07-07-2021 11:16 AM | Source: Emkay Global Financial Services
Buy Shriram Transport Finance Ltd For Target Rs. 1,630 - Emkay Global
News By Tags | #872 #2259 #1302 #1219 #1313

Follow us Now on Telegram ! Get daily 10 - 12 important updates on Business, Finance and Investment. Join our Telegram Channel

https://t.me/InvestmentGuruIndiacom

Download Telegram App before Joining the Channel

Well-capitalized for growth opportunities

Rs25bn capital infusion to strengthen Tier-I capital adequacy by ~160-180bps:

Shriram Transport Finance (SHTF) raised fresh capital of Rs25bn in Q1FY22, in line with approval from the board. Of this capital raise, SHTF made a preferential allotment to existing Promoter Shriram Capital worth Rs5bn through equity shares and warrants at a floor price of Rs1,440. For raising the balance Rs20bn, the company opted for the QIP route via the open market at a price of Rs1,430 per share. SHTF already holds decent capital adequacy at ~22.5% as on March’21 with Tier-1 ratio at ~19.9%. We believe that the current issuance will strengthen SHTF’s Tier-I capital adequacy by ~160-180bps.

 

Capital raised to be utilized for managing growth and accelerating provisions:

Our recent discussion with management suggests that the key aim of the capital raising was to provide enough confidence to its lenders and rating agencies which will keep the cost of funds and necessary liquidity under check. The company has already witnessed market share gains in FY21, and any improvement in adequacy will be further utilized to boost growth. The second Covid wave is expected to disrupt CV demand while also leading to a surge in defaults. And, SHTF has higher exposure to relatively low-income customers who are more vulnerable to lockdowns. Thus, the additional capital buffer will provide more room for appropriate provisions and write-offs without compromising growth.

 

Optimism about CV demand and ‘going digital’ remain key mantras in FY21 Annual Report:

Management sees continued growth in CV, PV and tractor markets, with higher budgetary allocation by the Government supporting the infrastructure sector. SHTF is working on further strengthening its leadership position in vehicle financing by focusing on digital initiatives to effectively service customers. It will continue to focus on financing preowned vehicles by strengthening reach and increasing penetration in rural centers.

 

Outlook and valuation:

Our preference for SHTF in these uncertain times is underpinned by its unique customer base with a moat, along with strong underlying demand for used vehicles during the current slowdown. We are now incorporating the latest issuance into our estimates but are building in some stress on asset quality for FY22/23E due to recent lockdowns and consistent worries about another Covid wave. SHTF remains one of our top picks in the NBFC coverage universe.

 

We maintain Buy and OW in EAP, with a revised TP of Rs1,630 (Rs1,680 earlier), corresponding to 1.6x FY23E P/Adj. Book.

 

To Read Complete Report & Disclaimer Click Here

 

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354

 

Above views are of the author and not of the website kindly read disclaimer