Shriram Transport Finance

Transcription

1 Results Update SECTOR: BANKING STOCK INFO. BSE Sensex: 18,113 S&P CNX: 5,442 BLOOMBERG SHTF IN REUTERS CODE SRTR.BO Equity Shares (m) Week Range 651/291 1,6,12 Rel.Perf.(%) -1/12/71 M.Cap. (Rs b) M.Cap. (US$ b) July 2010 Previous Recommendation: Buy Buy Rs596 Shriram Transport PAT grew 76% YoY to Rs2.9b driven by ~50% growth in net income (including income from securitization). AUM grew 25% YoY to Rs302b, disbursements were up 21.9% YoY at Rs39.7b. Asset quality was stable and the management is cautiously increasing its coverage ratio. Key highlights are: SHTF s cash and bank balance of Rs45.3b at the end of March 2010 fell to Rs40b at the end of. Disbursements in increased 22% YoY taking AUM to Rs302b (up 25% YoY). SHTF didn t undertake securitization of assets in as it was carrying excess liquidity. Net income (including income from securitization) was up 49.5% YoY. NIMs on AUM improved to 8.2% v/s 6.6% in and 7.8% in 4QFY10. SHTF s construction equipment financing business is likely to start operations by September 2010, and its fee-based initiatives are yielding results. Gross NPA were sequentially stable and management is using its strong profitability to build provisioning coverage ratio (83% in v/s 76% in 4QFY10). Earning visibility strong; maintain Buy: We expect SHTF to post EPS of Rs58.5 in FY11 and Rs70.3 in FY12. BV will be Rs218 in FY11 and Rs275.5 in FY12. The stock trades at 2.2x FY12E BV and 8.5x FY12E EPS. RoE is expected to be strong at ~30 over FY Maintain Buy with a target price of Rs690 (2.5x FY12E BV). Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com) / Abhishek Agarwal (Abhishek.Agarwal@motilaloswal.com)

2 AUM up 25% YoY, on-balance sheet AUM increase 5% YoY Overall AUM grew 25% YoY (up 3.8% QoQ) to Rs302b. Used truck AUM grew 25% YoY (5.7% QoQ) to Rs234b. The share of new vehicles in overall AUM was stable at 22.6% YoY but declined from 24% in 4QFY10. AUM on books grew 13% YoY to Rs203b and AUM off books increased 101% YoY to Rs99b due to higher securitization in 4QFY10. Overall disbursements grew 22% YoY to Rs39.7b, of which disbursements in the used CV segment were up 26% YoY. SHTF did not securitize assets in and its securitization in future will depend on guidelines by the RBI on securitization of assets. SHTF aims at disbursement and AUM growth of 25% in FY11. Margins improve sequentially, excess liquidity partially used Gross spreads on average assets improved 115bp QoQ to 10.8%, led by a 112bp increase in total income/average assets to 18.8%. But the net spread increase was lower at 37bp to 6.4% due to higher provisioning and an increase in operating costs (due to higher salary expenses). Net income (including securitization income) grew 49.5% YoY to Rs7b (8.5% QoQ). Reported NIMs on AUM increased 163bp YoY and 43bp QoQ to 8.25%. In line with its guidance, the management has partially used the excess cash to fund asset growth. Reported cash balance was down Rs5b sequentially at Rs40b. The management aims to achieve normalized cash levels of Rs25b-30b, going forward. Borrowing mix largely on a fixed-rate basis borrowings were down 3.2% YoY but up 5.8% QoQ. SHTF aims to reduce its excess cash and hence borrowings were lower. Currently 75-76% of SHTF borrowings are on a fixed-rate basis and by the end of FY11, 80% of the borrowings are expected to be on a fixed-rate basis. Fee income picking up, C/I ratio increases sequentially The company reported fee and other income of Rs360m in, of which Rs200m was income from investment in liquid assets. fee-based income was Rs60m and the management aims at fee income of Rs500m-600m in FY11 v/s Rs300m in FY10. Operating expenses grew 20% YoY and 16% QoQ due to a 41% QoQ increase in staff expenses, largely payment of incentives in. The cost-to-income ratio increased to 23.7% from 22.7% in 4QFY10. Asset quality improves sequentially GNPA was sequentially stable at Rs5.1b in absolute terms and NNPA fell by 42% QoQ to Rs881m. SHTF used its strong profits to build provision coverage ratio, which improved to 83% in from 76% in 4QFY10. Gross NPA ratio fell 33bp QoQ to 2.5% and net NPA ratio declined from 0.7% to 0.4%. 22 July

3 Valuation and view Strong asset valuation capabilities, a loyal customer base and improved economic activities will lead to strong AUM growth. SHTF has also ventured into construction equipment finance, increased thrust on securitization and started fee income initiatives, like truck bazaars and auto malls, which we believe will augur well for business growth and profitability. We expect AUM CAGR of ~24% over FY Excess liquidity on the balance sheet can be used to fund assets; thus, spreads are expected to improve in FY11. we expect SHTF to post EPS of Rs58.5 in FY11 and Rs70.3 in FY12. BV will be Rs218 in FY11 and Rs275.5 in FY12. The stock trades at 2.2x FY12E BV and 8.5x FY12E EPS. RoE is expected to be strong at ~30% over FY Maintain Buy with a target price of Rs690 (2.5x FY12E BV). 22 July

