Bigger demand in financing younger vehicles – Shriram Transport Finance

Bigger demand in financing younger vehicles – Shriram Transport Finance

Update on Indian Equity Market:

The Budget 2021 induced rally which started on Monday continued as Nifty50 closed the day 142 points higher at 14,790. The rally was led by PHARMA (2.8%) along with PSU BANK (2.6%) and PVT BANK (1.7%) continued its upward journey while REALTY (-0.4%) and FMCG (-0.1%) were the only sectors that closed in the red. Within the index, INDUSINDBK (7.3%), POWERGRID (6.0%) and DIVISLAB (4.7%) were the biggest gainers whereas SHREECEM (-1.6%), UPL (-1.5%), and ULTRACEMCO (-1.0%) were the biggest losers.

Excerpts of an interview with Mr. Umesh Revankar, Managing Director- Shriram Transport Finance Company Ltd (SRTRANSFIN) with CNBC TV18 dated 2nd February 2021:

  • Mr. Revankar believes that the announcement of a voluntary vehicle scrappage policy is a positive development for the auto and allied industry. The development will increase the demand especially for financing of 3 to 10-year-old vehicles.
  • The existing loan book of the company is not impacted by the introduction of the policy. The company normally lends for a maximum of 12-13 years. However, he expects people to buy younger vehicles between 3-10 years and there will be a big demand in that space.
  • He mentioned that the company is able to raise money at low costs for a longer tenure. This is expected to reduce the overall cost of funds and eventually improve NIMs (Net Interest Margins). He is confident of breaching 7 percent in NIMs.
  • The company may do much lower than what had been planned for restructuring. As a result, the restructuring portfolio will be much smaller.
  • The credit cost as of December-2020 was at 2.59 percent which is expected to be sustainable in the next few quarters. The company is aiming to go back to 2 percent by the end of FY22E.

Consensus Estimate: (Source: market screener website)
•The closing price of SRTRANSFIN was ₹ 1,464/- as of 3-February-2021. It traded at 1.7x/ 1.5x/ 1.3x the consensus book value estimate of ₹ 854/ 970/ 1,093 for FY21E/FY22E/23E respectively.
• The Consensus price target of SRTRANSFIN  of  ₹ 1,393/- implies a 1.3x PB multiple on FY23E book value estimate of ₹1,093/-.

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.”

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