Maintain ADD on Shriram Transport Finance - Steadily improving the asset quality - HDFC Securities

Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities

Shriram Transport Finance (SHTF) reported in-line P&L performance (13% YoY PPOP growth) with steady AUM growth (~7% YoY) and gradually improving asset quality. AUM growth was largely driven by used vehicles segment with an uptick in economic activity during the quarter. Non-tax provisions remained steady at ~2.7% of AUM and are expected to moderate to 2.0% during FY22-FY23E. GNPLs declined sequentially by 5bps (on pro-forma basis) with write-offs at ~2% of AUM. We revise our FY22/FY23 earnings estimates downwards by 3%/5% to factor in higher LLPs on account of second wave of pandemic and higher provisioning buffer for slippages. Maintain ADD with a revised TP of INR1,441.

In-line P&L performance; NIMs stabilising: SHTF reported steady operating performance with NII growth of 9.4% YoY, opex to AUM at 1.9% and non-tax provisions normalising. NIMs remained steady at 6.8% and are expected to benefit from the run-down of surplus liquidity (INR171bn, ~15% of AUM) and benign funding environment.

Asset quality stabilising, provisions to further normalise: SHTF is building on the improvements in the asset quality it had reported in 3QFY21 with GNPLs declining sequentially by ~5bps and normalising credit costs (~2.7%). The company restructured INR2.8bn of loans during the quarter (INR3.1bn in 3QFY21) and wrote off INR5.4bn of loans (~2% annualised). With improving PCR at 42% and bulk of impairment recognition over, we expect moderation in credit costs during FY22-FY23E (average LLP of 2.0%).

AUM growth likely to be muted in the near term, maintain ADD: SHTF's AUM growth of ~7% YoY was largely driven by the used vehicles segment, with pick-up in economic activity. With the onset of the second wave of pandemic and increasing lockdowns, we expect the asset growth to remain muted at least in the next quarter (FY22E AUM growth at 8.8%). Maintain ADD with the revised TP of INR1,441 (earlier INR1,471).

Shares of SHRIRAM TRANSPORT FINANCE CO.LTD. was last trading in BSE at Rs.1302 as compared to the previous close of Rs. 1342.7. The total number of shares traded during the day was 151678 in over 5548 trades.

The stock hit an intraday high of Rs. 1339.65 and intraday low of 1275.6. The net turnover during the day was Rs. 196800892.

Source : Equity Bulls

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