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ICICI Direct
Shriram Transport (Buy)
CMP: ₹1,513
Target: ₹1,820
Shriram Transport Finance (STFC) is the pioneer and largest player in the used CV financing space and is a part of the ‘Shriram’ conglomerate that has a significant presence in varied financial services. STFC was incorporated in 1979 and started financing the much-neglected small truck-owners. Currently, it has an AUM of ₹85,463 crore, growing 13.2 per cent y-o-y (about 87 per cent is derived from used vehicles) as on Q2FY18. It has a network of 1,035 branches with 16.2 lakh customers. For FY17 & H1FY18, PAT was at ₹1,257 crore and ₹927 crore (21 per cent y-o-y), respectively.
STFC was trading at subdued valuations due to the CV sector slowdown and resultant NPA concerns. With the recent pick-up in financing and merger with IDFC group being called off, the stock has seen a positive re-rating and is currently close to 2.6x trailing BV. RoE and RoA is set to improve to 15-17 per cent and about 2.5 per cent, respectively, by FY19E. Factoring in focussed management and improving return ratios from reviving CV cycle, we value STFC at ₹1,820 a share.
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