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SHRIRAM TRANSPORT FINANCE COMPANY LTD.

Event Update

BUY

RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH Sector Financial I CMP Rs 285 I Target Rs 372

RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH

Sector Financial

I

CMP Rs 285

I

Target Rs 372

STOCK DATA

Market Capitalisation Book Value per share

Rs 54 bn

Rs.60

Equity Shares O/S (F.V. Rs.10) 1.9 bn

Median Volumes (12 mths) 52 Week High / Low BSE Scrip Code NSE Scrip Code Bloomberg Code Reuters Code

65,305 (BSE+NSE) Rs. 295/ 111

511218

SRTRANSFIN

SHTF@IN

SRTR.BO

SHAREHOLDING PATTERN (%)

Qtr. Ended

Mar-07

Jun-07

Sep-07

Promoter

42.6

42.6

44.8

MFs/FI

2.4

3.4

4.5

FII/NRI/OCB

16.0

15.8

14.4

PCB

6.5

6.4

6.0

Indian Public/Others

32.4

31.9

30.3

STOCK PERFORMANCE (%)

 
 

1M

3M

12M

Absolute

29.8

61.6

128

Relative

27.6

29.5

63.1

STOCK PRICE PERFORMANCE

STFCL BSE (Rebased) 300 250 200 150 100 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07
STFCL
BSE (Rebased)
300
250
200
150
100
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07

Shriram Transport Finance Company Ltd. (STFCL) announced raising of Rs6bn through preferential issue of 12mn shares and 8mn warrants to promoters at Rs300/share. The allotment is to Blue Ridge (6.8mn shares), Kampani Investments (1.2mn shares), Tiger Global (4mn shares) and Shriram Holdings (8mn shares). This will result in an equity dilution of 11% to Rs2.1bn and networth will consequently increase by 84% to Rs19.8bn.

Key takeaways from the update:

The capital raising by STFCL is one of the largest by any NBFCs in India and will be utilised towards funding its growth plans.

STFCL has been witnessing high asset growth in H1FY08 (62%) and the dilution will help shore up its networth. This will enable STFCL to sustain its momentum in disbursements and business growth through branch expansion and addition to workforce. STFCL targets 400 branches by end-FY08.

STFCL continues to remain a market leader in pre-owned CV financing (constitutes 76% of total CV portfolio) and has created a niche in valuation of pre-owned trucks and efficiency in the collection system. They have a large customer base established over a decade.

The company plans to foray into financing construction equipment, passenger vehicles and tractors. It has entered into a tie up with Ashok Leyland for bill discounting and has set up a 40:60 JV, Ashley Transport Services.

A tie-up with private financiers for origination of loans is enabling them to generate 20% of incremental disbursements through their current network of 250 such financiers.

Steady income accretion from securitization, ability to maintain NIM above 8% and strong asset growth over the next 3 years due to improved leveraging ability will aid in sustaining growth momentum. Thus, we have revised our FY09 net profit estimate upwards by 2.5% to Rs4.5bn.

At the CMP of Rs285, STFCL is trading at a P/E of 13.1x FY09 EPS of Rs 21.7 and a P/BV of 2.4x. We value the stock at a sustainable RoE of 23.5%, FY09 BV of Rs114 and fair P/BV of 3.25x. Considering its strong franchise network, scalability and earnings visibility, we maintain our ‘BUY’ recommendation and revise our 12-month price target upwards to Rs372, which represents a 31% upside from the CMP.

KEY FINANCIALS (CONSOLIDATED)

 

(Rs Mn)

KEY RATIOS

Yr Ended

Op

YoY Gr

Op

Op Marg

Net

Eq

Yr Ended

EPS

BV

RoAA

RoNW

P/BV

P/E

(March)

Income

(%)

Profits

(%)

Profits

Capital

(March)

(Rs.)

