Buy Shriram Transport Finance; target of Rs 1464: Edelweiss

Edelweiss's research report on Shriram Transport Finance

In a major development at Shriram Transport Finance (SHTF), Mr. Umesh Revankar has been reappointed as MD & CEO, replacing Mr. Jasmit Singh Gujral (who had replaced Mr. Revankar in April 2016). The company’s Q2FY17 operating performance was stable with PAT at INR3.9bn broadly in line with estimate. Growth momentum sustained (up > 19% YoY). NII growth was, however, restricted (< 14% YoY) due to tilt towards lower vintage used CV portfolio and new CVs, which strained NIMs. GNPLs optically rose to 6.58% (up 20bps QoQ) on lower on‐book AUMs. Otherwise, GNPLs were stable (up 3% QoQ). Given emerging green shoots in the CV cycle, asset quality dust settling down and SHTF’s undisputed leadership in CVs, we estimate it to deliver >30% earnings CAGR over FY16‐18 and in the process rerate to 3x FY18E book. Maintain ‘BUY’.

On positive levers highlighted above, we expect EPS growth to return to >30%, propelling RoA/RoEs to >2%/16% by FY18E. Given SHTF’s undisputed leadership and niche positioning, we expect it to command premium multiples as overall business environment improves. We maintain ‘BUY/SO’ with TP of INR 1,464.