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Emkay Global
Shriram Transport Fin (Buy)
Target: ₹1,630
CMP: ₹1444
Shriram Transport Finance has raised fresh capital of ₹2,500 crore in Q1-FY22, in line with approval from the board. Of this, SHTF made a preferential allotment to Shriram Capital worth ₹500 crore. For the balance ₹2,000 crore, the company opted for the QIP route . SHTF already holds decent capital adequacy at about 22.5 per cent as on March-2021 with tier-1 ratio at about 19.9 per cent. We believe the current issuance will strengthen SHTF's Tier-I capital adequacy by about 160-180 bps.
Our recent discussion with management suggests the key aim of the capital raising was to provide enough confidence to its lenders and rating agencies which will keep the cost of funds and necessary liquidity under check. The company has already witnessed market share gains in FY21, and any improvement in adequacy will be further utilised to boost growth. The second Covid wave is expected to disrupt CV demand while also leading to a surge in defaults.
Our preference for SHTF in these uncertain times is underpinned by its unique customer base with a moat, along with strong underlying demand for used vehicles during the current slowdown. We are now incorporating the latest issuance into our estimates but are building in some stress on asset quality for FY22/23 due to recent lockdowns and consistent worries about another Covid wave.
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