(Rs)

(%)

(%)

(x)

(x)

2007

14,155

55.8

4,557

32.2

1,904

184

2007

9.9

56.0

2.49

19.9

5.0

28.7

2008E

23,690

67.4

6,991

29.5

3,205

212

2008E

15.1

93.5

2.46

20.9

3.0

18.8

     

2009E

21.7

114.4

2.36

20.8

2.4

13.1

2009E

35,650

50.5

9,635

27.0

4,594

212

   

Note: Valuations are on fully diluted basis

 

Analyst - Chandana jha I

chandanaj@pinc.co.in

I

Tel: +91-22-6618 6398

14 November 2007

1

 

Financial Results for the quarter & half year ended 30 September 2007

 

Particulars (Rs Mn)

 

Quarter Ended

 

Half Year Ended

Year Ended

30/09/07

30/09/06

Gr %

30/09/07

30/09/06

Gr %

31/03/07

Operating income

5,603

3,161

77.2

10,239

5,870

74.4

13,964

Other Income

 

92

21

345.4

168

63

167.8

192

TTTTTotalotalotalotalotal

IncomeIncomeIncomeIncomeIncome

5,6955,6955,6955,6955,695

3,1823,1823,1823,1823,182

79.079.079.079.079.0

10,40710,40710,40710,40710,407

5,9335,9335,9335,9335,933

75.4

14,15514,15514,15514,15514,155

Interest expended

2,869

1,576

82.1

5,175

2,959

74.9

7,239

Operating expense

1,301

994

30.9

2,499

1,704

46.7

3,922

TTTTTotalotalotalotalotal

ExpenditureExpenditureExpenditureExpenditureExpenditure

4,1704,1704,1704,1704,170

2,5702,5702,5702,5702,570

62.362.362.362.362.3

7,6747,6747,6747,6747,674

4,6634,6634,6634,6634,663

64.6

11,16211,16211,16211,16211,162

OperatingOperatingOperatingOperatingOperating

profitprofitprofitprofitprofit

1,5251,5251,5251,5251,525

613613613613613

149.0149.0149.0149.0149.0

2,7322,7322,7322,7322,732

1,2701,2701,2701,2701,270

115.2

2,9942,9942,9942,9942,994

Depreciation

 

54

24

124.8

97

49

97.1

98

PBTPBTPBTPBTPBT

1,4711,4711,4711,4711,471

588588588588588

150.0150.0150.0150.0150.0

2,6362,6362,6362,6362,636

1,2211,2211,2211,2211,221

115.9

2,8952,8952,8952,8952,895

Tax

511

193

164.4

909

415

118.9

988

NetNetNetNetNet

ProfitProfitProfitProfitProfit

959959959959959

395395395395395

142.9142.9142.9142.9142.9

1,7271,7271,7271,7271,727

80580588058050 5

114.4

1,9071,9071,9071,9071,907

Equity capital ( FV Rs 10)

1,911

1,563

 

1,911

1,563

 

1,842

EPSEPSEPSEPSEPS

forforforforfor

thethethethethe

period(Rs)period(Rs)period(Rs)period(Rs)period(Rs)

5.025.025.025.025.02

2.532.532.532.532.53

9.09.09.09.09.0

5.155.155.155.155.15

10.410.410.410.410.4

OPMOPMOPMOPMOPM

(%)(%)(%)(%)(%)

26.7826.7826.7826.7826.78

19.2519.2519.2519.2519.25

 

26.2626.2626.2626.2626.26

21.4021.4021.4021.4021.40

 

21.121.121.121.121.1

NPM (%)

 

16.84

12.41

16.59

13.57

13.5

NIMNIMNIMNIMNIM

8.368.368.368.368.36

8.978.978.978.978.97

8.408.408.408.408.40

9.009.009.009.009.00

9.209.209.209.209.20

Note: Provisions are included in op. expenses as per BSE format. Therefore, op. profit and OPM of FY07 is different from key financials and abridged financials.

