About the Company

Shriram Transport Finance is India’s largest player in the commercial vehicle finance sector. It was established in 1979 and has more than 1348 urban and 885 rural centers. It is also one of the largest NBFC in India with specialization in financing pre-owned trucks for small truck operators.

 

Q1 2020 Updates

Consolidated Financials (In Crs)
Q1FY20 Q1FY19 YoY % Q4FY19 QoQ %
Sales 4061.65 3731.31 8.85% 3880.43 4.67%
PBT 981.58 883.04 11.16% 972.24 0.96%
PAT 634.25 572.9 10.71% 746.04* -14.98%

*Includes a tax adjustment for earlier years of Rs 109.8 Cr

Detailed Results

    1. The company has had a moderately good quarter with 9% YoY rise in revenues and 11% YoY rise in PAT.
    2. The company had announced a final dividend of Rs 7 per share for FY19 which was paid out on 4th of July 2019 which brings up the total dividend paid out in FY19 to Rs 12 per share.
    3. The company saw a rise in net interest income of 7.62% YoY.
    4. The cost to income ratio has been reduced from 23.04% in Q1FY19 to 21.78% in Q1FY20.
    5. AUM for the company has risen 5.77% YoY to Rs 1,06,343 Cr.
    6. The company has maintained a CRAR of 20.07% vs 16.92% a year ago.
    7. The segment wise AUM break up is:
      • HCVs: 46%
      • M&LCVs: 52%
      • Passenger Vehicles: 58%
      • Tractors: 38%
      • Business Loans: 74%
      • Others: 78%
    8. The number of branches has risen to 1585 from 1230 a year ago with additions of 150 rural branches and 205 urban branches.
    9. The urban portion of AUM has declined slightly to Rs 65990 Cr from Rs 66560 Cr a year ago. The rural portion of AUM has expanded 18.7% YoY to Rs 40350 Cr.
    10. The company has built up a very strong cash position of Rs 3153 Cr.
    11. The ROA for the company has improved 7 bps YoY to 2.26% currently.
    12. The RoE for the company has declined 73 bps YoY to 15.8% currently.
    13. In terms of borrowing profile, the company has drastically reduced its commercial paper borrowing to 1.77% from 6.07% a year ago. The other major change here is the increase of borrowings in foreign currency which has risen to 10% from 0.71% a year ago.

Investors Conference Call Highlights

  1. The company has reduced its exposure to new vehicle finance lending due to the ongoing auto sector slowdown.
  2. They expect demand to rise from September onwards due to the festive season and the start of prebuying of BS-IV vehicles before the transition.
  3. The company recently completed the issuance of significant notes of $ 250 million under the Global Medium Term Note Program.
  4. The company also saw a rise in the marginal cost of borrowing which they were able to pass on to the customers due to their considerable pricing power in the used vehicles space.
  5. The company expects to maintain their NIM as they expect bank lending rates to go down in the near future with the rate cuts due to the RBI’s expansionary stance.
  6. The overall credit cost for the company has come down 20 bps YoY to 2% and the company expects it to remain stable at current levels.
  7. The management clarifies that in most of the cases of new rural branches, the branches have been converted from existing rural centers and thus there were minimal additional costs occurring with the addition of these rural branches.
  8. The management has stated that the provision coverage last year was higher than normal on account of Kerala floods while this year such an extra provision is not required. Thus provision coverage has fallen slightly in the quarter as compared to a year ago.
  9. The hedging costs for the $ 500 million that the company has raised so far is around 10% of the transaction amount.
  10. The company has done no reductions in this year so far as they anticipate good performance post the monsoons.
  11. The current LTV levels in new vehicles are around 80% on average and 70% if it includes bodybuilding expenses. The LTV level in used vehicles is around 65%.
  12. The management has mentioned that in working capital loans, the company allows an additional 5% grant to as fuel credit to vehicle loan takers if they have taken additional products like insurance from the company. This fuel credit is classified as working capital loans for the company and although it appears unsecured, it is being covered by the underlying asset.
  13. The management has stated that the current level of 32% provisioning to remain stable for some time.
  14. The company is maintaining an additional 2 months of disbursal amount in cash as they were directed by the Board to do so to maintain high liquidity.
  15. The company should see NIMs rise from current levels when the banks pass on the rate cut in the near future.
  16. The company maintains that the used vehicle market operates independent from the new vehicle market and that since the demand for used vehicles is higher in the rural areas, the company is focusing on expanding in the rural segment aggressively. The company has only 25-30% market share in the used vehicles space and thus they have enough room to grow in this focus segment.
  17. The increase in the number of rural branches is mainly due to the breakup of large standalone branches into smaller branches to increase reach. Thus the number of branch managers has not risen as much as the number of branches and so the rate of addition of branches is not consistent with the growth rate in AUM.
  18. The company’s stage 1 assets are around Rs 71,000 Cr while Stage 2 assets are around Rs 23,560 Cr.
  19. The incremental cost of funds for the company in Q1 was at 9.5% while the incremental yield on advances was at 16% roughly.
  20. The disbursement figures for Q1 were:
    • New Vehicles: Rs 891 Cr
    • Used Vehicles: Rs 11,260 Cr
    • Others: Rs 12,296 Cr
  21. The company has seen demand for passenger vehicles go down in urban areas while the demand in rural remains good.
  22. The management has guided that they expect AUM growth of FY20 to be around 14% to 16%.
  23. The main reason behind this assumption is the anticipated rise in demand for BS-IV vehicles and used vehicles as the prices for BS-VI vehicles go up all over the table.
  24. The management has tagged the period from September to November as vital as it would provide lead indicators as to how demand will be coming back into the market.
  25. The company follows a thumb rule of converting any rural centre with more than 500 customers into a branch. Thus in most cases, the costs for setting up the branch like rent and furnishing have already been spent when it was a centre and there are minimal incremental costs on conversion.
  26. The management sees the good monsoon as a good indicator of incoming growth and they expect times to get better going forward.

