Expect 90% collection efficiency in September – Shriram Transport Finance

Update on Indian equity market:
Markets continued to fall further on Tuesday after a sharp selloff on Monday as Nifty closed 99 points lower at 11,152. Among the stocks, HCLTECH (+2.3%), TCS (+2.2%) and GRASIM (+1.8%) were the top-performing stocks while ZEEL (-6.6%), ADANIPORTS (-4.8%), and GAIL (-4.5%) were the laggards. Within the sectoral indices, only IT (+1.2%) and PHARMA (+1.0%) were able to close the day in green whereas MEDIA (-2.4%), AUTO (-1.8%), and REALTY (-1.5%) were the sectors that bled the most.
Excerpts of an interview with Mr. Umesh Revankar, Managing Director & CEO, Shriram Transport Finance (Shriram) aired on CNBC TV18 dated 21st September 2020:
September is the first month without a loan moratorium. Since there is no moratorium, the collection has to be really good. In addition, most of the locations under lockdown have been opened up. The containment zones are the problem areas.
In May, 51% of the company’s borrowers made partial or full payment, up from 24% in the month of April. It increased to 71% in June while it remained flat in the months of July and August. About 73% of clients made payments in August. The company is expecting a 90% collection efficiency in the month of September. He said that the company is able to meet customers physically and they are willing to pay. They have observed delays in payments by very few customers.
He said that the disbursements are also picking up. The disbursements in the month of August were 50% of last year’s levels which has increased to 75% in September. The company expects to reach 90-100% of the monthly run rate in October- November period.
The business has been picked up in the second half of August in semi-urban and rural areas. He said that urban areas are mostly seeing e-commerce activity leading to some demand.
The company expects the business to be normal and to pre-lockdown levels by December as their customer segment is mostly owner-operator of the vehicle and less dependent on outside driver/ helper.
The festival period in October- November is likely to be good for the business. Some sectors like travel & tourism will take a little more time to recover. He said that the demand in the rural market has been really good and the NBFC should be able to improve business there with better penetration.
Consensus Estimate: (Source: market screener & investing India website)
The closing price of Shriram was ₹ 642/- as of 22-Sept-2020. It traded at 0.8x/ 0.7x/ 0.6x the consensus BV estimate of ₹ 837/ 932/ 1,036 for FY21E/ FY22E/ FY23E respectively.
The consensus target price of ₹ 884/- implies a P/BV multiple of 0.9x on FY23E BV of ₹ 1,036/-.
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