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Shriram Trans Fin: Income flat, profits tumble - Views on News from Equitymaster
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Shriram Trans Fin: Income flat, profits tumble
Aug 5, 2014

Shriram Transport Finance (STFC) declared its results for the first quarter of the financial year 2014-15 (FY15). The institution grew its income from operations 5.9% YoY; however, the profits have declined by 14.67% YoY in 1QFY15. Here is the detailed analysis of the results.

Performance summary
  • Income from operations grows by mere 5.9% YoY in 1QFY15 with a modest growth in assets under management of 3.5% YoY.
  • Net interest margins moved down to 6.5% from 7.0% in 1QFY14.
  • Other income up by just 4.8% YoY. Net income from securitization fell drastically during 1QFY15.
  • Net profit declines by just 14.6% YoY in 1QFY15 due to lower income and higher provisioning costs.
  • Gross NPAs inched upwards to 3.74% from 3.09% earlier, while the net NPA ratio increased to 0.78% in 1QFY15 from 0.68% in 1QFY14.


Consolidated financial performance
Rs (m) 1QFY14 1QFY15 Change
Income from operations 20,293 21,496 5.9%
Interest Expense 9,378 10,528 12.3%
Net Interest Income 10,915 10,968 0.5%
Net interest margin (%) 7.0% 6.5%  
Other Income 2 2 4.8%
Other Expense 2,835 2,930 3.4%
Provisions and contingencies 2,850 3,515 23.3%
Profit before tax 5,232 4,526 -13.5%
Tax 1,570 1,397 -11.0%
Profit after tax/ (loss) 3,663 3,129 -14.6%
Net profit margin (%) 18.0% 14.6%  
No. of shares (m)   226.9  
Book value per share (Rs) 277.5 376.3  
P/BV (x)*   2.3  
*(Standalone book value as on 30th June 2014)

What has driven performance in 1QFY15?
  • Subdued infrastructure activity continued to weigh down the earnings performance of STFC. While the urban demand for truck finance continues to remain weak, the rural credit demand has remained intact. Also, the rural penetration has enabled the company to clock higher yields that have offset for the lower yields in the urban markets.

  • It has been a disappointing start to the fiscal for STFC. Not only poor infrastructure activity, but the company has been battling with other issues such as poor industrial activity, mining, delayed monsoons, lower freight rate and tempered CV cycle for quite some time now. The profitability growth for the consolidated book has declined by 14.6% YoY for the quarter. Lower margins, lower core income and higher provisioning have deterred the profits for the company. Even the business performance has remained muted with assets under management (AUM) growing by modest 3.5% YoY during the quarter. While the heavy Commercial Vehicles (CVs) segment has seen some uptick on account of moderate industrial output, the CV continues to remain weak. While the Used CV segment has reported a 11.6% YoY growth, the new CV division has reported a de-growth of staggering 38.0% YoY.

    Modest AUM growth; New CV segment continues to languish
    (Rs m) 1QFY14 % of total 1QFY15 % of total Change
    Assets under management 524,973   543,583   3.5%
    New CVs 90,843 17.3% 56,335 10.4% -38.0%
    Pre-owned CVs 430,855 82.1% 480,904 88.5% 11.6%

  • Subdued business growth has ensured lower core income performance for STFC. While the total loan book has grown by 12.8% YoY, the AUMs have reported a modest growth of 3.5% YoY during 1QFY15. The healthy AUM expansion has translated into strong top-line that grew on similar lines. Therefore, the net interest income has remained flat at Rs 10.97 bn during 1QFY15. The securitization income has tumbled too during the quarter. Yields have seen the downturn. Consequently, the margins have plummeted to 6.5% levels in 1QFY15 from higher levels of 7.0% a year ago. Fall in the margins was on account of company's direct focus on selling newer used vehicles. Given the increase in fuel prices, the demand for these fuel efficient new vehicles have been on the rise. While the margin pressures are here to stay, the management would continue to strive back to 7.0% levels.

  • STFC's borrowing profile continued to remain tilted towards banks with 80% of funding coming from banks during 1QFY15.

  • Other expenses have stood benign with mere 3.4% YoY increase during 1QFY15.

  • Gross NPAs inched upwards to 3.74% from 3.09% earlier, while the net NPA ratio increased to 0.78% in 1QFY15 from 0.68% in 1QFY14. Challenges in the economic environment, certain geography specific issues and delay in payments are the other major reasons for the rise in gross NPAs during the first quarter. Notwithstanding these pressures, the asset quality improved on sequential basis. And the management is confident to maintain the NPAs in the historical range of 2.75%-3.5% and contain any incremental slippages.

  • RoEs for STFC have dipped to 14.5% levels during the 1QFY15, down from higher levels of 18.5% in 1QFY14.
What to expect?
At the current price of Rs 876, the stock is valued at 1.5 times FY17 estimated book value. While the first quarter of the current financial year for STFC was characterized by poor core income performance and earning pressures. We already had put forth in our previous updates that the business growth does not look encouraging for the company and we maintain the same in the light of chronic issues stated earlier. The focus on newer used vehicles has impacted the yields and consequently the margins for STFC. Hence, margins and asset quality will continue to remain the concern areas for STFC. We also highlighted the fact that the consolidated group earnings are expected to suffer. We recommended investors to Sell the stock in June 2014. Please ensure that you broadly follow our suggested asset allocation and that no single stock comprises more than 4-5% of your portfolio.

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