"We continue to like Shriram Transport Finance during recent uncertain times as it is backed by a superior provision coverage of nearly 38.5 per cent, Covid-19-related buffer provisions of Rs 1,870 crore (nearly 1.7 per cent of assets under management) and Tier-I adequacy of nearly 20 per cent (post Rs 1,500 crore rights issue). It has a unique customer base with a moat," said analysts with Emkay Global Financial Services in a recent note.
Additionally, the company reported strong cost control, with cost to income at 19.6 per cent against 26 per cent in Q4FY20 and 22.5 per cent in Q1FY20, the brokerage notes. It maintains a "BUY" rating on the stock with the revised target price of Rs 792.
For analysts at JM Financial, company's focus on a niche segment, lack of direct competition from banks, and on-going expansion into rural areas are key positives, which give Shriram Transport Finance pricing power that should support profitability going forward. The brokerage forecast a compound annual growth rate (CAGR) of 12 per cent over FY20-22E in earnings and value the stock at 0.8x FY22E book value (BV), implying a target price of Rs 840.
Since the IL&FS crisis, the company has diversified into newer borrowing sources such as retail non-convertible debentures (NCDs) and external commercial borrowing (ECBs). The share of ECBs in total borrowings has increased meaningfully from 10 per cent to 18 per cent YoY and Shriram Transport Finance has also increased liquidity to 11–12 per cent of the balance sheet, said analysts at Motilal Oswal Financial Services (MOFSL).
Shriram Transport Finance’s target segments – the used CV and driver-cum-Operator segments – are doing much better than other segments in CV financing. On the asset quality front, too, the company has done a good job of reducing the gross non-performing loans (GNPL) ratio over the past two quarters, analysts at MOFSL said. The brokerage has upgraded its earnings per share (EPS) estimates by 5 per cent for FY21E on the back of better loan book growth and lower operating expenditure (opex), while FY22E estimates remain largely unchanged. It has a "Buy" call on the stock with the target price of Rs 945.
Elara Capital, too, has a "BUY" call on the stock with the target price of Rs 872. "We continue to draw comfort from valuation at 0.8x FY22E P/ABV, which capture concerns on credit cost and liability, but not the ability to deliver an average return on asset (ROA) of 2%+ over FY20-22E with a return on equity (ROE) at 12 per cent," the brokerage says.