Accumulate Shriram Transport; target of Rs 950: P Lilladher

Prabhudas Lilladher's report on Shriram Transport Finance Corporation (STFC)

"SHTF’s Q2FY15 PAT at Rs3.0bn was slightly below estimates on elevated credit costs. NII growth was decent as margins saw some uptick on slightly higher securitisation income. Higher disbursements did not decipher in AUM growth as most of growth came in towards the end of the quarter. Growth prospects look good in H2FY15 & FY16 on a combination of improving economy and regional demand levers in certain pockets resulting in AUM growth and better margins. Valuations remain fairly valued at 1.8x Sep-16 book and hence we retain Accumulate with TP of Rs 950."

"Reported margins at 6.60% was up 6bps QoQ on slightly better securitisation income, but spreads decreased by 7bps on slightly higher cost of funds. Going ahead, better prospects could help improve mix of assets (on resale value of used vehicle & lowering discounts) and Incremental cost of funds should start moving down as incremental borrowing has been at ~10.75% (skewed towards bond funding). Also SHTF carries some liquidity on its B/s which could help cost decrease", says Prabhudas Lilladher research report.

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