Q4 PPOP was higher than expected, but higher than expected provision as Shriram Transport Finance targeted higher coverage ratio while shifting to 150dpd NPA norm led to profit miss. GNPA surprised positively as better recoveries cushioned the impact of change in norms. We tweak FY17-18E EPS by 1-2%. SHTF should gain from strong CV credit demand and lower borrowing costs. We believe asset quality issues have bottomed and credit costs, GNPA could surprise positively. Reiterate ‘buy’.
Pre provision profit grew 34% y-o-y (13% beat) led by strong AUM growth. PAT declined 55% y-o-y to Rs 1.4 billion vs. our Rs 2.6 billion est. due to higher provision. SHTF consolidated full year results of loss making subsidiary SEFCL in Q4 which also led to the profit decline.
CV AUM grew 20% y-o-y. Disbursal grew 39% y-o-y (used CV 30% y-o-y). SHTF continues to see strong CV credit demand in MHCVs led by demand from sectors like cement, infra (roads), steel. Rural credit demand has improved as good winter crop has led to shortage of used CVs in rural areas. SHTF reported NIM of 7.65% (18bps q-o-q). This was distorted due to the SEFCL merger. We est. NIM ex SEFCL declined 0-15 bps q-o-q, likely led by income reversal due to shift to 150dpd NPA recognition in Q4. We see scope for further re-rating as asset quality and returns improve cyclically. Our TP of Rs 1,152 is based on RI valuation.