Buy Shriram Transport Finance; target of Rs 1690: Motilal Oswal

The research firm ICICI Securities believes earnings of apparel brands and retail companies under their coverage may surprise positively from Q3FY22E as the likely demand recovery may result in better than expected margin performance. Some of the costs savings achieved during pandemic may sustain and coupled with high operating leverage may lead to higher than pre-covid margins from Q3FY22E.  Stocks like Trent, V-Mart and Aditya Birla Fashion and Retail are the preferred picks backed by their strong and consistent track record of execution.

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Motilal Oswal's research report on Shriram Transport Finance

PAT declined by 11% QoQ to INR9.65b (in line) in 1QFY23, driven by a sequentially higher credit costs of ~2.5% and a NIM decline of ~20bp QoQ. Price hikes in both New and Used CVs (led by the shift to BS-VI emission standards and higher steel prices) has continued to feed into higher ticket sizes and are aiding disbursements, which grew 31% YoY to ~INR117b.  SHTF’s customers and products operate in a benign competitive landscape. It has the pricing power to pass on the higher incremental cost of borrowings to its customers. We estimate a compression of ~20bp in NIM over the next two years.

Outlook

We maintain our Buy rating with a TP of INR1,690 per share (based on 1.4x FY24E BVPS).

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Shriram Transport Finance - 290722 - moti