We remain positive on the outlook for CV credit demand. Potential normal monsoon could boost demand further.
We remain positive on the outlook for CV credit demand. Potential normal monsoon could boost demand further. Asset quality issues have bottomed out and could improve in 2H. We believe credit costs could surprise positively led by potential provision write back in the equipment segment. This could drive 38% EPS CAGR and 90 bps ROA expansion over FY16-18E. We factor lower credit costs and lift our FY16-17E EPS by 7-9% and PT to `1,350.
New MHCV sales grew +21% and LCV sales (higher yield) grew 11% YTD FY17 (-11% y-o-y FY16). Activity indicators remain positive. We believe improving macro and replacement cycle should support strong CV credit demand. If monsoon is normal, truck operators utilisation may improve further (better rural demand, goods transport). This could further lift credit demand. Rainfall up to June 15 is 25% below normal, but it is still early to worry as first two weeks in June account for only 6-7% of avg monsoon rainfall. We forecast AUM to grow at 15.4% CAGR over FY16-18E.
GNPA (6.3%) surprised positively in Q4. We believe asset quality should be steady in 1H and could potentially improve in 2H. Collection in stressed equipment segment has also improved. Shift to 120dpd NPA recognition (150dpd at present) in Q4FY17 could lift GNPA by 1-1.5%, but as seen in Q4, the impact could potentially be offset by better recovery.