Buy Shriram Transport Finance; target of Rs 1500: Motilal Oswal

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Motilal Oswal's research report on Shriram Transport Finance

PAT grew 38% YoY to ~INR10.7b in 2QFY23 (in line), driven by NII growth of 18% YoY and credit costs of ~2% (annualized). SHTF’s customer and product positions it to operate in a benign competitive landscape, and gives it the pricing power to pass on its higher cost of borrowings to customers in new loans disbursed. While we expect margin to improve in FY23, we estimate a compression of ~40bp in FY24. We model an AUM CAGR of 12% over FY22-24, led by 13% CAGR in disbursements over the same period. We raise our FY23 EPS estimate by ~3% to factor in higher loan growth. We estimate ~23% PAT CAGR over FY22-24, resulting in a RoA/RoE of 2.5%/14% in FY24. Concern around potential exits by investors (such as PIEL, Apax, TPG, and Sanlam) still remains an overhang on the stock. We like both the standalone businesses, and believe the merged entity will emerge stronger than the respective standalone businesses.

Outlook

We maintain our Buy rating with a TP of INR1,500 (based on 1.2x FY24E BVPS).

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Shriram Transport Finance - 221022 - moti