Income Statement

2006

2007

2008E

2009E

Operating Income

8,984

13,963

23,607

35,562

Other Income

 

102

192

83

88

TTTTTotalotalotalotalotal

IncomeIncomeIncomeIncomeIncome

9,0879,0879,0879,0879,087

14,15514,15514,15514,15514,155

23,69023,69023,69023,69023,690

35,65035,65035,65035,65035,650

Interest Expanded

 

4,151

7,239

12,445

19,836

Operating expenses

1,831

2,258

4,166

6,090

Depreciation

 

102

101

88

89

OperatingOperatingOperatingOperatingOperating

ProfitProfitProfitProfitProfit

3,0033,0033,0033,0033,003

4,5574,5574,5574,5574,557

6,9916,9916,9916,9916,991

9,6359,6359,6359,6359,635

Provisions

 

841

1,665

2,245

2,696

PBTPBTPBTPBTPBT

 

2,1622,1622,1622,1622,162

2,8922,8922,8922,8922,892

4,7464,7464,7464,7464,746

6,9396,9396,9396,9396,939

Tax

745

988

1,541

2,345

NetNetNetNetNet

ProfitsProfitsProfitsProfitsProfits

1,4171,4171,4171,4171,417

1,9041,9041,9041,9041,904

3,2053,2053,2053,2053,205

4,5944,5944,5944,5944,594

Fully dil. Eq. sh. O/s (mn)

150.6

184.2

211.9

211.9

Book Value (Rs)

 

55

60

93.5

114

BasicBasicBasicBasicBasic EPSEPSEPSEPSEPS (((((Rs)Rs)Rs)Rs)Rs)

9.49.49.49.49.4

10.310.310.310.310.3

15.715.715.715.715.7

22.522.522.522.522.5

Cash Flow Statement

2006

2007

2008E

2009E

%%%%%

ofofofofof

averageaverageaverageaverageaverage

interestinterestinterestinterestinterest

bearingbearingbearingbearingbearing

assetsassetsassetsassetsassets

Operating Income

 

16.73

14.09

14.64

15.63

Interest & Finance Charges

7.73

7.30

7.72

8.72

Net Interest Income

9.00

6.78

6.92

6.91

Other Income

 

0.19

0.19

0.05

0.04

Operating Income

9.19

6.98

6.97

6.95

Staff Cost

0.79

0.67

1.70

1.79

Overheads and Depreciation

2.63

0.05

0.89

0.88

Operating Costs

 

3.41

0.73

2.58

2.68

Pre-provision op.

profit

5.78

6.25

4.39

4.27

Loan Loss provisions

1.57

1.68

1.39

1.18

Profit Before Taxes

4.03

2.92

2.94

3.05

Taxes

 

1.39

1.00

0.96

1.03

RoAA

3.98

2.49

2.46

2.36

Avg. Assets/Avg. net worth

6.73

8.00

8.52

8.83

RoE

 

26.76

19.94

20.99

20.86

Year Ended March (Figures in Rs Mn)

Balance Sheet

2006

2007

2008E

2009E

Equity Share Capital

1,506

1,842

2,039

2,039

Optianally convert. warrants

199

77

80

80

Suspense account

186

-

-

-

Reserves & Surplus

6,462

8,822

17,784

22,216

NetNetNetNetNet

worthworthworthworthworth

8,3538,3538,3538,3538,353

10,74110,74110,74110,74110,741

19,90319,90319,90319,90319,903

24,33524,33524,33524,33524,335

Total Loans

 

(secured & unsecured)

43,964

87,384

140,454

202,370

Deferred Tax liability

1,337

866

866

866

Employee stock option o/s

35

123

123

123

CapitalCapitalCapitalCapitalCapital

EmployedEmployedEmployedEmployedEmployed

53,68953,68953,68953,68953,689

99,11599,11599,11599,11599,115

161,346161,346161,346161,346161,346

227,694227,694227,694227,694227,694

Fixed Assets

1,568

1,276

1,188

1,099

Net current assets

52,025

95,193

154,628

218,363

Investments

92

2,246

5,131

7,832

CWIP

0

399

399

399

Misc exp.

