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Shriram Trans Fin: Earnings Hit by Conservative Bad Loan Provisioning - Views on News from Equitymaster
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  • Mar 9, 2017 - Shriram Trans Fin: Earnings Hit by Conservative Bad Loan Provisioning

Shriram Trans Fin: Earnings Hit by Conservative Bad Loan Provisioning
Mar 9, 2017

Shriram Transport Finance (STFC) declared its results for the third quarter of the financial year (3QFY17). On a standalone basis, the institution grew its net interest income by 6.9% YoY and the profits fell by 7.8% YoY in 3QFY16. Here is the detailed analysis of the results.

Performance summary
  • Interest Income grew by 5.9% YoY in 3QFY17 on the back of 14.6% YoY growth in Assets under Management (AUM) during the quarter. For 9mFY17, the interest income was up by 10.4%.
  • Net interest margins (NIMs) contracted by 0.4% YoY to 7.2% in 3QFY17. For 9mFY17, the NIMs marginally increased to 7.2%.
  • Other income fell by 4% and 8%, respectively in 3QFY17 and 9mFY17, respectively.
  • Operating expenses were reined in after exit of employees from the equipment division post-merger as also normal attrition that had not been replenished. Resultantly, the cost-to-income ratio fell by 5% YoY to 20% in 3QFY17 and by 2% YoY to 23% in 9mFY17. STFC would be raising headcount by 1,000-1,500 by FY17 end. The NBFC expects the cost-to-income ratio to normalise to around 22-24%, going ahead.
  • Gross NPA ratio increased to 6.6% in 3QFY17 from 4.3% in the year-ago period mainly due to the accretion of NPAs from the amalgamation of Shriram Equipment Finance as also the shift from 180 to 150 days NPA recognition norms from 4QFY16 onwards. Excluding the RBI dispensation against Rs 4.5 billion of slippages, the gross NPA ratio has risen to 7.32% during the quarter.
  • On a conservative basis, STFC has partially provided against slippages of Rs 4.5 billion dispensed by RBI. This along with the transition to 150-day provisioning norm as well as bad loans of the amalgamated equipment division has led to a 39% jump in provisioning during 3QFY17. For 9mFY17, provisions grew by 24% YoY. The provision coverage ratio has risen to 75% at the end of December 2016 quarter as compared to 70% in the preceding quarter.
  • Fall in other income failed to compensate for the tepid rise in net interest income and higher provisions in 3QFY17. Resultantly, net profit fell by 7.8% YoY during the quarter. During 9mFY17, profits grew by 7% YoY.
  • The capital adequacy for the NBFC remained healthy at 18.56% at the end 3QFY17.

    Standalone Financial performance snapshot
    Rs (m) 3QFY16 3QFY17 Change 9mFY16 9mFY17 Change
    Interest Income 25,445 26,946 5.9% 72,920 80,473 10.4%
    Interest Expense 12,239 12,825 4.8% 36,270 39,349 8.5%
    Net Interest Income 13,205 14,121 6.9% 36,650 41,125 12.2%
    Net interest margin (%) 7.6% 7.2% 7.1% 7.2%
    Other Income 191 183 -4.4% 564 518 -8.2%
    Other Expense 3,287 2,905 -11.6% 9,193 9,384 2.1%
    Provisions and contingencies 4,400 6,105 38.8% 12,379 15,329 23.8%
    Profit before tax 5,710 5,293 -7.3% 15,642 16,929 8.2%
    Tax 1,959 1,834 -6.4% 5,299 5,852 10.4%
    Profit after tax/ (loss) 3,751 3,460 -7.8% 10,343 11,077 7.1%
    Net profit margin (%) 14.7% 12.8% 14.2% 13.8%
    No. of shares (m) 226.9
    Book value per share (Rs) 491.0
    P/BV (x)* 1.9

    * Book value as the end half year end 31st December 2016

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