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ENAM recommends Shriram Transport Finance

December 13, 2007

ENAM has initiated coverage on Shriram Transport Finance with a BUY Rating. Shriram Transport Finance Company Ltd. (STFCL) is one of the fastest growing NBFC with an estimated market share of 20-25% in the pre-owned CV financing business and a total AUM of Rs 148bn (Sep-07). The company has 391 branches and 6,318 employees and enjoys one of the largest networks among NBFCs.

STFCL is also moving towards vertical integration by increasingly offering the entire spectrum of products to its customers besides truck financing. Increasing tie-ups with small financiers will help STFCL improve its market share and ensure rapid growth in its loan book.

Expect disbursement growth to remain healthy at ~42% CAGR till FY10, with margins sustaining at 8-9% and asset quality remaining robust. We estimate net profit growth at 52% CAGR during FY07-FY10.

The stock quotes at 10.6x FY10E earnings and 2.4x FY10E BV. Given its leadership position in pre-owned truck financing business, strong growth momentum and sustainable RoE of ~25%, expect the stock to trade at 15x FY10E earnings and 3.5x FY10E BV within a year, leading to a price target of Rs 468

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