Accumulate Shriram Transport; target of Rs 1096: CD Equisearch

Subdued M&HCV sales had a bearing on the AUM growth in Q2FY17 from that of the first quarter (growth of mere 0.7%). After looking to push the new vehicle financing at the onset of this fiscal, STFC has restored its spotlight on its core business (used vehicle financing) whose share increased from 89.2% in Q1 to 89.9% in Q2. This restricted further drop in margins which seemed to have come under pressure in Q1.

Starting off well in this fiscal, the commercial vehicle industry was all set to post a robust growth in its volumes for the full year when the demand for MHCV and LCV escalated in the first two months (growth in Q1FY17 stood at 14.2%). However, the positive expectation seemed to be an aberration as the growth momentum slowed down due to waning out of the replacement demand and weak freight generation from the industrial sectors- volumes fell by 0.2% in Q2FY17. As soon as the market saw a recovery in the demand for MHCV in October (sales up by 16.9%) news on demonetization bonked the CV industry. This played hard on the sentiments of the CV fleet owners as MHCV segment declined by 13.1% in November, while the LCV segment saw de-growth of 10.6% leading the overall CV sales volumes to fall by 11.6%.