Stock corner: ‘Buy’ Shriram Transport Finance, company saw momentum loss in FY19

By: |
Published: July 15, 2019 3:35:03 AM

After nearly doubling in FY18, slippages were largely stable YoY at Rs 66 bn in FY19. However, there has been a sharp increase in bad debt write-offs in FY19 – up 60% YoY to Rs 23.4 bn.

Shriram Transport Finance, momentum loss, NCD, ECB, market news, IGAAP, SHTF, AUM With tight liquidity and calibrated disbursements, we expect AUM growth to pick up only in 2HFY20. Margins should remain largely stable.

Our analysis of Shriram Transport Finance’s (SHTF’s) FY19 annual report indicates that the company has diversified its borrowing mix by raising Rs 100 bn from ECBs and retail NCDs (largely equal). But, these sources have been more expensive – the total landed cost of ECBs is 10%, while that of retail NCDs is 9-10%. In addition, securitisation deals have become dearer – the interest cost range of assets of 48-60 months maturity (which comprise half of total sell-downs) increased from 6.9-8.2% in FY18 to 8.3-10.4% in FY19.

After nearly doubling in FY18, slippages were largely stable YoY at Rs 66 bn in FY19. However, there has been a sharp increase in bad debt write-offs in FY19 – up 60% YoY to Rs 23.4 bn.

Other key highlights: (a) SHTF has positive ALM with 38% (36%) of domestic loans + investments maturing in less than one year v/s 40% (38%) domestic liabilities (Borrowings + Deposits) in FY19 (FY18), (b) FY18 PAT upgraded by Rs 8.93 bn (+57%) on transition to Ind-AS from IGAAP, led by lower credit costs and additional revenue recognition, (c) outstanding assets increased 16-17% for FY17/18 as the securitisation pool needs to be recognised on the balance sheet, and (d) network expansion remains healthy with 335/2,800+ branch and employee addition.

With tight liquidity and calibrated disbursements, we expect AUM growth to pick up only in 2HFY20. Margins should remain largely stable. Asset quality trends will have to be closely monitored, and thus, credit costs in FY20. We have cut estimates by 10%+ for FY20-22 due to lower AUM growth and pressure on margins. Maintain Buy with a TP of Rs 1,300 (1.4x June 2021 BVPS).

 

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.