Buy Shriram Transport Finance; target of Rs 1820: ICICI Direct

ICICI Direct's research report on Shriram Transport Finance

Shriram Transport Finance (STFC) is the pioneer and largest player in the used CV financing space and is a part of the "Shriram" conglomerate that has a significant presence in varied financial services. STFC was incorporated in 1979 and started financing the much neglected small truck owners. Currently, it has an AUM of Rs 85463 crore, growing 13.2% YoY (~87% is derived from used vehicles) as on Q2FY18. It has a network of 1035 branches with 1.62 million customers. For FY17 & H1FY18, PAT was at Rs 1257 crore & Rs 927 crore (21% YoY), respectively.

Outlook
STFC was trading at subdued valuations due to the CV sector slowdown and resultant NPA concerns. With the recent pick-up in financing and merger with IDFC group being called off, the stock has seen a positive re- rating and is currently close to 2.6x trailing BV. RoE and RoA is set to improve to 15-17% and ~2.5%, respectively by FY19E. Factoring in focused management and improving return ratios from reviving CV cycle, we value STFC at Rs 1820 per share, i.e. 2.8x ABV and 15x EPS on FY20E basis. The stock can reach ~Rs 1820 from a 12-15 month’s perspective. For all recommendations report, click here

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