Broker's call: Shriram Transport Finance (Buy)

| Updated on May 09, 2019 Published on May 10, 2019

Prabhudas Lilladher

Shriram Transport Finance (Buy)

CMP: ₹1,030.85

Target: ₹1,481

Revenue growth weakens as market challenges in the nature of funding pressures, need for excess liquidity on balance sheet and continued lower disbursals proved as a dampener in Q4FY19. Profit after tax at ₹750 crore grew 18 per cent q-o-q ahead of estimates on the back of one-offs — i) subsidiary (Shriram Automall) stake-sale gains at ₹107.5 crore; ii) tax adjustments of ₹109.8 crore; and iii) 15 per cent q-o-q decline in provisions driven by lower incremental ECL provisions.

While Management stands confident of the used commercial vehicle financing demand catching up on the back of BSVI shift and rural penetration aiding growth, we continue to incorporate CV downcycle headwinds and foresee AUM growing at 15 per cent y-o-y for FY20, 16 per cent for FY21E, margin compression (7.6 per cent in FY20, 7.4 per cent in FY21) denting RoAs to 2.4 per cent, RoEs to 16 per cent by FY21E. PE exits and group level should remain an overhang on the stock.

As trough valuations adequately price-in current apprehensions, we reiterate ‘buy’; however, as we foresee multiple shrinking, we fine-tune our price target to ₹1,481 (earlier ₹1,568) valuing SHTF at 1.8x Mar-21 ABV (earlier 2.0x).

Published on May 10, 2019
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