Analyst’s View

Shriram Transport Finance has been the market leader in commercial vehicles loans segment. The company’s focus on rural demand for used vehicles is expected to be the prime driver for growth for the company in the future. The shift from BSIV to BSVI should prove vital to the company as it would be increasing vehicle costs thus driving demand for the company’s core offerings of used vehicle loans. The management is quite optimistic of demand revival after the monsoons. It remains to be seen whether things will pan out as the management expects and how demand revives for the BS-IV vehicles before the impending BS-VI norms coming in at the end of the year. Nonetheless, given their strong rural network and their resilient performance in current tight liquidity conditions, Shriram Transport Finance is a stock to keep an eye out for anyone banking on the logistics and commercial vehicles space.

 


 

Q4 2019 Updates

                                                                Consolidated Financials (In Crs)
Q4FY19 Q4FY18 YoY % Q3FY19 QoQ % FY19 FY18 %  Change
Sales 3880.4 3605.5 7.62% 3994 -2.84% 15545.7 13361.6 16.35%
PBT 972.2 1508.1* -35.53% 983.9 -1.19% 3778.3 3801.8* -0.62%
PAT 746 961.8 -22.44% 635.45 17.40% 2564 2460.5 4.21%

* Includes an exceptional item of Rs 139.74 Cr

Detailed Results

    1. The total revenues for FY19 were up 16% YoY.
    2. The PAT for FY19 was up only 4% YoY.
    3. The Net Interest Income was up 15% YoY.
    4. The last quarter was not good for the company with only 7% YoY rise in revenues. Profits for the last quarter fell 22% although the profit of Q4FY18 was boosted by an exceptional item mentioned above.
    5. The AUM for the last quarter was up 8.54% YoY with book value rising 16.65% in the same period as compared to last year.
    6. The breakup of AUM changes for FY19 are as follows:
      • New Vehicles: Up 5% YoY
      • Used Vehicles: Up 7.76% YoY
      • Business Loans: Up 13.78% YoY
      • Working Capital Loans: Up 61.18% YoY
      • Others: Down 26.04% YoY
    7. The number of branches increased to 1545 in Q4FY19 as compared to 1213 in Q4FY18.
    8. The company has added 137 rural branches and 195 urban branches in the pat one year.
    9. The Net NPA ratio declined to 2.55% in FY19 as compared to 2.83% last year.

