Buy Shriram Transport; target of Rs 950: Motilal Oswal

Motilal Oswal is bullish on Shriram Transport Finance Corporation and has recommended buy rating on the stock with a target of Rs 950 in its January 28, 2013 research report.
 
“Shriram Transport Finance (SHTF) posted a PAT of ~INR3.5b for 3QFY13, up 14% YoY and 2% QoQ. While operating profit was in line with our estimate, marginally higher than estimated provisions led to PAT being 3% lower than estimated.”
 
“After the muted AUM growth in FY12 (standalone: 11%; consolidated: 15%), there has been a sharp pick-up in YTD FY13. Sequential AUM growth has increased from an average of 2.5% in FY12 to 5%+ in each of the last three quarters. The major positive surprise over the last two quarters has come from sharp improvement in disbursements. AUM mix was stable QoQ, with the ratio of on and off balance sheet AUM at 66:34. NIM (on AUM) declined 15bp QoQ to 7.52%, led by (1) pressure on securitization yield, and (2) build-up of excess liquidity on the balance sheet. Asset quality remained healthy, with GNPA at 2.89% and PCR at ~80%. Securitization picked up during the quarter - INR30b v/s INR4b in 1HFY13. Higher securitization led (i) impact on CAR (down 130bp QoQ) and (ii) higher liquid investment in BS (20% of total assets v/s 11% a quarter ago). In 9MFY13, subsidiaries contributed 7% of consolidated PAT v/s 4% in FY12.”
 
“Capitalizing on its niche customer base (providing pricing power), falling interest rates, and increasing securitization will help SHTF to keep NIM in a narrow band of 7.5-8%. With the sharp pick-up in disbursements in YTD FY13, we expect AUM growth to remain healthy at 18% for standalone operations and 20% for consolidated. While SHTF's return ratios have moderated relative to historical trends, we expect them to remain healthy, with RoA of 2.7% and RoE of 21%+ over FY12-15. Maintain Buy,” says Motilal Oswal research report.

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