Accumulate Shriram Transport Finance; target of Rs 809: Prabhudas Lilladher

Prabhudas Lilladher's research report on Shriram Transport Finance

Only when we thought asset quality was on mend and liquidity overhang subsiding for SHTF, the pandemic shocks knocked both the aforesaid parameters yet again putting near term earnings under pressure. Q4FY20 witnessed 70%+ decline in PAT both YoY/QoQ to Rs2.2bn (PLe:Rs7.9bn) largely on account of Rs9.1bn COVID provisioning. Business trends stood weaker than expectations for 81-day quarter with AUMs at Rs1097bn (PLe:Rs1117bn) growing flattish QoQ (5% up YoY) led by slowing pace of used CV financing with avg growth of 1.4% over H2FY20. Disbursals at Rs109bn de-grew 5%QoQ as used CV disbursals were down 4%. While used CV has steadily risen, now at 86% of overall mix, SHTF stands as a bigger beneficiary of cyclical upturn on the used CV finance side. However, near term COVID led business impact looms large led by lower fleet utilization levels (50-70% Jun'20 and ahead), 70% AUMs under moratorium (May'20) & 80-90% (Jun-Aug'20), Rs80bn repayment obligations (Jun-Dec'20) and therefore liquidity maintenance taking precedence. While collection efficiency at 52% (May-end) does not stand sacrosanct with customers not paying in entirety, we believe asset quality pain to stay pronounced for FY21.

Outlook

Against this backdrop, we trim our growth estimates sharply to 4/10% (earlier 7/16%), maintain high order NPAs at 9%/8.2% & tweak credit costs estimate to 2.6% / marginally lower over FY21/FY22 resp. Consequently, our EPS estimates now stand lower by 31% for FY21 but marginally higher in FY22. As return profile takes a hit, RoEs fall below 15% respectable mark for FY22 prompting us to downgrade stock to Accumulate (earlier BUY). We assign multiple of 1x to BV of FY22 arriving at a price target of Rs809 (earlier Rs940).

Shriram Transport Finance 13062020-prabhu

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