Stock Pick
Shriram Transport Finance x CMP : 1290.12 x PE : 18.61
* As on 20 Feb 18
Stable Margins and Sustained Growth
Strong AUM and better assets boost truck financing business , says HIMALI PATEL
Base value taken as 100
150
100
50
Shriram Transport Finance BSE Sensex
122.52
117.08
Why Buy ? n Government ’ s allocation towards rural economy and infrastructure will help the commercial vehicle segment n Post GST and stringent BS4 norms , the company is witnessing higher disbursements
Watch Out For n Tough competition from other captive finance companies , small banks n Impact of 90 days past due in NPA transition
Financials
Net sales ( ` crore )
FY17 10,902.71
FY16
FY15
10,358.59 9,177.00
OP ( ` crore )
FY17 7,191.87
FY16
6,914.65
PAT ( ` crore )
FY17 1,265.63
FY16
FY15
EPS ( ` )
FY17
FY16
1,183.62 1,028.44
55.78 52.17
0 1 Jan 2015 20 Feb 2018
FY15
6,398.42
FY15
OP : Operating profit ; PAT : Profit after tax ; EPS : Earnings per share ; Source : Ace Equity
45.33
Shriram Transport Finance Company ( STFC ) showcased a strong performance in the third quarter of FY18 , helped by strong Assets Under Management ( AUM ) growth and better asset quality . What has tilted the balance in favour of the company is its approach towards the underpenetrated market for second hand truck financing .
The company has been able to capture this segment by becoming a leader in organised financing of pre-owned trucks with strategic presence in the five and ten-yearold segment . Established in 1979 , this non-banking finance company ( NBFC ) is the flagship company of the Shriram Group . It has a pan- India presence with a network of 1,121 branches and tieups with more than 500 private financiers .
Rural focus For Q3 FY18 , AUM grew by 18 per cent year-on-year ( Y-o-Y ) to `90,018 crore against `76,281 crore in the previous corresponding period . Net interest income ( NII ) rose by 21.5 per cent to `1,709 crore against `1,012 crore in the previous period . “ Rural continues to be a focus area with higher branch additions and improvement in AUM mix to 31 per cent vs 29 per cent in Q2 FY18 . The management sees a further mix increase ,” Prabhudas Lilladher says in its research report .
The management expects its AUM to grow to an estimated `1,100 billion by the end of FY19 . For Q3 FY18 , the gross non-performing Asset ( GNPA ) stood at 7.98 per cent and net non-performing asset ( NPA ) at 2.45 per cent Y-o-Y . “ Better asset quality with higher provision coverage ratio ( PCR ) and sustained growth momentum will keep the stock buoyant ,” points out an analyst at HDFC Securities in a report .
The company ’ s disbursement grew by 64.7 per cent Y-o-Y , aided by strong growth in new commercial vehicle ( CV ) financing and a healthy growth in the used CV segment . “ Strict implementation of the overloading ban , pickup in construction and infra activities , and better rural demand led to robust disbursement growth of approximately 65 / 8 per cent Y-o-Y / Q-o-Q ,” HDFC Securities reported .
AUM growth , stable margins and declining credit cost have led to better profits , which increased by 43.26 per cent Y-o-Y to `495.63 crore against `345.96 crore in the previous year . Brokerages such as HDFC Securities , Prabhudas Lilladher and ICICI Direct have given a ‘ buy ’ call on the stock .
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Outlook Money March 2018 www . outlookmoney . com