Investors Conference Call Highlights

  1. The company’s liquidity situation is stable currently with ample sources of cash present.
  2. The company had seen subdued sentiments in the past 6 months mainly due to the liquidity crunch and the softening of the automobiles market.
  3. The company saw cost of borrowings go up but since the brand has strong pricing power, they were able to pass it on to the end customers.
  4. The company is focussing on rural expansion as it provides them with higher yields. The company has also reduced the LTV as compared to last year to this end.
  5. The company has brought down overall credit cost to 1.92% in the current quarter as compared to 2.25% a year ago.
  6. The company is also proposing a dividend of Rs7 per share bringing their total dividend for the year to Rs 12 per share.
  7. The company expects their AUM to grow in the near future as BS VI implementation shall increase prices of vehicles by 15% to 20% thus pushing up demand for vehicle loans.
  8. The company expects 12% to 15% growth in AUM by September and 18% to 20% for the whole financial year.
  9. The company has disbursed around Rs 11958 Cr in vehicle loans in the last quarter out of which only Rs 812 Cr consist of new vehicle loans while the rest are for used vehicle loans.
  10. The company expects the net interest margin to stay stable at 7.2% going forward in the near future.
  11. The company plans to add around 250 branches in FY20.
  12. The company states that they will continue to maintain current cash levels to keep a comfortable cushion for the year going forward.
  13. The Loss Given Default rate for the company remains high at 32.46%.
  14. The company states that in rural markets, the average LTV is lower than urban areas leading to a higher cost of acquisition for rural customers. In return, the company compensates for this using a higher lending rate. The lending rate for rural market is around 200 bps higher than urban market for similar products.
  15. The company also guides that the overall credit cost should stay around the current levels in the near future.
  16. The company expects heavy vehicle market to pick up after the elections as a lot of logistical activities and infrastructure spending have been suspended for this event. They also see real estate segment to pick up bringing in additional demand for heavy vehicles to transport construction materials.
  17. The prediction of a normal monsoon season is also expected to push up demand as seen in the past.
  18. The company also sees a lot of pre-buying of vehicles coming in once OEMs start providing price guidance for the vehicles made under new regulations. Thus the company expects a spurt in demand for vehicle loans to facilitate this pre-buying.
  19. The company is also raising funds using dollar bonds and retail NCD issues so that they are not dependent on bank loans and are not caught in any problems from a mutual fund redemption run.
  20. The incremental borrowing costs and bank lending rate for the company is at 9.5%.
  21. The company is still evaluating the details of a possible merger with the other entities of the Shriram group but has declined any timeline for confirmation.
  22. The outstanding cash and cash equivalents for the company stand at Rs 8000 Cr in the last quarter.
  23. The company maintains that their collections have been string in the last quarter as disbursement have grown on a QoQ basis but AUM has largely stayed the same in this period.
  24. The weighted overall costs for the entire dollar bond issue come out to around 10.25%.
  25. The management concludes that rising credit demand, higher infrastructure spending post elections, normal monsoon and the transition from BS IV to BS VI shall prove vital for the company going forward and should help aid growth in the near future.

Analyst’s View

Shriram Transport Finance have been the market leader in commercial vehicles loans segment but they have witnessed muted performance in the last quarter as seen by their low revenue growth and drop in profits. The current focus on expanding to rural areas and the multiple factors like renewed infrastructure spending and the prospect of normal monsoon should help the company come back on their growth track. The shift from BSIV to BSVI should prove vital to the company as it would be increasing vehicle costs thus driving demand for the company’s core offerings of vehicle loans. However, one of their largest shareholders, Piramal Enterprise, has expressed its interest in exiting the Shriram Group investment if they get their desired valuation. Getting a new investor of the same pedigree and long term orientation is difficult for Shriram Group.  Nonetheless, Shriram Transport Finance is still a good bet to evaluate on the back of rising logistics segment and commercial vehicle lending.

 


Q3 2019 Updates

Financial Results & Highlights

Consolidated Financials (In Lacs)

Q3FY19 Q3FY18 YoY % Q2FY19 QoQ % 9M FY19 9M FY18 9M% Change
Sales 399340 337800 18.22%  394776 1.16% 1165318 974133 19.62%
PBT  98394 83348 18.05%  93903  4.78% 280601 229371 22.33%
PAT  63545 54154 17.34%  60958  4.24% 181793 149878 21.29%

Detailed Results

    1. Company AUM has risen 14% YoY to more than Rs 1,00,000 Cr.
    2. Revenues have gone up 18% YoY with interest income going up 16.12% YoY.
    3. PAT and EPS have both risen 17% YoY.
    4. For the 9M19, both PAT and EPS have risen 21% showing significant growth in profits and earnings this financial year.
    5. Book value has significantly gone up around 24% to Rs 664 per share vs Rs 534 last year.
    6. Segment wise breakup of AUM:
      • New Vehicles: Up 25% YoY
      • Used Vehicles: Up 11% YoY
      • Business Loans: Up 48% YoY
      • Working Capital Loans: Up 75% YoY
      • Others: Down 25% YoY
      • Total: Up 14.13% YoY
    7. The Securitised portfolio of the books went up 23% YoY.
    8. No of branches increased to 1348 vs 1121 last year with rural segment adding more than 150 branches and the urban segment adding 70 branches since Dec 17.
    9. Gross NPA remains below 9% of overall loan book and net NPA is around 2.78%.

Analyst’s View

Shriram Transport Finance have been the market leader in commercial vehicles loans segment and they continue to grow at good pace maintaining their status as top of the pack in this segment. The current focus on expanding to rural areas and branching out into newer business segments of business loans and working capital loans should help the company maintain its growth trajectory for quite some time in the future. On the other hand, the stable NPA ratios along with the increase in securitised portfolio of the company highlights their strong risk profile and overall financial health. The increase shown in the book value per share along with all the above signs help Shriram Transport Finance cement its status as a good stable investment option in the NBFC space.

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