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Monday, June 3, 2013


Scrip Code: 511218 SRTRANSFIN
CMP:  Rs. 815.65; Buy at current levels. Medium to Long Term Target: Rs. 860; STOP LOSS – Rs. 750.40; Market Cap: Rs. 18,504.15 Cr; 52 Week High/Low: Rs. 842.70 / Rs. 495.20. Total Shares: 22,68,63,936 shares; Promoters : 5,85,02,778 shares –25.79 %; Total Public holding : 16,83,61,158 shares –74.21. %; Book Value: Rs. 190.05; Face Value: Rs. 10.00; EPS: Rs. 42.49; Dividend: 65.00 %; P/E: 19.19 times; Ind. P/E: 16.73; EV/EBITDA: 6.32.
Total Debt: 17,727.08 Cr; Enterprise Value: Rs. 32,390.05 Cr.

SHRIRAM TRANSPORT FINANCE COMPANY LTD: The Company was founded on 30th June 1979 and is based in Mumbai, Maharashtra. The Company is the flagship company of the Shriram Group. The main object of the company was to provide hire purchase finance to trucks. In February of 1984, company issued 1,80,000 shares at par to the general public. Shriram Transport Finance Company Limited operates as an asset financing non-banking finance company that provides commercial vehicle finance in India. It offers finance for pre-owned and new commercial and passenger vehicles, tractors, three wheelers, multi-utility vehicles, and pre-owned and new construction equipment. The company also provides tire loans, engine replacement loans, working capital loans, co-branded credit cards, and freight bill discounting products, as well as accepts various deposit products. In addition, it owns, operates, and manages Automall, a physical auction platform for pre-owned commercial vehicles; and sells refurbished commercial vehicles. The company serves small truck owners and first time users. As of May 08, 2012, the Company had a network of 528 branches and service centers. The company employees nearly 12000 people and has Asset Under Management (AUM) of more than Rs. 52,717 Cr. Company has more than 6,00,000 customers. The company is compared locally with M&M Financial Services ltd, Sunderam Finance, Manappuram Financial, Bajaj Finance Ltd, GIC Housing Financial and Globally with Aeon Thana Sinsap (Thailand) Public Company Ltd of Thailand, Zenkoku Hosho Co Ltd of Japan, Hitachi Capital Corporation Ltd of Japan.

Investment Rationale:
Shriram Transport Finance co. Ltd is a part of Shriram Group, a prominent player in commercial vehicle financing business, chit funds, consumer finance, life insurance, general insurance, stock broking, property development, project engineering and IT. In February 2013, Sanlam Emerging Markets Ppty Ltd, a unit of Sanlam Ltds Sanlam Life Insurance Ltd, raised its stake to 10% from 6.3%, by acquiring a 3.7% stake in the Company. This deal augments Sanlam’s existing portfolio of business in Africa & Asia, in support of the group’s target of sustainable value creation in these growth markets. It further strengthens the existing relationship between Shriram & Sanlam. Last year Sanlam invested R2 billion in Shriram Capital Ltd the holding company of financial services of Shriram Group. Sanlam Emerging Markets holds 26% in SCL. In May 2013, Piramal Enterprises Ltd acquired a 10% stake in Shriram Transport Finance Co Ltd. Piramal bought 2.28 Cr shares at Rs. 723 per share of the company worth Rs. 1,652 Cr from a private equity major TPG. This deal was in-line with Piramal’s strategy for building their presence in financial services sector. This deal is positive for Shriram Transports, if it gets a banking licence, the stock can double from current level. At the end of March 2013 the company had total Assets under Management (AUM) of Rs. 49,676 Cr segmented into Pre-Owned CV of approximately Rs. 39,828 Cr and into New CV of approximately Rs. 9,527 Cr and approximately Rs. 321 Cr from others services. Valuation skills is critical to succeed in this space given that the amount of loan EMI and truck operator’s ability to repay rests on the value of the truck and Shriram has considerable expertise in valuation of pre own trucks. They value vehicles in to Old Commercial Vehicle and New commercial Vehicle – the Loan to Value Ratio for the Old CVs ranges from 60 % -  70 % and for new CVs it ranges from 75 % - 85 %. Experience in credit appraisal & recovery/collection operations has lead Shriram Transport Finance to become one of the leading organized players in the sector. Due to the underdeveloped banking habits of small truck operators, a large part of monthly collections is in the form of cash also the company have continuous monitoring of disbursed loans so that loan recovery process becomes easier. Company’s Capital Adequacy ratio as of March 31, 2013 stands at 20.58 %. Shriram Transport securitized its loan book at regular basis to fund new origination's which helps in maintaining its growth momentum. Company’s Securitized assets portfolio at the end of FY13 stands at Rs. 18,232 Cr at the end of FY13.

