Accumulate Shriram Transport; target Rs 1082: CD Equisearch

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26 Aug, 2025 12:21

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CD Equisearch's Research Report on Shriram Transport Finance Company (STFC)

Shriram Transport Finance Company Ltd (STFC) is one of India’s leading NBFC with strong competitive advantage in pre-owned commercial vehicle (CV) financing (especially 5-12 year old vehicles). There has been a sharp recovery in M&HCV sales in recent quarters (growth of 21% in FY15, as per SIAM). In ICRA’s view, the M&HCV segment is likely to register a growth of 12-14% in FY16 driven by continuing trend towards replacement of ageing fleet and expectations of pick-up in demand from infrastructure, mining and industrial sectors in view of various reforms being initiated by the Government. In contrast, the LCV Truck segment however continued to struggle owing to surplus capacity and challenging financing environment amidst rising NPA levels.

The commercial vehicle cycle we feel has bottomed out and is already on the path of recovery. We feel that AUM growth of 11.2% for FY16e and 14.6% for FY17e is achievable. Asset under management is expected to touch Rs 70000 (approx) crore and Rs 80000 crore (approx) respectively in the years FY16 and FY17. The upgrade in credit ratings by CRISIL in July 2015 is expected to lower the funding costs substantially, going forward. Disbursement in the transport finance was at Rs 9000 crore, while company expects steady disbursements in Q1 and Q2 FY16.

Unseasonal rainfall has impacted rabi crop in six-seven states of North India and Central India  and the crop damage in few states is quite material. Credit costs could remain elevated due to unseasonal rains but we believe that the impact of unseasonal rainfall will most likely be transitory in nature and should not cloud the overall recovery in asset quality expected due to recovery in underlying CV cycle.

IFTRT (Indian Foundation of Transport Research and Training) suggests that the green tribunal can pass orders on the pollution level, but cannot age-restrict the entry of vehicles. Transport operators believe that the implementation of tighter norms could impact small operators (SHTF’s main segment), but the limited presence of the company in North India, especially in the NCR region, will likely limit the impact. North India contributes just 15% of SHTF’s AUM, of which Rajasthan/Punjab are main contributors.

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"We had projected an EPS of Rs 60.18 for FY15 (refer to our report dated Jan 7, 2015), however due to asset quality woes in the equipment finance subsidiary the actual EPS for FY15 stands at Rs 45.33. We believe the commercial vehicle cycle has bottomed out. The stock currently trades at 2.1x FY16e book value (17.1x FY16e EPS) and 1.9 x FY17e book value (14.9x FY17e EPS). At current levels, we feel that the stock is reasonably valued, though asset quality concerns with respect to equipment finance business remain. We recommend ‘Accumulate’ with a target of Rs 1082 based on 2.2x FY17 BV (17x FY17e EPS), within a time horizon of 9-12 months", says CD Equisearch report.

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