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Our Take:

With vast 40 years of experience and unique business model, Shriram Transport Finance Co Ltd. (SHTF) is a dominant player in the industry. The company commands 16% share in India’s commercial vehicle (CV) financing market and ~40% share in the NBFC CV financing space. As a part of the Shriram Group, the company derives considerable management, operational and financial support from group companies. A faster recovery of the rural sector and a good Rabi harvest is expected to drive rebound in rural demand and SHTF with around 50% of branches in rural & semi urban areas is at clear advantage. An improvement in demand and better availability of funds could further improve SHTF’s growth prospects. The Company has a comprehensive Risk Management Policy in place and has laid down a well-defined risk management framework to identify, assess and monitor risks and strengthen controls to mitigate risks. In our view, its undisputed leadership, deep penetration and niche positioning is a strong moat of the company. Once the pandemic easies and economy is back on track, we expect SHFT business to stabilize and is well-placed to capitalize on CV cycle recovery going forward.

View & Recommendation :

Despite a difficult environment, the company delivered decent growth in 9MFY21. There might be near term volatility in the performance of the company due to uncertainty in prevailing in the industry. We expect from FY22 things will be normalize and we will see a sharp uptick in the earnings. Management has guided AUM growth of 6% in FY21 and double digit in FY22.

We have envisaged 6% CAGR for NII and 15% CAGR for Adjusted Net Profit over FY20-23E. With incremental unlocking of the economy the demand will improve from FY22E. We have estimated ~8% CAGR for AUM over FY20-22E. We expect a sharp rise in GNPAs in FY21E. RoAA is estimated at 2.76% in FY23E compared to 2.28% in FY20.

We feel that investors can buy Shriram Transport Finance Co Ltd. (SHTF) on dips to to Rs.1225 (1.3xFY23E ABV) and add more on Rs.1084 (1.15xFY23E ABV). We expect the Base case fair value of Rs.1362 (1.45xFY23E ABV) and the Bull case fair value of Rs.1503 (1.6xFY23E ABV) over the next 2 quarters.

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