Maintain Buy on Shriram Transport Finance - Motilal Oswal

Shriram Transport Finance (SHTF IN; Mkt Cap USD3.6b, CMP Rs721, Buy)

Well placed to sustain operating parameters

- STF being a wholesale funded company could face pressure on its margins in the backdrop of tightening liquidity scenario.

- To mitigate the interest rate risk (STF's entire truck loan portfolio carries a fixed rate), STF has reduced the proportion of floating rate borrowings to ~25-26%.

- Robust scenario for new CV sales over FY10-12E and strong CV sales during FY04-FY07 leading to better prospects for used CV sales would drive business.

- With positive outlook for both verticals and strategic presence in CV finance market, management expects to grow AUM at 20-25% CAGR over next 2 years.

- With healthy balance sheet, sound track record and uptrend in economic activity, concerns about asset quality have abated.

Catering to the second-hand commercial vehicle financing segment, marked by limited competition, STF delivered high RoEs of 27%-28% and a high disbursement CAGR of ~38% over FY06-10. We expect 29% earnings CAGR over FY10-FY13E and an average RoA of 3.3% (on AUM) and average RoE of 28%. Maintain Buy with target price of Rs960 (3.5x FY12 BV and 14x implied PE).

Source : Equity Bulls

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