Buy Shriram Transport Finance; target of Rs 1481: Prabhudas Lilladher

Prabhudas Lilladher's research report on Shriram Transport Finance

Revenue growth weakens as market challenges in the nature of funding pressures, need for excess liquidity on balance sheet and continued lower disbursals proved as a dampener in Q4FY19. PAT at Rs 7.5bn grew 18% QoQ ahead of estimates on the back of one-offs - (i) subsidiary (Shriram Automall) stake sale gains at Rs 1075mn (ii) tax adjustments of Rs 1098mn and (iii) 15% QoQ decline in provisions driven by lower incremental ECL provisions. While Management stands confident of the used CV financing demand catching up on back of BSVI shift and rural penetration aiding growth, we continue to incorporate CV downcycle headwinds and foresee AUM growing at 15% YoY for FY20, 16% for FY21E, margin compression (7.6% in FY20, 7.4% in FY21) denting RoAs to 2.4%, RoEs to 16% by FY21E. PE exits and group level restructuring refer our recent note<https://www.plindia.com/ResReport/SHTF-22-4-19-PL.pdf> should remain an overhang on the stock.

Outlook

As trough valuations adequately price-in current apprehensions, we reiterate BUY, however, foresee multiple shrinking hence fine-tune our price target to Rs 1,481 (earlier Rs 1,568) valuing SHTF at 1.8x Mar-21 ABV (earlier 2.0x).