Shriram Transport Finance Co: Rural market to see demand in December

Update on the Indian Equity Market:

On Friday, NIFTY closed 0.2% higher. Among sectoral indices, NIFTY media (+7.6%), NIFTY Metal (+2.3%), NIFTY PSU Banks (+1.4%) closed higher while NIFTY Auto (-0.7%), NIFTY IT (-0.5%) ended on a negative note. The biggest gainers were ZEEL (+18.5%), Bharti Infratel (+6.8%) and IndusInd Bank (+5.0%) whereas Yes Bank (-6.1%), Indian Oil Corporation (-2.8%) and TCS (-2.8%) ended with high losses.

Shriram Transport Finance Co: Rural market to see demand in December  

Excerpts from an interview of Mr Umesh Revankar, MD Shriram Transport Finance Co with CNBC-tv18:  

• Speaking about ongoing talks on the merger of Shriram Transport Finance Co. (STFC) and Shriram City Union Finance, Mr Revankar said, it is still in the idea stage and yet to be discussed at the board level.
• The merger will bring synergy in businesses. It will also give an opportunity for cross-selling and upselling some of the product across customer bases.
• The customer base of Shriram Transport Union and STFC put together is about one crore.
• Once the company will be in a position to offer multi-products, the cost of funds will also come down.
• Speaking about employees, he mentioned that they won’t resist as the business is quite decentralized and operational freedom is given at ground level.
• Speaking about the shift from BS-IV to BS-VI he mentioned, that as the cost of the vehicle will increase, the price of resale will also go up. He adds that the transactions will keep happening and the used vehicle market will also grow.
• The company has penetrated 30% market so enough space is still left to penetrate.
• Mr Revankar said, the demand is yet to be very positive but on the rural side the demand would come back as crop sowing got delayed by the extended monsoon. November and December may see a big demand in the rural market.
• The urban market will take some time to grow. Growth of heavy vehicles depend on infrastructure and real estate so unless real estate and infrastructure activity pick up, it will take time.
• Government is taking steps to restart infrastructure contracts, engineering, construction contracts it will help to get things to normal by December.

Consensus Estimate (Source: market screener website)

• The closing price of SRTRANSFIN was ₹ 1,144/- as of 1-November-19. It traded at 1.4x /1.2x /1.0x the consensus Book Value for FY20E / 21E / 22E of ₹ 805/932/1078 respectively.
• Consensus target price of ₹ 1289/- implies a Price to Book multiple of 1.1x on FY22E Book Value of ₹ 1089/-.