Buy Shriram Transport Finance; target of Rs 1444: Prabhudas Lilladher

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26 Aug, 2025 12:21

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Prabhudas Lilladher's research report on Shriram Transport Finance

We did highlight a quarter ago that SHTF balance sheet is on the path of mend and Q3FY20 healthy earnings set corroborates our stance. Amidst sectoral headwinds and funding challenges, SHTF put up decent 5%YoY AUM growth, remaining flat QoQ largely led by used CV loans that grew healthy 7.5%YoY/ 1.5%QoQ. The used CV mix inched up 207bps YoY to 85% supporting margins and growth alike. While funding pressures sustained for past couple of quarters, Q3 witnessed slight higher overseas borrowing costs coupled with excess balance sheet liquidity denting margins (719bps vs 714bps QoQ). Said that, this stood largely offset with sharp decline in credit costs by 86bps QOQ. With GNPAs declining 9bps QoQ and absolute GNPAs steady QoQ (mere 4% up YoY), asset quality stress has peaked out for SHTF. Management cited confidence with improved kharif and anticipation of better rabi crop, sustained used CV vehicle enquiries and rural cash flows remaining intact. While NIMs should witness slight pressures (7.2% by FY22), the same should rightly be offset by controlled credit costs (~200bps by FY22). This coupled with 14% AUM CAGR should translate into healthy 2.3% RoA and 15% RoEs over FY20-22E. While we slightly tweak down our AUM estimates (14% CAGR from 16% earlier over FY20-22E), pruning down of credit costs 1.9%-2.07% (earlier 2.1%) is generating 2-3% EPS uptick over FY20-22E. As SHTF stands as a bigger beneficiary of cyclical upturn on the used CV finance side, we reiterate BUY recommendation, valuing the stock at 1.5x PABV Sep-21E.

Outlook

Our price target stands at Rs1,444 (earlier Rs1,441); stock trades at attractive valuation largely pricing in all the concerns.

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