Shriram Transport Finance - 3QFY17 Result Update - Demonetization Drags Performance; Outlook Remains Positive - Reliance Securities

Shriram Transport Finance Company (STFC) has reported subdued performance in 3QFY17. Its net profit declined by 7.8% YoY and 10.8% QoQ to Rs3.5bn as provisioning expenses rose by 47.7% YoY and 32.3% QoQ to Rs6.1bn. Higher provisioning can primarily be attributed to the Management's decision to increase Provision Converge Ratio (PCR) to 75.4% in 3QFY17 from 70.5% in 2QFY17. Disbursements declined by 23% YoY and 17% QoQ to Rs81bn primarily due to lower demand post demonetization as a result of which AUM grew by mere 1.3% QoQ and 4.8% YTD to Rs762bn. Assets quality remained stable as gross NPA ratio increased marginally by 4bps QoQ to 6.6% and net NPA declined by 33bps QoQ to 1.7% (due to improvement in PCR). As we expect STFC's operating environment to improve post completion of remonetization process and implementation of BS-IV emission norms for vehicles and rollout of Goods & Services Tax (GST), we reiterate our BUY recommendation on the stock with a downwardly revised Target Price of Rs1,159.

Key Management Commentary

- As per the Management, disbursements have improved significantly post completion of demonetization process.

- STFC's collections declined by 9% QoQ in 3QFY17. However, its collection efficiency has improved in Jan'17 onwards led by substantial improvement in cash availability and greater acceptance of digital mode of payments.

- Gross NPA remained stable as several customers opted for special RBI dispensation during the quarter. Management indicated that had the RBI dispensation not been utilized, the gross NPA ratio would have been higher by 70bps to 7.3% on 150-days overdue basis and further ~100bps higher on 120-days overdue basis. The Company will be shifting to 120-days gross NPA recognition by Mar'17.

Outlook & Valuation

Considering the impact of demonetization on STFC's 2HFY17 performance, we have downwardly revised our AUM and earnings growth estimates. However, we expect STFC's operating environment to improve post completion of remonetization process and implementation of BS-IV emission norms for vehicles and rollout of Goods & Services Tax (GST). Further, Government's effort to revive growth in infrastructure sector and rural economy in Budget 2017-18 augurs well for STFC. As overhang of demonetization is behind, we expect gradual improvement in performance over next few quarters and reiterate our BUY recommendation on the stock with a downwardly revised Target Price of Rs1,159 (from Rs1,459 earlier).

Shares of SHRIRAM TRANSPORT FINANCE CO.LTD. was last trading in BSE at Rs.961.5 as compared to the previous close of Rs. 971.1. The total number of shares traded during the day was 12297 in over 809 trades.

The stock hit an intraday high of Rs. 981 and intraday low of 960.5. The net turnover during the day was Rs. 11908824.

Source : Equity Bulls

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