Outlook and Valuation:
The Commercial Vehicle Financing market size is of Rs. 1,85,000 Crs & Shriram Transport Finance Company Limited (STFC) is one of the largest assets financing NBFC with approximately 25 % market share in pre-owned and approximately 5-6 % market share in new truck financing. Strategically present in high yield - pre-owned CV financing with expertise in loan origination, valuation and collection. The company has expanded product portfolio which to include financing of tractors, small commercial vehicles, 3-wheelers, passenger commercial vehicles and construction equipment Large customer base in excess of 9,50,000 as of March 31, 2013. The company has an extensive distribution network of 539 branch offices, 350 rural centres and has partnership with over 500 Private Financiers. The company has tied up with Axis Bank to distribute credit cards to small truck owners and has so far distributed over 3,00,000 credit cards as of March 31, 2013. It is expected that due to legislative pressure on banning trucks beyond 15 years is likely to trigger replacement boom backed by the introduction of Voluntary Retirement Scheme for old trucks with better financing options by the Transport associations. It is expected that this will trigger an replacement demand for 13,50,000 new as well as pre owned trucks. The Passenger Commercial Vehicle Financing market size is estimated to be at Rs. 24,000 backed by the growth in population and an improving road infrastructure, also the tractor financing market is estimated to be at Rs. 30,000 Cr in FY13 and which is witnessing a strong growth. Shriram Transport through its wholly owned subsidiary Shriram Equipment Finance Company would focus on end to end equipment financing. The Construction Equipment financing market is expected to reach over Rs. 40,000 Cr by 2013 end driven by the huge infrastructure spending during the 11th 5-year plan which is estimated to be at approximately Rs. 20 trillion. Shriram transports has 21 Automalls in operation currently & plans to create 50-60 more Shriram Automalls where it provides platform to facilitate buyers & sellers to meet for sale of pre-owned CVs, these automalls earns commission fees through its advisory services and also will provide financing to the buyer. These 21 automalls sold over 75,000 assets so far. The company posted its Q4 FY13 consolidated Total Income of Rs. 1908.05 Cr a growth of 21.1 % YOY, with a PAT of Rs. 383.46 Cr showing a growth of 16.6 % YOY. The Net Interest Income including income from securitization raised 12.8 % to Rs. 952.10 Cr YOY. Growth in total income was driven by growth across key revenue streams; company’s Interest Income was up by 43.1% to Rs. 1,310.36 Cr from Rs 915.82 Cr. Its operating profits grew by 14.3% to Rs. 745.89 Cr from Rs. 652.88 Cr. Its standalone PAT grew by 15.3% to Rs. 355.23 Cr from Rs. 308.06 Cr due to decrease in provisioning cost by 19 basis point. Company’s Gross NPAs & Net NPA stood at 3.20% & 0.77% as against 3.06 % & 0.44 % respectively and the Net NPA in absolute amount stands at Rs. 241.64 Cr maintaining its Coverage ratio of over 76%. At the current market price of Rs. 815.65, the stock is trading at 12.86 x FY14E EPS of Rs 63.39/share and at 12.13 x FY15E EPS of Rs 67.20/share. With the large institution investors coming in and with the introduction of Automalls and the with the increasing replacement demand for the trucks and with the better recovery of loans Shriram transport  looks a good stock to buy at current levels with a medium to long term target of Rs. 860 

SALES ( Crs)5,889.706,461.386,978.307,536.56
NET PROFIT (₹ Cr)1,257.451,357.501,438.181,524.47
EPS ()55.5659.8363.3967.20
PE (x)12.4211.709.6011.32
P/BV (x)2.612.402.001.60
EV/EBITDA (x)6.445.675.035.40
ROE (%)20.9820.8020.1120.20
ROCE (%)

I would buy SHRIRAM TRANSPORT FINANCE COMPANY LTD with a price target of  860.00 for Medium to Long term target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 750.40 on every purchase(Why Strict stop loss of 8 % ?) - Click Here




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