4

1

0

1

TTTTTotalotalotalotalotal

AssetsAssetsAssetsAssetsAssets

53,68953,68953,68953,68953,689

99,11599,11599,11599,11599,115

161,346161,346161,346161,346161,346

227,694227,694227,694227,694227,694

Key Ratios

2006

2007

2008E

2009E

OPM(%)

33.0

32.2

29.5

27.0

NPM(%)

15.6

13.5

13.5

12.9

RoAA(%)

3.98

2.49

2.46

2.36

RoANW(%)

26.8

19.9

20.9

20.8

GNPA

2.03

2.07

2.08

2.06

NNPA

1.28

1.22

1.20

1.00

Book Value(Rs)

44.2

56.0

93.5

114.4

Total Income/Total Assets (x)

0.17

0.14

0.15

0.16

PBT/avg assets(%)

6.1

3.8

3.6

3.6

Cost Income Ratio (%)

20.2

5.1

17.6

17.1

P/E (x)

38.0

28.7

18.8

13.1

P/BV (x)

6.4

5.0

3.0

2.4

Team

Equity Desk

R. Baskar Babu - Head - Equity Broking baskarb@pinc.co.in 91-22-66186465

Gealgeo V. Alankara - Head - Institutional Sales alankara@pinc.co.in 91-22-66186466

Sachin Kasera - Co-Head - Domestic Equities sachink@pinc.co.in 91-22-66186464

Research

Sameer Ranade - Capital Goods / Utilities sameerr@pinc.co.in 91-22-66186381

Sujit Jain - Real Estate / Construction sujitj@pinc.co.in 91-22-66186379

Amol Rao - Hospitality / Pipes / Packaging amolr@pinc.co.in 91-22-66186378

Nirav Shah - Sugar / Textiles niravs@pinc.co.in 91-22-66186383

Nakul Dharmawat - Cement / Building Products nakuld@pinc.co.in 91-22-66186382

Rishabh Bagaria - Auto / Auto Ancilliary rishabhb@pinc.co.in 91-22-66186391

Ruchir Desai - Technology ruchird@pinc.co.in 91-22-66186372

Syed Sagheer - Logistics / Light Engineering syeds@pinc.co.in 91-22-66186390

Chandana Jha - Banking / Financial Services chandanaj@pinc.co.in 91-22-66186398

Rahhul Aggarwal - Metals rahhula@pinc.co.in 91-22-66186388

Dipti Solanki - Media diptis@pinc.co.in 91-22-66186392

Faisal Memon - Associate - Metals

faisalm@pinc.co.in

91-22-66186389

Ashish Dangi - Associate - Lifestyle / Retail Products ashishd@pinc.co.in 91-22-66186481

Ashwani Agarwalla - Associate -Agro Products / Fertilizers ashwania@pinc.co.in 91-22-66186482

Abhishek Gangwani -Associate - Electronics abhishekg@pinc.co.in 91-22-66186385

/ Hardware

Sales:

Anil Chaurasia

Alok Doshi

91-22-66186462

91-22-66186375

Sapna Mehta

Sundeep Bhat

91-22-66186391

91-22-66186641

Dealing:

Rajesh Khanna / Raju Bhavsar / Pratiksha idealing1@bloomberg.net 91-22-66186326

Shivkumar R / Manoj Parmar / Hasmukh Prajapati idealing1@bloomberg.net 91-22-66186323

Derivative Desk

Sailav Kaji - Head - Derivatives & Strategist sailavk@pinc.co.in 91-22-66186344

Janakiram Karra

jkarra@pinc.co.in

91-22-66186352

Anand Kuchelan anandk@pinc.co.in

91-22-66186344

Shailesh Kadam shaileshk@pinc.co.in

91-22-66186349

Ketan Chaurasia kchaurasia@pinc.co.in

91-22-66186343

Directors

Gaurang Gandhi gaurangg@pinc.co.in

91-22-66186400

Hemang Gandhi hemangg@pinc.co.in

91-22-66186400

Ketan Gandhi

ketang@pinc.co.in

91-22-66186400

Rakesh Bhatia - Head Compliance rakeshb@pinc.co.in 91-22-66186400

 

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