Motilal Oswal has a buy rating on Shriram Transport Finance Company Ltd. with a revised target price of Rs 960 from Rs 975 earlier. The share price moved down by -0.87 per cent from its previous close of Rs 637.90. Shriram Transport Finance Company Ltd. stock last traded price is 632.35

The brokerage has downgraded its EPS estimates by 11 per cent for FY21E on the back of lower loan book growth. The brokerage channel checks indicate that the used CV and drivercum-operator segments (which are Shriram Transport Finance’s target segments) are doing much better than other segments in CV financing. The brokerage believes that risk-reward at the current level is favorable.

Investment Rationale

Since the IL&FS crisis, the company has diversified into newer borrowing sources like retail NCDs and ECBs. The share of ECBs in total borrowings has increased meaningfully from 6 per cent to 18 per cent year on year. Shriram Transport has also increased liquidity to 9-10 per cent of the balance sheet. However, AUM growth has been weak for the past several quarters. On the asset quality front, the NBFC has done a good job of reducing the GNPL ratio over the past two quarters. In the current environment, the outlook on credit cost remains uncertain. The brokerage has downgraded its EPS estimates by 11 per cent for FY21E on the back of lower loan book growth. It maintains a buy rating with a target price of Rs 960 at 1 time PBV FY22E.

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 4168.42 crore, down -2.74 per cent from last quarter sales of Rs 4286.04 crore and up 7.67 per cent from last year’s same quarter sales of Rs 3871.33 crore. The company reported net profit after tax of Rs 223.38 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 51.02 per cent stake in the company as of March 31, 2020, while FIIs held 12.64 per cent, DIIs 33.56 per cent and public & others 2.78 per cent.

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