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Shriram Transport Finance Company Ltd

No. of shares (crore) 22.7

Mkt cap (Rs crs) 24324

Current price (FV. 10) 1045

Price target (Rs) 1237

52 week H/L (Rs.) 1224/549

Book Value (Rs.) 402

P/BV (FY15e/16e) 2.6/2.2

P/E (FY15e /16e) 17.3/15.1

BSE Code 511218

NSE Code SRTRANSFIN

Bloomberg SHTF IN

Daily volume (avg. weekly) 212760

Shareholding pattern %

Promoters 26.05

MFs / Banks / FIs 3.35

Foreign 52.49

Govt. Holding 0.00

Non-Promoter Corp. 11.41

Total Public 6.7

Total 100.00

As on Sep 30, 2014

Recommendation

Accumulate

Analyst

Priyanka Somani

Phone: + 91 (33) 3027 3043

E- mail: [email protected]

Figures in Rs crs

Net Interest Income

Non Interest Income

Pre-Provision Profits

PBDT

Net Profit

EPS (F.V.10)

EPS growth (%)

Pvt Ltd

ities Distribution of Mutual Funds Dis

Ltd.

SRTRANSFIN

FY12 FY13 FY14

3442.92 3719.38 3751.54

204.79 237.64 526.44

2750.62 3057.62 3216.46

1974.89 2185.38 2003.25

1308.81 1463.95 1357.94

57.86 64.52 59.85

7.5 11.5 -7.3

Company Background

Established in 1979, Shriram Transport Finance Company Ltd is

India’s leading non banking financial company

competitive advantages in pre-owned commercial vehicle

financing (especially 5-12 year old vehicles).

Highlights

• Strong competitive edge and track record in pre

financing (25% market share) is rooted in its strong customer

relationships, expertise and experience in pre

valuation and strong intelligence. Given , that it lends primarily

to small road transport operators (SRTOs) and first time users

(FTUs) , who have low credit profile and may not have a numb

of necessary documents, this experti

company’s AUM has recorded strong 30% CAGR over the past

decade while maintaining credit costs at manageable levels.

Rural initiatives and newer products/business will

• The company is increasing in rural reach to capt

in penetration of CVs in rural areas driven by better road

infrastructure and higher goods demand due to rising incomes,

freight rates and falling diesel prices and interest rates.

• We expect expansion of assets under management, and

stabilizing return on equity and net interest income going

forward. Regulatory norms with respect to non performing

assets and securitization are to be monitored.

• The stock currently trades at 17.3 times FY15e earnings and 15.1

times FY16e earnings and seems rea

levels, however, in the light of pick up in credit demand from

last quarter of FY15 onwards , we recommend

with a target of Rs 1237 based on 18xFY16e earnings over a time

horizon of 6-12 months.

Jan 7, 2015

istribution of Life Insurance

FY15e FY16e

4091.54 4590.25

299.08 458.70

3286.03 3765.64

2023.60 2298.95

1365.48 1559.43

60.18 68.72

0.5 14.2

Established in 1979, Shriram Transport Finance Company Ltd is

India’s leading non banking financial company (NBFC) with strong

owned commercial vehicle (CV)

12 year old vehicles).

Strong competitive edge and track record in pre-owned CV

financing (25% market share) is rooted in its strong customer

experience in pre-owned CV

valuation and strong intelligence. Given , that it lends primarily

to small road transport operators (SRTOs) and first time users

(FTUs) , who have low credit profile and may not have a number

expertise gain significance. The

company’s AUM has recorded strong 30% CAGR over the past

decade while maintaining credit costs at manageable levels.

s and newer products/business will drive growth.

The company is increasing in rural reach to capture the increase

in penetration of CVs in rural areas driven by better road

infrastructure and higher goods demand due to rising incomes,

ates and falling diesel prices and interest rates.

