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Kotak
Shriram Transport (Add)
CMP: ₹1,084.34
Target: ₹1,150
Core estimates stable: In light of the continuation of weakness in commercial vehicle collections, we are increasing our credit cost estimates for the next few quarters. We retain our estimates for core earnings; we reduce estimate for PBT before provisions by 0.3-0.9 per cent during FY2014-17E. However, we reduce our PAT estimates by 2-8 per cent due to higher credit costs.
Higher earnings growth in FY2016-17E: We expect STFC to deliver 16 per cent return on earnings in FY2015E (stable y-o-y), which will likely increase to 18-19 per cent over FY2016-17E. Earnings growth will be muted in FY2015 though will be higher (20-30 per cent) in the subsequent two years due to 1) decline in credit cost; 2) expansion in NIM due to NPL recoveries; and 3) loan growth of 18 per cent y-o-y compared with 11 per cent y-o-y in FY2015E.
Directionally positive, momentum is difficult to forecast: While we remain positive on recovery in the CV cycle and its benefit for CV financiers, it is challenging to forecast the timing of recovery. An improvement in the CV cycle will drive lower NPLs, higher recoveries from written-off loans, lower interest reversals and higher growth. A faster or sharper recovery can provide an upside to our estimates and vice versa.
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