Need to raise money for lending activities – Shriram Transport Finance

Update on the Indian Equity Market:

Markets witnessed a volatile day as Nifty touched intra-day low of 9,728 before closing the day 1.1% higher at 9,914. The top gainers for Nifty 50 were HDFCBANK (+4.4%), HDFC (+3.9%) and ICICIBANK (+3.4%) while the losing stocks for the day TATAMOTORS (-5.9%), INFRATEL (-2.9%) and INDUSINDBANK (-2.8%). The gaining sectors for the day were FIN SERVICES (+2.8%), BANK (+1.9%) and PVT BANK (+1.9%) whereas PSU BANK (-0.9%), REALTY (-0.8%) and PHARMA (-0.6%) were the losing sectors for the day.

Edited excerpts of an interview with Mr. Umesh Revankar, MD & CEO, Shriram Transport Finance; dated 11th  June 2020 from Economic Times:

• Since the lockdown has been relaxed, the Company is getting a better understanding of the ground reality. The calculation is that the Company’s customers who have taken moratorium are likely to keep paying but with a delay. Looking at the past behavior, customers may ask for some kind of discount or rebate. The Company has taken care of these things during the March quarter results.
• The Company has given moratorium to all eligible customers. Approximately 24% of the customers have made part payment in April. Another 52% of the customers have made part payment in May. Whatever customers pay will be treated as prepayment into their account. 
• The Company keeps three months of liability in the balance sheet. This kind of buffer is present at all times. They continue to keep sufficient buffers to manage future liability as well. Whatever collection is coming is used to build that buffer further as lending is not done in an active manner.
• They are focusing on lending to customers for working capital requirements. The RTO offices are now open and hence the Company expects lending activity to pick up from next month. 
• The Company has raised some money through TLTRO and some through term loan- both from public sector banks in May and June. The management has not yet discussed any equity raising plans.
• Credit cost of the Company has gone up from 2% to 2.42% during the March quarter. They are confident of maintaining the credit cost at around 3% by September and maybe till
  December.

Consensus Estimate: (Source: market screener, Investing websites)

• The closing price of Shriram Transport Finance Ltd was ₹ 652/- as of 16-June-2020. It traded at 0.8x/ 0.7x the consensus BV estimate of ₹ 859/ 963 for FY21E/ FY22E/ respectively.
• The consensus target price of ₹ 935/- implies a PB multiple of 0.9x on FY22E BV of ₹ 963/-.

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