Downgrade Shriram Transport as GNPLs surge

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Published: May 5, 2015 12:16:19 AM

Shriram Transport Finance ’s (SHTF) Q4FY15 PAT (standalone) of R320 crore was marginally lower than our estimate.

Shriram Transport Finance ’s (SHTF) Q4FY15 PAT (standalone) of R320 crore was marginally lower than our estimate. However, the major disappointment lay in the 70% plunge in consolidated PAT to R8420 crore. This was largely owing to the surge in GNPLs in Shriram Equipment Finance (wholly-owned subsidiary) by R370 crore (15.7% versus 2.9% in Q3FY15). On standalone performance, slower than anticipated on-ground revival resulted in moderate 3.6% q-o-q growth in AUM.

With worries of below-normal monsoon looming large, SHTF has painted a cautious picture for H1FY16 and expects to track early teen growth. GNPLs also inched up to 3.79% (from 3.6% in Q3FY15), partially a Q4 phenomenon. Factoring in slower growth recovery and higher credit costs, we cut our standalone earnings by 20%/25% and consolidated earnings by 24%/23% (higher credit cost in equipment finance) for FY16/17.

Given tougher operating environment, higher credit cost and alarms in equipment finance unit, we expect RoE improvement to fall short of expectations. We see the stock is fairly valued and downgrade to hold, with target price at Rs 1,035.

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