Buy Shriram Transport Finance; target of Rs 850: YES Securities

YES Securities' research report on Shriram Transport Finance

Q4 FY20 for SHTF was tepid, characterized by marginal AUM accretion (1% qoq and 5% yoy), a flat NIM/NII (adjusted for notional FV change due to adverse currency movement), controlled opex growth, a small correction in Gross Stage-3 ratio (coverage ratio improved) and large Covid-related provisions (Rs9.1bn, 0.8% of AUM) dragging earnings. Collection efficiency in April and May was around 15% and 30% respectively, and the management expects significant uptick in June with increasing customers being able to deploy vehicles. SHTF did not seek moratorium from lenders till 31st May as it had robust liquidity. For the second phase (June-August), company has approached its bankers and expects most of them to provide consent. As on May 31, liquidity buffer stood at Rs.57bn. In Q2 FY21 and Q3 FY21 debt repayments are ~Rs40bn, which would be taken care by expected moratorium from banks/fresh funding (healthy sanction pipeline), improving collections and sustained traction in retail deposits (all branches activated), in addition to the aforesaid cash buffer. Capital position of SHTF is strong with Tier-1 capital at 18% and D/E at 5x. With the impact of Covid being inculcated in ECL model, the credit cost run-rate will remain elevated in coming quarters. Management expects worst case to be 3%.

Outlook

Retain BUY rating with a 12m TP of Rs880. Believe SHTF is better placed than peers on capital position and potential recovery in collection efficiency during June-August (resilient client base). SHTF trades at 0.9x/5.4x FY22 ABV/EPS. Visibility of RoA climbing back above 2% in FY22 will re-rate valuation.

Shriram Transport Finance 13062020