We recently met with Shriram Transport Finance’s (SHTF) MD and CEO, Umesh Revankar, who remarked that business remains steady post GST, with normal freight rates and cash flows for truckers translating into good collections for SHTF. Overall, management does not expect a significant hit from the GST, given the characteristics of the customer segment.
On the other hand, a series of upgrades to tighter truck emission norms could help sustain truck resale values. Overall, the company remains confident of its 12-15% growth guidance (likely the upper end) for this year and healthy growth beyond. In this context, the company is preparing to accelerate hiring to meet growth targets. While some residual margin benefit of bank rate cuts may flow through, management appears to be encouraged by improving underlying asset quality.
There was no significant update on the proposed merger with IDFC, other than that due diligence is ongoing. SHTF remains a significantly undervalued franchise, in our view, and we retain our Outperform rating.
Growth outlook to lead to hiring: Management is confident of delivering at the upper end of its guided range of 12-15% loan growth for FY18. If government spend on infra projects continues, stronger growth should be possible in future years, it feels. The company is preparing to expand the employee base by 2,000 (March 2018 employee count should be up 20% y-o-y).