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Narnolia
Shriram Transport (Buy)
CMP: ₹1,315.05
Target: ₹1,649
Shriram Transport Finance has shown recovery in assests under management (AUM) since the last few quarters backed by strong CV demand in the country. Infrastructure development and recovery in rural economy has kept AUM growth stronger. IND-AS (Indian accounting standards) transition has been positive.
Shriram Transport net worth has positive impact by ₹1,000 crore. PCR is around 71 per cent and management expect it to be in the range of 55-60 per cent under IND-AS which will significantly reduce the credit cost to 2 per cent going ahead. Due to continuous rise in bond yield, cost of fund has increased, thus NIM has come under pressure. However, management expect the NIM to maintain at current level.
Group exposure to SVL has been classified as standard assets under IND-AS. We believe uncertainty over AXLE norm and SVL exposure will have impact on stock performance in the near term. Further rising bond yield gives us concern over the NIM. Hence we reduce our PAT estimate for FY20 by 5 per cent and also reduce the target price to ₹1,649 at 2.1x P/BV FY20e.
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