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Shriram Transport Fin.: New businesses offer fillip - Views on News from Equitymaster
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  • Jan 18, 2010 - Shriram Transport Fin.: New businesses offer fillip

Shriram Transport Fin.: New businesses offer fillip
Jan 18, 2010

Performance summary
  • Interest income grows 20% YoY in 9mFY10 on the back of 24% YoY growth in assets under management (AUM).
  • Net interest margins drop to 6.9%, from 7.4% in 9mFY09; with increased pressure on loan yields. Incremental lending skewed towards used vehicles.
  • Other income falls by 18% due to lower proportion of income from securitisation.
  • Net profits grow by 33% YoY in 9mFY10 aided by lower operating costs.
  • Net NPA ratio declined from 0.8% in 1HFY10 to 0.7% in 9mFY10.

Rs (m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Income from operations 9,751 11,553 18.5% 26,973 32,321 19.8%
Interest Expense 5,542 5,828 5.2% 14,512 16,738 15.3%
Net Interest Income 4,209 5,725 36.0% 12,461 15,583 25.1%
Net interest margin (%)       7.4% 6.9%  
Other Income 161 126 -21.7% 469 383 -18.3%
Other Expense 1,293 1,250 -3.3% 3,838 3,763 -2.0%
Provisions and contingencies 808 1,013 25.4% 2,237 3,084 37.9%
Profit before tax 2,269 3,588 58.1% 6,855 9,119 33.0%
Tax 776 1,219 57.1% 2,271 3,033 33.6%
Profit after tax/ (loss) 1,493 2,369 58.7% 4,584 6,086 32.8%
Net profit margin (%) 15.3% 20.5%   17.0% 18.8%  
No. of shares (m)       203.5 212.8  
Book value per share (Rs)         145.4  
P/BV (x)*         3.6  
* Book value as on 31st December 2009

What has driven performance in 9mFY10?
  • Demand for loans against pre-owned commercial vehicles had continued to support the business of Shriram Transport Finance (STFC) even in difficult times. The last quarter infact only acted as a sweetener. With interest rates cooling off, STFC managed to grow its disbursements at an accelerated pace thanks to which the AUMs grew by 24% YoY. While the institution has not divulged the growth in disbursements in 9mFY10, the same was primarily supported by disbursement for pre-owned vehicles. The company’s assets under management (AUM) in terms of new and pre-owned vehicles were re-balanced with older vehicles enjoying a larger composition. The pressure on yields, nevertheless, dampened the margins which dropped to 6.9%, from 7.4% in 9mFY09.

    Balanced growth in assets…
    (Rs m) 9mFY09 % of total 9mFY10 % of total Change
    Truck receivables 179,151   215,519   20.3%
    Assets under management 227,957   281,790   23.6%
    New CVs 64,740 28.4% 72,590 25.8% 12.1%
    Pre-owned CVs 163,217 71.6% 209,209 74.2% 28.2%

  • STFC has outlined its plans of getting into the old tractor financing and freight bill discounting businesses. The company has also partnered with more than 500 private financiers to leverage their presence and access new customers. In its results conference call, the management of STFC threw light on the new business areas such as electronic trading of trucks (e-truck bazaars), auctioning of trucks and sale of refurbished branded trucks that it is looking to grow. STFC’s plans of financing CVs and used trucks had market sizes of Rs 70 bn and Rs 190 bn respectively in FY09. These are expected to grow at an annual rate of 30% until 2012 with the incremental spending on roads and agriculture. The company’s truck trading business through Truck Bazaars is expected to be a larger fee generator going forward.

  • With STFC’s borrowing profile now largely tilted in favour of banks, the fall in cost of bank funding helped the company pass on the lower rates to customers. The institution derived 86% of its funds from banks in 9mFY10 as against 83% in 9mFY09. Going forward with better credit rating and increased institutional funding the NIMs are expected to remain in the range of 7.5% to 8%.

  • STFC’s cost to income ratio remained benign at 24% in 9mFY10 (30% in 9mFY09) due to its operating leverage. The company’s employee costs have risen by 9% YoY so far in FY10.

What to expect?
At the current price of Rs 520, the stock is valued at 2.5 times our estimated FY12 adjusted book value. STFC’s niche presence in the high-yielding pre-owned CV financing business earns it an edge over its peers in terms of net interest margins and provides substantial cushion in an economic downturn. Further, the NBFC’s asset valuation and loan recovery skills are verified in the low delinquency levels. We also derive comfort from the fact that the company’s asset growth as well as margins so far have been within our estimated levels. The prospects on the fee income generation business are also enthusing. With the company’s plans to raise additional equity capital in FY10 (CAR of 17% in 9mFY10), we may have to revise our estimates for the stock. .

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Feb 21, 2018 (Close)


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