Accumulate Shriram Transport; target of Rs 1315: Prabhudas

SHTF net earnings of Rs3.88bn grew by 14.6% YoY and were a slight miss from estimates. Earnings were supported by comparatively lower opex and steady asset quality leading to lower credit cost. The disappointment during the quarter was the pressure on top line despite growing AUM by 16% YoY but slow disbursements as SHTF grew more in the new CVs & lower vintage portfolio which is low yielding in nature putting pressure on margins. We believe, sustaining AUM growth of 16% is difficult, as higher vintage pool will shrink on de‐growth and SHTF will have to forcefully move towards new vintage portfolio impacting yields. As they move towards 90dpd, the challenges in credit costs will remain. We maintain Accumulate and our PT of Rs 1,315 based on 2.9x Mar‐FY18E ABV.

We expect SHTF to deliver 32% CAGR over FY17‐FY18 on back AUM growth of 17‐18%, but SHTF is moving towards lower vintage vehicle which are lower yielding in nature and we believe major reduction in cost of funds will be gradual risking our NII growth estimates in FY17E.