Outlook Money – 01.03.2018

24 Outlook Money March 2018 http://www.outlookmoney.com

Stock Pick

S

hriram Transport Finance
Company (STFC)
showcased a strong
performance in the third
quarter of FY18, helped by strong
Assets Under Management (AUM)
growth and better asset quality.
What has tilted the balance in
favour of the company is its
approach towards the under-
penetrated market for second
hand truck financing.
The company has been able to
capture this segment by becoming
a leader in organised financing of
pre-owned trucks with strategic
presence in the five and ten-year-
old segment. Established in 1979,
this non-banking finance company
(NBFC) is the flagship company of
the Shriram Group. It has a pan-
India presence with a network of
1,121 branches and tieups with more
than 500 private financiers.

Shriram Transport Finance

x CMP: 1290.12 x PE: 18.61

Stable Margins and

Sustained Growth

Strong AUM and better assets boost truck

financing business, says HIMALI PATEL

*As on 20 Feb 18

Rural focus

For Q3 FY18, AUM grew by 18 per

cent year-on-year (Y-o-Y) to `90,018

crore against `76,281 crore in the

previous corresponding period. Net

interest income (NII) rose by 21.5

per cent to `1,709 crore against

`1,012 crore in the previous period.

“Rural continues to be a focus area

with higher branch additions and

improvement in AUM mix to 31

per cent vs 29 per cent in Q2 FY18.

The management sees a further mix

increase,” Prabhudas Lilladher says

in its research report.

The management expects its

AUM to grow to an estimated `1,100

billion by the end of FY19. For Q3

FY18, the gross non-performing

Asset (GNPA) stood at 7.98 per

cent and net non-performing asset

(NPA) at 2.45 per cent Y-o-Y. “Better

asset quality with higher provision

coverage ratio (PCR) and sustained

growth momentum will keep the

stock buoyant,” points out an analyst

at HDFC Securities in a report.

The company’s disbursement

grew by 64.7 per cent Y-o-Y,

aided by strong growth in new

commercial vehicle (CV) financing

and a healthy growth in the used

CV segment. “Strict implementation

of the overloading ban, pickup in

construction and infra activities,

and better rural demand led to

robust disbursement growth of

approximately 65/8 per cent Y-o-Y/

Q-o-Q,” HDFC Securities reported.

AUM growth, stable margins

and declining credit cost have led

to better profits, which increased

by 43.26 per cent Y-o-Y to `495.63

crore against `345.96 crore in the

previous year. Brokerages such

as HDFC Securities, Prabhudas

Lilladher and ICICI Direct have

given a ‘buy’ call on the stock.

Why Buy?

n Government’s allocation towards

rural economy and infrastructure will

help the commercial vehicle segment

n Post GST and stringent BS4 norms,

the company is witnessing higher

disbursements

Watch Out For

n Tough competition from other

captive finance companies, small banks

n Impact of 90 days past due in

NPA transition

Financials

FY15 FY15

OP: Operating profit; PAT: Profit after tax;

EPS: Earnings per share; Source: Ace Equity

Net sales (` crore)

10,358.59

9,177.00

PAT (` crore)

1,265.63

1,183.62

OP (` crore) EPS (`)

7,191.87

6,914.65

FY17 FY17

FY17 FY17

FY16 FY16

FY16 FY16

FY15 FY15

10,902.71

1,028.44

6,398.42

55.78

52.17

45.33

Base value taken as 100

1 Jan 2015 20 Feb 2018

Shriram Transport Finance

BSE Sensex

150

100

50

0

122.52

117.08