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Shriram Transport Finance – Outperformer

August 9, 2007

Shriram Transport Finance Company Limited delivered strong quarterly results on the back of strong asset growth. In addition to this, a marginal decline in the cost of funds also came in as a surprise. On the flipside, a wait and watch approach towards securitising its new CV loan book and more aggressive provisioning make us revise our estimates marginally downwards. RoAs continue to move up and we expect them to reach 3% by the end of this fiscal. UTI Securities upgrades target price to Rs. 195 and assign an ‘Outperformer’ rating to the stock.

Preowned CV disbursements grew 77.4% yoy, while new CV disbursements grew at 3.8% yoy. On a QoQ basis, new CV loan disbursements have declined by 30.5% while they have grown by 3.8% on a YoY basis.The quarter continued to witness increase in the share of institutional funds (from 67% to 78% yoy) in the borrowing book of the company. Reduction in the cost of funds, which was at 10.3% during the quarter, was a positive surprise.

Earnings per share (EPS) are expected to grow at a CAGR of 55% over the next two years. The company is expected to deliver RoA of 3% and 3.5% for FY08E and FY09E respectively and RoE of 27% and 29% for FY08E and FY09E respectively. The stock currently trades at 2.2X FY08E and 1.7X FY09E Adjusted Book Value (ABV). One year target price of Rs. 195 for the stock implying a 18% upside.

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