Shriram Transport Finance Co. Ltd. - Q2FY21 Result Update - YES Securities

Asset quality and funding/liquidity pressures abating - Retain BUY with upgraded 12m PT of Rs940

Asset quality and funding/liquidity pressures seems to be abating for SHTF which should uplift valuation (currently trading at 1x FY22 P/ABV). About 95% customers making payments, expectations of restructuring at 2.5-3% and commentary on immediate credit cost normalization are positive sentimental triggers. On funding side, deposits accretion has improved and securitization market should open post the strong performance in Q2 FY21. Further, commentary on disbursement/growth and resale values/LGD remains assuaging. We retain BUY with an upgraded 12m TP of Rs940 based on estimated RoA/RoE delivery of 2.4%/13%.

Management Commentary

Asset Quality & Credit Cost

- Collections in September was 95% of the demand - this will include marginal arrears, but represents 90%+ borrowers having started repayment - October collections also tracking 95-96% on the demand - this compares to 97-98% in pre- covid times.

- 4.5% of AUM had not paid any installment during the moratorium period - of this, many have paid in Sept & Oct.

- 3% of AUM represents more impacted customer segments (taxi aggregators. bus operators, etc.) and these have been identified for restructuring.

- Management expects restructuring to be around 2.5%. Restructuring could be in the form of reduced EMIs in next 6-9 months and extension of tenor.

- Company made additional provisioning of Rs4.2bn in Q2 FY21 and Rs13.7bn in H2 FY21. As at Sept 30, additional ECL provision (management overlay on account of COVID-19) stood at Rs22.8bn.

- Gross NPA and Net NPA at 6.4% and 3.6% respectively - If the Company had classified borrower accounts as NPA after 31 August 2020, the Gross NPA and Net NPA ratio would have been 7.3% and 4.5% respectively - such accounts treated as Stage-3 and provisioning (~Rs3bn) has been made accordingly.

- Assigned PD on Stage-1 assets at 7.5% and on Stage-2 assets at 23% - LGD assumption at 39.5%.

- Expect Credit Cost to come down in Q3 and Q4 - overall for FY21 will be better than earlier guidance of 3%.

- Stage-2 assets at 11.65% and 11.1% adjusted for SC order.

- Resale values of LCVs are higher than pre-covid levels - HCVs not much value discovery has happened in H2 FY21, but resale value should be stable.

Funding & Liquidity

- Rs72bn fresh funds mobilized in Q2 FY21 - Rs15bn TLs (rate 8.5%-9%, largely from PSBs) and Rs40bn Securitization & Assignments (rate 8.75%).

- So far Rs20bn+ mobilized under PCG scheme, Rs3.5bn from SIDBI liquidity facility and 200cr under TLTRO.

- There was net Rs2.5bn accretion in deposits (rate <8%) during Q2 - target to reach retail deposits at 20% of borrowings from current 13%.

- ALM position comfortable with positive mismatch in all buckets up to 1 year (marginal reliance on short term borrowers).

- Will keep liquidity around current higher level till March 2012 - Management expects securitizations transactions to pick-up.

NIM & Opex

- Incremental borrowing rate for the quarter was blended 8.75% - CoB expected to come down by 25 bps by the end of FY21.

- There was Rs680mn upfront income booking on assignment transactions which aided NIM.

- Higher opex qoq due to incentive given out to staff and addition of new branches.

- C/I ratio expected to be in the 22-23% in the medium term.

AUM Growth

- Disbursement during Q2 was Rs64.6bn - 90% in rural and semi-urban areas - September disbursements was at par with last year.

- AUM growth in FY21 could be of 5-6% based on expectations that H2 disbursements will be as good as last year.

- Added 26 branches there were pending since the lockdown - will be adding 100 branches in H2 (mainly RC conversion) and so employee count would increase from here on.

- Cumulative Rs5.7bn disbursed under ECLGS scheme so far - Sanctions at Rs28bn (but customers not keen to take disbursement).

Shares of SHRIRAM TRANSPORT FINANCE CO.LTD. was last trading in BSE at Rs.689.7 as compared to the previous close of Rs. 698.75. The total number of shares traded during the day was 266053 in over 10440 trades.

The stock hit an intraday high of Rs. 730 and intraday low of 669.85. The net turnover during the day was Rs. 184761792.

Source : Equity Bulls

Keywords