Maintain ‘buy’ on Shriram Transport, target Rs 1,152

By: | Updated: April 26, 2016 6:28 AM

We remain positive on outlook for CV market in FY17. This should drive 15.6% AUM CAGR over FY16-18E. Funding costs should fall further due to recent interest rate cuts.

We remain positive on outlook for CV market in FY17. This should drive 15.6% AUM CAGR over FY16-18E. Funding costs should fall further due to recent interest rate cuts. This should offset any moderation of yields due to loan mix changes. Shift to 150dpd NPA recognition may lift GNPA by 85bps q-o-q in 4Q, but new NPA formation should slow. We lift FY16-18E EPS by 5-15% and our PT to R1,152, factoring higher AUM growth and lower credit costs. Maintain ‘buy’.

Strength in MHCV sales has sustained (30% y-o-y FY16) and LCV sales appears to be bottoming out (16% y-o-y March 2016). We believe improvement in economic activity, replacement cycle will support strong demand for CV loans in FY17.

Potential rural recovery due to normal monsoon could also lift truck operators utilisation and also boost demand for CV loans. We raise FY16-18E AUM estimates for SHTF by 1-2%. We forecast group AUM to grow 15.3% y-o-y in FY17E.

Shriram Transport’s (SHTF’s) funding costs were down 36bps in 3Q FY16 vs 4Q FY15 avg. Recent 25bps cut in interest rates should reduce funding costs further in FY17.

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