Moneycontrol Bureau
Bank of America Merrill Lynch (BoAML) has raised target price of Shriram Transport Finance Corporation (STFC) to Rs 1,375 from Rs 1,225 following increase in earnings per share after stability in asset quality, hopes of better monsoon and likely revival of commercial vehicle business. The stock gained more than 1 percent intraday Tuesday.
After a weak 3-year EPS delivery, earnings per share estimates increased by around 6/9 percent to 39/31 percent for FY17/18, says the brokerage which believes STFC is at an inflexion point as internal as well as external enablers should drive in EPS growth.
BoAML has been betting on both internal and external enablers that are in place to drive in growth.
Internal enablers such as falling rates, changing mix of liabilities and clarity on securitisation along with uptick in loan growth should drive stronger earnings after factoring in elevated credit costs of around 3 percent (against 3.3 percent in FY16) due to transition to 120/90 day recognition norms, says the brokerage.
External enablers such as pick-up in sales volumes due to replacement demand and fleet additions; rising utilisation due to higher production of key commodities and; slowly but surely rising road freight rates should lead to sustainability of higher loan growth, it feels.
The brokerage says road ministries focus on roads should also lead to improved demand leading to better utilisation / realisations.
With the comfort on commercial vehicle sector fundamentals and STFC's own efforts (higher collection headcount); BoAML sees this improvement in asset quality, as sustainable. According to its research note, better monsoons can only further raise comfort on asset quality.
Around 70-80 percent of STFC borrowers use trucks for transporting agriculture-produce.
According to BoAML, STFC is big beneficiary of a turnaround in the commercial vehicle cycle and its recent quarterly asset quality performance is a testament to that.
Net interest income in Q4FY16 jumped 34.3 percent to Rs 1,273.3 crore compared to year-ago period, though profit after tax plunged sharply by 54.56 percent to Rs 143.9 crore due to a 145 percent jump in provisions for bad loans. Full year net interest income has also seen strong growth, up 32 percent to Rs 4,455.6 crore, though profit declined nearly 5 percent to Rs 1,178.2 crore.
Net non-performing assets in Q4 jumped 128 percent QoQ and 202 percent YoY to Rs 1,143.7 crore.
At 10:23 hours IST, the scrip of Shriram Transport Finance Corporation was quoting at Rs 1,162.85, up Rs 2.45, or 0.21 percent on Bombay Stock Exchange.Posted by Sunil Shankar Matkar
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