Shriram Transport Finance

10 Jun

To sustain ~7 percent NIM in FY23– Shriram Transport Finance

 

Update on the Indian Equity Market:

On Thursday, NIFTY closed at 16,478 (+0.7%) near its intraday high of 16,493 level. Among the NIFTY 50 stocks, DRREDDY (+3.0%), BPCL (+2.8%), and RELIANCE (+2.6%) led the gainers while TATASTEEL (-4.2%), SHREECEM (-2.0%), and GRASIM (-1.6%) led the losers. Among the sectoral indices, OIL & GAS (+2%), HEALTHCARE (+1.3%), and PHARMA (+1.2%) led the gainers, while METAL (-1.3%), and PSU BANK (-0.3%) were the only losers.

Excerpts of an interview with Mr. Umesh Revankar, Vice-Chairman and Managing Director at Shriram Transport Finance (SRTRANSFIN) with CNBC TV18 on 9th June 2022: 

  • The down cycle of commercial vehicles started 4 years ago. Mr. Revankar believes that currently, the industry is in an upcycle which will continue for the next 3-to 4 years.
  • New vehicle price hikes limited the industry’s growth scope last year. Going forward, there will be a gradual increase in the cycle instead of a steep increase due to geopolitical aspects, and higher fuel cost considerations.
  • The government’s goal is to build long-term logistics infrastructure and road transport which will create a demand for commercial vehicles in the next 3-4 years. This will work in favor of the transport industry.
  • Most of the company’s borrowing has a tenure of 2-4 years. Its cost of borrowing was higher 2 years ago compared to right now. The company is now borrowing its loans at much lower rates than 2-3 years ago.
  • The company believes that the RBI’s repo rate hikes won’t impact it much and that any increase in the borrowing costs can be easily passed on to its customers without losing any credit demand.
  • The company believes that it can sustain the NIM (net interest margin) of 7% from 4QFY22 even in FY23.
  • Fuel cost is 40% of the operational cost for the company of running a vehicle. Transporters either pass it to end-users or manufacturers and don’t bear any of these costs. In case of low demand, and higher vehicle supply, the transporters have to bear the costs and take a margin hit.
  • He believes that the demand for transporters has been robust and the transporters are not facing any challenge in passing on the fuel costs.
  • He believes that there is a good demand for vehicles in rural areas. The demand had dampened in between due to the increase in prices of vehicles. As the prices of the output of Rabi crop, wheat, and oil have increased, it has benefitted the farmers in the rural areas. So now, the people have adjusted themselves to the higher-priced vehicles.

 Asset Multiplier Comments

  • We believe that the company is bound to benefit from the economic activity rebound which will drive demand and cyclical recovery in new CVs.
  • With the current provisions at 7.2% (Provision Coverage Ratio at 50%), we expect loan loss provisioning to normalize at ~2% levels.

Consensus Estimates (Source: market screener website)

  • The closing price of SRTRANSFIN was ₹ 1,170/- as of 09-June-2022.  It traded at 8x/ 7x the consensus earnings estimate of ₹ 146/ 162 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,495/- implies a P/E Multiple of 9x on the FY24E EPS estimate of ₹ 162/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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06 Jan

Seeing demand uptick for second-hand CVs- Shriram Transport Finance

Update on the Indian Equity Market:

On Thursday, NIFTY closed in the red at 17,746 (-1%) near its high of 17,795. Among the sectoral indices, MEDIA (+0.9%), AUTO (+0.5%), and CONSUMER DURABLES (+0.5%) closed higher while IT (-1.5%), REALTY (-1.5%), and FINANCIAL SERVICES (-0.9%) closed in the red. Among stocks, UPL (+2.2%), INDUSINDBK (+1.8%), and BAJAJ-AUTO (+1.7%) were the top gainers while JSWSTEEL (-3%), ULTRACEMCO (-2.7%), and SHREECEM (-2.6%) were among the top losers.

