Broker's call: Shriram Transport Finance

| Updated on July 09, 2018 Published on July 09, 2018


Shriram Transport Finance (Long)

CMP: ₹1,140

Target: ₹1,440

In our May 2018 reinitiating coverage note on Shriram Transport Finance (SHTF), we had indicated that 1) we expect per cent16 per cent 3-year AUM CAGR of SHTF as the estimated financing opportunity for 5-10 year pre-owned vehicles is ₹2.5 lakh crore, ii) With NPA recognition at 90+ DPD, pace of fresh NPA creation will moderate leading to improvement in FY19E credit cost; and 3) margins can come under pressure if SHTF targets lower vintage vehicles. So we believed upside was limited at our initiation price of ₹1,497. However, post the recent correction (24 per cent in 1.5 months) and even after factoring for the potential adverse impact of SHTF most likely honouring the NCD payments of SVL Ltd (₹650 crore of four-year Zero Coupon NCDs guaranteed by SHTF), we believe SHTF is attractively priced. Consequently we upgrade our rating to ‘long’ (from ‘add’) with a revised March 2019 target price of ₹1,440 (₹1,550 earlier) based on 2.3x FY20E ABV (vs 2.5x earlier).

Published on July 09, 2018
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