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Our view ‐ Resilient show on both PPOP and Asset Quality

SHTF’s performance in Q1 FY22 was relatively stronger than expectations, and quite resilient in the context of the second wave. Disbursements were lower by only 15% qoq, aided by execution on the strong pipeline of proposals at the end of March. Used vehicle financing portfolio (90% of AUM) continued to be the main propeller of growth (growing at 12‐13% pa), underpinning AUM growth of 2% qoq and 7% yoy. As per management, the demand for used vehicles has remained strong despite Covid and prices of some products have increased further. Co. thus hopes to deliver 10%+ AUM growth in FY22. Performance on NIM too was ahead of expectations (NII up 15% yoy) with 15‐20 bps reduction in borrowing cost.

Only 4 ppt increase in PAR 30 portfolio with just 1ppt deterioration in Stage‐3 and lower incremental restructuring at 0.5% (incl. expected in Q2) was the key positive highlight. Such asset quality performance was supported by resilient collections (92%/87/94% in April/May/June) on the back of 75‐80% customers using vehicles for essential goods transportation. The movement in overdue buckets called for higher provionsing in the quarter (credit cost at annualized 4.9%), with the management also augmenting Covid provisioning buffer by Rs2.6bn.

SHTF has delivered the best results amongst the vehicle finance NBFCs with the display of stark resilience in asset quality. In addition, the buoyancy in used vehicle market and volumes should gradually re‐rate the stock from current valuation of 1.5x FY23 P/ABV. SHTF remains our top preference within vehicle finance NBFCs and we have a 12m PT of Rs1840. Re‐initiation of the merger process with group cos. could create a negative overhang though.

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