Excerpts from an interview of Mr. Umesh Revankar, Vice Chairman & Managing Director, Shriram Transport Finance Corporation (SRTRANSFIN) with CNBC-TV18 dated 5th January 2022:

  • The demand for CV is increasing but not at the expected levels as the economy is not recovering as much as it was expected to. As a result, new CV (commercial vehicles) sales are lower than expectations.
  • Light Commercial Vehicles (LCVs) are showing good demand but it’s not as expected for heavy vehicles. However, demand for used vehicles is good.
  • The resale values have gone up significantly by 15-20% over the year and this reflects that people prefer to buy used vehicles in the current market situation rather than choosing a new vehicle. This eventually works for SRTRANSFIN and they are confident that as the market heats up, as the resale value goes up beyond 20%, eventually demand will come back.
  • The Omicron spread has increased in the last one week but they are not seeing any impact as such even though the city traffic has slowed down a bit. SRTRANSFIN hasn’t seen any downfall in Commercial Vehicle transportation even though mobility had come down in December. Overall, the long-distance movement has increased and hence the CV transportation has not seen any challenge as compared to what was seen in wave 2.
  • Revankar doesn’t expect many challenges as the covid variant is not supposed to be as strong and more people are getting vaccinated.
  • Marginal growth in disbursement can be expected on a QoQ basis and the AUM will be around 10% for FY22E. Larger growth in AUM is expected in FY23E because economic activities will reopen and demand for infrastructure will lead to a huge demand for heavy commercial vehicles and construction equipment.
  • As far as freight rates are concerned, margins for customers have improved because there was some decrease in the excise duties and the fuel prices had come down. Hence there were temporarily higher margins for customers. However, freight rates got corrected as they are linked to fuel prices and are a contractual obligation. But overall margins for truckers have remained strong.
  • Collections have been more than 100% in December. Hence, this shows that business is viable.
  • Revankar doesn’t look at GNPAs of 8% as a problem since the kind of customers they are lending to are individual operators who have to earn and pay. Hence there will be some delay in their collection. Individuals depend on corporates or entities for timely payments.
  • Credit cost for the long term is 2% on average and they are comfortable as long as it stays around 2%. So the GNPA is not an indicator for stress levels in their portfolio.
  • In terms of Net Interest Margin (NIM), SRTRANSFIN has always been eyeing a rate of 7% which has come down to 6.45% due to the higher liquidity they are carrying on their balance sheet due to the ongoing uncertainty in the market. Margins will move towards 7% once there is more certainty in the market.
  • Credit costs have been hovering around 2.5% due to the higher provisioning done in the last year. By March FY22, SRTRANSFIN hopes to bring down credit costs from last year’s mark of 2.48%

Asset Multiplier comments:

  • The company delivered good results in the impacted part of 1HFY22.
  • CV demand is gaining momentum and the company is the largest player in this space.
  • Appropriate provisioning, improving asset quality and strong growth strategy may contribute to the SRTRANSFIN’s topline.

Consensus Estimate: (Source: Market screener website and Tikr)

  • The closing price of Shriram Transport Finance Corporation was ₹ 1,216 as of 5-January-2022. It traded at 1.3x/1.1x/0.9x the consensus Book Value per share estimate of ₹ 968/ 1,087/ 1,219/- for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 1,660/- which implies a PB multiple of 1.4x on FY24E BVPS of ₹ 1,219/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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03 Feb

Bigger demand in financing younger vehicles – Shriram Transport Finance

Update on Indian Equity Market:

The Budget 2021 induced rally which started on Monday continued as Nifty50 closed the day 142 points higher at 14,790. The rally was led by PHARMA (2.8%) along with PSU BANK (2.6%) and PVT BANK (1.7%) continued its upward journey while REALTY (-0.4%) and FMCG (-0.1%) were the only sectors that closed in the red. Within the index, INDUSINDBK (7.3%), POWERGRID (6.0%) and DIVISLAB (4.7%) were the biggest gainers whereas SHREECEM (-1.6%), UPL (-1.5%), and ULTRACEMCO (-1.0%) were the biggest losers.

Excerpts of an interview with Mr. Umesh Revankar, Managing Director- Shriram Transport Finance Company Ltd (SRTRANSFIN) with CNBC TV18 dated 2nd February 2021:

  • Mr. Revankar believes that the announcement of a voluntary vehicle scrappage policy is a positive development for the auto and allied industry. The development will increase the demand especially for financing of 3 to 10-year-old vehicles.
  • The existing loan book of the company is not impacted by the introduction of the policy. The company normally lends for a maximum of 12-13 years. However, he expects people to buy younger vehicles between 3-10 years and there will be a big demand in that space.
  • He mentioned that the company is able to raise money at low costs for a longer tenure. This is expected to reduce the overall cost of funds and eventually improve NIMs (Net Interest Margins). He is confident of breaching 7 percent in NIMs.
  • The company may do much lower than what had been planned for restructuring. As a result, the restructuring portfolio will be much smaller.
  • The credit cost as of December-2020 was at 2.59 percent which is expected to be sustainable in the next few quarters. The company is aiming to go back to 2 percent by the end of FY22E.

