Recommendation From Finance Sector

HAVE A SMOOTH RIDE

HERE IS WHY
Evolving NBFC sector after demonetisation 
Strong product portfolio 
Attractive valuations

After demonetisation drive in India to curb black money, there was widespread expectation of impact on non-banking finance companies (NBFCs). There may have been short term impact, but going forward, the long term perspective remains strong. The contribution of NBFCs to the economy has grown in leaps and bounds from 8.4 per cent in 2006 to above 14 per cent in March 2015.

In terms of financial assets, NBFCs have recorded a healthy growth at CAGR of 19 per cent over the past few years, comprising 13 per cent of the total credit and expected to reach nearly 18 per cent by 2018-19. Shriram Transport Finance Company is a non-banking finance company engaged in the business of asset financing.

The company provides finance for commercial vehicles and other loans, operating through a network of approximately 905 branches. Shriram Transport Finance Company has 500 private financiers and 903 rural centres. The company has more than 14 lakh customers. The company is engaged in pre-owned commercial vehicle (CV) financing business. 

It services include lending and deposits. On the nine-month financial front, Shriram Transport Finance Company’s revenue increased 10.53 per cent to Rs.8116 crore in 9MFY17, as compared to same period in the previous financial year. The company’s EBITDA too rose 8.38 per cent to Rs.5637 crore in 9MFY17 on a yearly basis. Its net profit also increased 7.1 per cent to Rs.1108 crore in 9MFY17, as compared to the same period in the previous fiscal.

Shriram Transport Finance Company’s cost-to-income ratio at 19.54 per cent in Q3FY17, as compared to 22.82 per cent in Q3FY16. Its ROE stood at 13.8 per cent in 9MFY17. The company’s interest coverage ratio stood at 2.06x in 9MFY17. Shriram Transport Finance Company’s topline increased at 10.78 per cent CAGR in the last five financial years. The company’s EBITDA too rose by 8.83 per cent CAGR in FY12-FY16. However, its bottomline has witnessed degrowth of 1.99 per cent in last five fiscal years.

On the asset quality front, Shriram Transport Finance Company’s gross NPA stood at 6.62 per cent to Rs.4306 crore in 9MFY17, as against 4.29 per cent to Rs.2536 crore in 9MFY16. The company’s net NPA stood at 1.71 per cent to Rs.1058 crore in 9MFY17, while it was 0.88 per cent at Rs.502 crore in 9MFY16. On the segmental revenue front, Shriram Transport Finance Company earned 48.7 per cent from HCVs, 23.36 per cent from passenger vehicles, 21.25 per cent from M&LCVs, 5.38 per cent from tractors, 1.84 per cent from others in 9MFY17. On the valuation front, Shriram Transport Finance Company’s share price is trading at a PE of 18.25x, as compared to peers such as L&T Finance Holdings (19.5x), Bajaj Finance (44.65x).

The company’s share price is available at lower valuation as compared to industry PE of 19.92x. It has given attractive dividend yield of 1.05 per cent to its shareholders. Shriram Transport Finance Company’s book value stood at Rs.490.99.