Tag - transport

Seeing demand uptick for second-hand CVs- Shriram Transport Finance

Update on the Indian Equity Market:

On Thursday, NIFTY closed in the red at 17,746 (-1%) near its high of 17,795. Among the sectoral indices, MEDIA (+0.9%), AUTO (+0.5%), and CONSUMER DURABLES (+0.5%) closed higher while IT (-1.5%), REALTY (-1.5%), and FINANCIAL SERVICES (-0.9%) closed in the red. Among stocks, UPL (+2.2%), INDUSINDBK (+1.8%), and BAJAJ-AUTO (+1.7%) were the top gainers while JSWSTEEL (-3%), ULTRACEMCO (-2.7%), and SHREECEM (-2.6%) were among the top losers.

Excerpts from an interview of Mr. Umesh Revankar, Vice Chairman & Managing Director, Shriram Transport Finance Corporation (SRTRANSFIN) with CNBC-TV18 dated 5th January 2022:

  • The demand for CV is increasing but not at the expected levels as the economy is not recovering as much as it was expected to. As a result, new CV (commercial vehicles) sales are lower than expectations.
  • Light Commercial Vehicles (LCVs) are showing good demand but it’s not as expected for heavy vehicles. However, demand for used vehicles is good.
  • The resale values have gone up significantly by 15-20% over the year and this reflects that people prefer to buy used vehicles in the current market situation rather than choosing a new vehicle. This eventually works for SRTRANSFIN and they are confident that as the market heats up, as the resale value goes up beyond 20%, eventually demand will come back.
  • The Omicron spread has increased in the last one week but they are not seeing any impact as such even though the city traffic has slowed down a bit. SRTRANSFIN hasn’t seen any downfall in Commercial Vehicle transportation even though mobility had come down in December. Overall, the long-distance movement has increased and hence the CV transportation has not seen any challenge as compared to what was seen in wave 2.
  • Revankar doesn’t expect many challenges as the covid variant is not supposed to be as strong and more people are getting vaccinated.
  • Marginal growth in disbursement can be expected on a QoQ basis and the AUM will be around 10% for FY22E. Larger growth in AUM is expected in FY23E because economic activities will reopen and demand for infrastructure will lead to a huge demand for heavy commercial vehicles and construction equipment.
  • As far as freight rates are concerned, margins for customers have improved because there was some decrease in the excise duties and the fuel prices had come down. Hence there were temporarily higher margins for customers. However, freight rates got corrected as they are linked to fuel prices and are a contractual obligation. But overall margins for truckers have remained strong.
  • Collections have been more than 100% in December. Hence, this shows that business is viable.
  • Revankar doesn’t look at GNPAs of 8% as a problem since the kind of customers they are lending to are individual operators who have to earn and pay. Hence there will be some delay in their collection. Individuals depend on corporates or entities for timely payments.
  • Credit cost for the long term is 2% on average and they are comfortable as long as it stays around 2%. So the GNPA is not an indicator for stress levels in their portfolio.
  • In terms of Net Interest Margin (NIM), SRTRANSFIN has always been eyeing a rate of 7% which has come down to 6.45% due to the higher liquidity they are carrying on their balance sheet due to the ongoing uncertainty in the market. Margins will move towards 7% once there is more certainty in the market.
  • Credit costs have been hovering around 2.5% due to the higher provisioning done in the last year. By March FY22, SRTRANSFIN hopes to bring down credit costs from last year’s mark of 2.48%

Asset Multiplier comments:

  • The company delivered good results in the impacted part of 1HFY22.
  • CV demand is gaining momentum and the company is the largest player in this space.
  • Appropriate provisioning, improving asset quality and strong growth strategy may contribute to the SRTRANSFIN’s topline.

Consensus Estimate: (Source: Market screener website and Tikr)

  • The closing price of Shriram Transport Finance Corporation was ₹ 1,216 as of 5-January-2022. It traded at 1.3x/1.1x/0.9x the consensus Book Value per share estimate of ₹ 968/ 1,087/ 1,219/- for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 1,660/- which implies a PB multiple of 1.4x on FY24E BVPS of ₹ 1,219/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Auto demand picking up as the festive season nears – Maruti Suzuki

Update on the Indian Equity Market:

On Tuesday, Nifty ended 1.9%, higher than the previous close at 11,095. The top gainers for Nifty 50 were Reliance (+7.4%), Zee (+6.4%), and HDFC Bank (+3.8%) while the losing stocks were Tech M (-2.8%), BPCL (-2.5%), and IndusInd Bank (-2.0%). The sectoral gainers for the day were Media (+3.8%), Financial Service (+2.3%) and Pvt Bank (+2.0%) while the losers were IT (-0.9%) and PSU Bank (-0.02%).