4 MARGINS ON AUM UP 43BP QOQ (%) Reduction in liquid assets, higher proportion of old CV financing keep margins firm 4QFY09 2QFY10 3QFY10 4QFY10 LIQUID ASSETS AS A PERCENTAGE OF TOTAL ASSETS Cash and bank balance has reduced from Rs45b in FY10 to Rs40b in QFY09 1HFY09 9MFY09 FY09 1HFY10 9MFY10 FY10 SHARE OF USED AND NEW VEHICLE AUM (%) Used New To protect margins and profitability, the management is cautious about growing new vehicle AUM QFY09 1HFY09 9MFY09 FY09 1HFY10 9MFY10 FY10 Source: Company/MOSL 22 July

5 STRONG DISBURSALS (RS B) Disbursals for used CV were up 26% YoY and Used New new CV were up 3% YoY QFY09 2QFY09 3QFY09 4QFY09 2QFY10 3QFY10 4QFY10 PROPORTION OF ON-BOOK AND OFF-BOOK AUM (%) On Books Off Books SHTF did not securitize in because it had excess liquidity QFY09 1HFY09 9MFY09 FY09 9MFY10 FY10 QUARTERLY TREND IN ASSETS SECURITIZED (RS B) 54.9 In future, securitization will depend on the RBI s guidelines on securitization of assets QFY09 2QFY10 3QFY10 4QFY10 Source: Company/MOSL 22 July

6 : an investment profile Company description Co Ltd (SHTF), incorporated in 1979, is India s largest asset financing NBFC with total assets under management (AUM) of Rs302b. A flagship company of the Chennai-based Shriram Group, SHTF provides commercial vehicle (CV) finance to more than 700,000 customers through 484 branches in India. Key investment arguments SHTF s loan book growth will remain strong, aided by its entry into equipment finance, innovative partnering with local financiers, and freight-bill-discounting initiatives. To augment its fee income SHTF has started organizing truck bazaars, bringing together customers and sellers of pre-owned trucks. In FY11, it will also set up 6-7 auto malls, where repossessed vehicles can be refurbished and sold in auctions. Improving macro-economic conditions will help it to sustain its asset quality. Key investment risks Increase in fuel prices without an accompanying increase in freight costs could reduce profitability for truck operators, thereby increasing the stress on asset quality. A slowdown in economic growth could impact SHTF s business. Recent developments In SHTF has raised Rs5b through the issue of redeemable non-convertible debentures. Valuation and view We expect AUM to post 24% CAGR over FY Excess liquidity on the balance sheet can be used to fund assets; thus, spreads are expected to improve in FY11. Overall, we expect SHTF to post EPS of Rs58.5 in FY11 and Rs70.3 in FY12. BV will be Rs218 in FY11 and Rs275.5 in FY12. RoE is expected to be strong at ~30% over FY Maintain Buy with a target price of Rs690 (2.5x FY12 BV). Sector view In FY10, the CV industry rebounded with new vehicle sales rising 34.6% YoY (in volume terms) against a 22% drop in FY09. In line with heightened manufacturing activity, buoyant consumption, evolving distribution and service networks, easy availability of finance and road development programs the growth in new CV sales is expected to remain strong in FY11. COMPARATIVE VALUATIONS SHTF M&M FIN P/E (x) FY11E FY12E P/BV (x) FY11E FY12E ROE (%) FY11E FY12E ROA (%) FY11E FY12E EPS: MOST FORECAST V/S CONSENSUS (RS) MOST CONSENSUS VARIATION FORECAST FORECAST (%) FY FY TARGET PRICE AND RECOMMENDATION CURRENT TARGET UPSIDE RECO. PRICE (RS) PRICE (RS) (%) Buy STOCK PERFORMANCE (1 YEAR) SHAREHOLDING PATTERN (%) JUN-10 MAR-10 JUN-09 Promoter Domestic Inst Foreign Others Shriram Transport Fin. (Rs) - LHS Rel. to Sensex (%) - RHS Jul-09 Oct-09 Jan-10 Apr-10 Jul July

7 Financials and Valuations 22 July

8 Financials and Valuations 22 July

9 NOTES 22 July

10 For more copies or other information, contact Institutional: Navin Agarwal. Retail: Manish Shah Phone: (91-22) Fax: (91-22) Motilal Oswal Securities Ltd, 3rd Floor, Hoechst House, Nariman Point, Mumbai This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form. The report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon such. MOSt or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. MOSt or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations. MOSt and/or its affiliates and/or employees may have interests/ positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report. Disclosure of Interest Statement 1. Analyst ownership of the stock No 2. Group/Directors ownership of the stock No 3. Broking relationship with company covered No 4. Investment Banking relationship with company covered No This information is subject to change without any prior notice. MOSt reserves the right to make modifications and alternations to this statement as may be required from time to time. Nevertheless, MOSt is committed to providing independent and transparent recommendations to its clients, and would be happy to provide information in response to specific client queries. 22 July