Consensus Estimate: (Source: market screener website)
•The closing price of SRTRANSFIN was ₹ 1,464/- as of 3-February-2021. It traded at 1.7x/ 1.5x/ 1.3x the consensus book value estimate of ₹ 854/ 970/ 1,093 for FY21E/FY22E/23E respectively.
• The Consensus price target of SRTRANSFIN  of  ₹ 1,393/- implies a 1.3x PB multiple on FY23E book value estimate of ₹1,093/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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23 Sep

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/-.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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17 Jun

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/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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16 Jan

Improved activity post the extended rains is leading to improvement in repayments.

Update on the Indian Equity Market:

On Wednesday, NIFTY closed -0.2% lower. The NIFTY was dragged down by INDUSINDBK (-5.6%), WIPRO (-3.5%) and SBIN (-1.2%). The top performing NIFTY stocks were YESBANK (+3.5%), HEROMOTOCO (+2.5%) and TATAMOTORS (+ 2.0%). The worst performing sectors were NIFTY PVT BANK (-0.9%), NIFTY BANK (-0.8%) and NIFTY IT (-0.1%). Sectors that performed well included NIFTY REALTY (+1.3%), NIFTY AUTO (+1.2%) and NIFTY MEDIA (+0.8%).

Improved activity post the extended rains is leading to improvement in repayments.

Excerpts from an interview with Mr Umesh Revankar, MD – Shriram Transport Finance Co. The interview aired on CNBC-TV18 on 13th January 2020.

  • Shriram Transport (SRTRANSFIN) has raised $ 500 mn through an overseas bond issue. The issue was oversubscribed with a demand of $ 2.2 bn.
  • The issue happened at a coupon of 5.10%. The company’s first US $ bond in April 2019 was at a coupon of 5.92% and the subsequent issue was at a coupon of 5.32%. Over the period, the cost of borrowing is coming down. The all-in, post hedging cost of the current issue is a little less than 10%.
  • The rationale behind borrowing in the offshore market is the diversification of sources of funds. The all-in cost of domestic funds currently is around 9.25% to 9.50%. Offshore cost is 50-60 bps higher as of now.  As STF goes ahead, the cost of borrowing offshore is coming down. The company’s bonds are trading lower than 5% in the market.
  • Mr Revankar believes there will be some revival in demand, especially after the steep drop in MHCV. LCV segment is doing well. Even though there is a YoY drop, last year was the peak for LCVs, against that 15% drop is still good.
  • The inventory levels with manufacturers is coming down. As inventories come down, discounts will come down. In an increasing discount scenario, people tend to wait for further discounts. CVs are earning assets. Customers look at a resale price as it is not personal consumption. When discounts start to come down, there will be more comfort in buying as the value to the asset will be established. Because of these reasons, Mr Revankar expects pre-buying to happen before the BS-VI transition.
  • Shriram Transport is expected to have AUM growth of 8-9% for FY20. Earlier, the management was aiming for double-digit growth. However, 1HFY20 was conservative in terms of lending. The company reduced LTV, controlled lending, focused on only used vehicles, and did not lend much for new vehicles. Mr. Revankar expects that confidence should come back in 2HFY20 and FY20 should see AUM growth.
  • After the extended rainfall, mining and infra activities have finally started. That’s why cement and steel prices are also moving upward. Infra and mining will give some activity for transportation and general business. There is a definite improvement in repayments.
  • On the asset quality front, Shriram Transport disruption in 2QFY20 caused by extended rains. The impact has been arrested in 3QFY20. The asset quality should definitely improve from 4QFY20.
  • Shriram Transport’s lending is to individual operators and their cash flows are not very steady. The company is very patient with customers so there will be some asset quality movement. But the management is not much alarmed by such moves.

Consensus Estimate (Source: market screener and investing.com website)

  • The closing price of SRTRANSFIN was ₹ 1,097/- as of 15-January-2020. It traded at 1.4x / 1.2x / 1.0x the consensus Book Value for FY20E / 21E / 22E of ₹ 807/ 933/ 1075 respectively.
  • Consensus target price of ₹ 1,316/- implies a Price to Book multiple of 1.2x on FY22E Book Value of ₹ 1075/-.
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04 Nov

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/-.
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