E. With return profile yet to see a strong momentum, we reiterate Accumulate rating on the stock and rollover PBV multiple to Sep’22E to 1x arriving at price target of Rs805 (earlier Rs793.)
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