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Edelweiss
Shriram
Transport Fin (Buy)
CMP: ₹1,033.70
Target: ₹1,307
Shriram Transport Finance reported strong Q1FY18 performance — PAT at ₹450 crore jumped about 20 per cent y-o-y, highest in the past six quarters. The beat as on account of robust NII traction (up about 15 per cent y-o-y) driven by margin expansion (up >50 bps q-o-q to 7.5 per cent) on funding cost benefit and lower interest reversal.
Growth showed initial signs of pick up — disbursements rose about 1.5 per cent y-o-y (had declined over past two quarters) — translating into sub-10 per cent AUM growth. However, impact of BS-IV transition and GST implementation will be key monitorables.
Asset quality remained stable with GNPAs falling to 8.0 per cent (8.2 per cent in FY17). We believe, anticipated cyclical tailwinds will enable Shriram Transport Finance sustain an operationally strong performance.
Key risks: Impact of GST implementation, 90 dpd non-performance assets transition and the recent merger announcement with IDFC (uncertainties around swap ratios, execution and regulatory approvals).
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