Edited excerpts of an interview with Mr RC Bhargava, Chairman, Maruti Suzuki; dated 04th August 2020 from CNBC TV18:

  • Auto sales in the month of July have seen a substantial improvement as compared to June and the demand is seen picking up ahead of the festive
  • Demand is beginning to pick up as the festival season is coming up. Maruti is gradually ramping up production but there are still problems as the factories are working at anywhere near 100% capacities. Safety regulations limit the capacity utilization. So with all of that, Maruti is trying to meet the demand and get up to last year without any forecast or guarantees of what is going to happen.
  • He highlighted that the number of enquiries was large and bookings were going along quite normally, compared to last year.
  • There is the pent-up demand from last year as there is some requirement of people to have mobility as the economy is opening up. However, he expects the situation for six months down to remain uncertain because of negative factors such as lower income levels of people caused by the shutdown in business activities.
  • Hospitality and travel businesses have closed down which were users of vehicles.
  • In terms of the cost of a vehicle in relation to per capita income, he believes that has gone up probably a little faster because of new regulations on safety and emissions.
  • The steel prices have never been on a straight line. There has been a period when steel prices have gone up sharply than they have flattened out and come down and then the cycle reverses. In the last two years, there were periods when steel prices were declining and they are benefited from that. Thus, he is not so worried about the increase in steel prices.
  • Talking on the personal mobility issue he said that the percentage of buying cars which are the smaller entry-level hatchbacks has gone up. The increase in the percentage of people wanting to buy small hatchbacks is an indicator that there is a requirement of people to have a small car for doing all kinds of things, going to school, going shopping and other forms of transport. So he thinks that there is some section of the consumers that needs to have personal transport instead of using shared transport or some other form of transport.

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of Maruti Suzuki India Ltd was ₹ 6,361/- as of 04-August-2020. It traded at 45x/27x the consensus EPS estimates of ₹ 141/239 for FY21E/FY22E respectively.
  • The consensus target price of ₹ 5,698/- implies a PE multiple of 24x on FY22E EPS of ₹ 239/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Expect demand to pick up strongly by festive season: Vinod Dasari

Update on the Indian Equity Market:

On Tuesday, Nifty closed 3% lower at 8,981 after crude futures prices fell into the negative territory for the first time. The top gainers for Nifty 50 were Dr Reddy (+4.4%), Infratel (+2.9%) and Bharti Airtel (+2.2%) while the losing stocks for the day were IndusInd Bank (-12.3%), Bajaj Finance (-9.1%) and ICICI Bank (-8.7%). Pharma (+2.5%) was the only gainer among the sectoral indices for the day. The worst performing sectors were Pvt Bank (-5.9%), Bank (-5.4%) and Auto (-5.3%).

Edited excerpts of an interview with Mr Vinod Dasari, CEO of Royal Enfield.; dated 16th April 2020. The interview was published in The Economic Times.

  • Starting OEM factories are much easier. But there will be some deal of confusion as to which industries can start. Now there are companies in which they might have two or three plants but sometimes the plants are interrelated. So if one area cannot start but the other area is allowed to start, it could be a concern. For example, Tamil Nadu opens up but Maharashtra does not open up, the company will face supply issue which is from Pune.
  • There would be a little bit of a stuttered start but think within 10-15-day time, this will come to normal once the lockdowns are lifted.
  • According to him, the demand side will actually come back stronger for two reasons – Pent up demand and a likelihood that people will not want to travel in public transport increasing demand for cars and motorcycles.
  • April is a washout for the auto industry, May could see a good recovery month but at a slow pace. This quarter will have some impact because of the lockdown but after that, the recovery will be sharper than what people are saying.
  • For dealers, all the money that the company had with them as advance, has been returned by the company. The company has given all the warranty claims, keeping very little stocks with the dealers. Dealers carry less than 10 days’ worth of stock.
  • The company is not doing any retrenchment and pay cuts whether it is the temporary or permanent workforce. Thus, company is paying 100%.
  • The company has more than doubled its network in the last year to reach outside urban areas. This has given them good results. Thus, a combination of both the accessibility of the product and network as well as the aspirational aspect of Royal Enfield bikes will bode well for them.
  • Even in a downturn last year in their category, the company actually gained market share. For overall motorcycle, they still retained their market share despite a 15-20% downturn in the overall motorcycle market.


Consensus Estimate: (Source: market screener website)

  • The closing price of Eicher Motors Ltd was ₹ 13,502/- as of 21-April-2020. It traded at 18.1x/ 18.4x/ 14.8x the consensus EPS estimate of ₹ 745/ 735/ 914 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price of ₹ 18,679/- implies a PE multiple of 20.4x on FY22E EPS of ₹ 914/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”