We expect expansion of assets under management, and

izing return on equity and net interest income going

forward. Regulatory norms with respect to non performing

assets and securitization are to be monitored.

e stock currently trades at 17.3 times FY15e earnings and 15.1

times FY16e earnings and seems reasonably priced at these

levels, however, in the light of pick up in credit demand from

last quarter of FY15 onwards , we recommend ‘Accumulate’

with a target of Rs 1237 based on 18xFY16e earnings over a time

CD Equisearch Pvt Ltd


Market Share (target and current)

12 years +180bn

0-4 years 870bn

5-12 years,850bn

(Shriram Target)

Shriram

Transport(22%)

Other organized

financers(8%)

Unorganized

financers(70%)

Financial and Operational Dynamics of

Source: Crisil , STFC

Source: Crisil

2


ities Distribution of Mutual Funds Dist

Pre-owned Commercial Vehicle Industry

Pre-owned commercial vehicles segment has been the flagship

of the company over past three decades. The commercial vehicle

financing market size is estimated to be Rs. 1900 bn comprising of ~6mn

vehicles.

The Company is targeting the 5-12 year old pre

accounting for 44% market share in value terms and 43% in

terms with an addressable market opportunity of Rs.750 bn. The pre

owned vehicle market is largely unorganized and under penetrated with

60-65% market share with private financiers presenting enormous

business opportunity for a sustainable long term

tonne CV generally changes ownership four times in its life cycle. It

starts of on the long haul national highways, moves down to interstate

by the fifth year, further on to less than 300 km intercity routes and

finally goes on to local uses like garbage trucks after 13

changes of ownership create multiple financing options for financiers.

Financial and Operational Dynamics of CV Industry

2



owned Commercial Vehicle Industry

owned commercial vehicles segment has been the flagship segment

past three decades. The commercial vehicle

financing market size is estimated to be Rs. 1900 bn comprising of ~6mn

12 year old pre-owned vehicle segment

accounting for 44% market share in value terms and 43% in volume

terms with an addressable market opportunity of Rs.750 bn. The pre-

owned vehicle market is largely unorganized and under penetrated with

65% market share with private financiers presenting enormous

business opportunity for a sustainable long term growth. A typical nine

tonne CV generally changes ownership four times in its life cycle. It

starts of on the long haul national highways, moves down to interstate

by the fifth year, further on to less than 300 km intercity routes and

ocal uses like garbage trucks after 13-14 years. These

changes of ownership create multiple financing options for financiers.



Segment-wise

Volumes

Segments FY10 FY11 FY12 FY13

LCVs 287,777 3,61,846 460,831 524,887 432,111

MHCV 244,944 323,059 348,701 268,263 200,627

Total 532,721 684,905 809,532 793,150 632,738

The rates were increased a couple of times to counter the rising inflation, thereby leading to turning off the

tap to bare minimum when it came to

the infrastructure sectors witnessed lower traction in terms of activity, thereby leading to lukewarm

economic activity across key states.

2013-14 was among the most challenging year

commercial vehicle industry is not new to downturns.. The medium and heavy truck segment

accounts for the bulk of the industry’s load

further by 25 per cent in 2013-14.

The Society of Indian Automobile Manufacturers (SIAM) has reported that the overall domestic sales of

vehicles during the year 2013-14 grew marginally by 3.53% as compared to year 2012

sales of passenger vehicles declined by 6.05%.

registered negative growth of 25.33% and Light Commercia

Wheelers sales declined by 10.90%.

Passenger Carriers and Goods Carriers decline

registered growth of 7.31%. The heavy goods transport vehicles sector faced many challenges

idle time due to degrowth in manufacturing, mining and quarrying sectors, pressure on margins as the

freight rate increases were not commensurate with fuel price increases. This resulted into lower demand for

credit from urban areas. The rural and semi

growth in food grain production.

The real GDP growth rate is projected to pick up to a range of 5% to 6% in 2014

supply bottlenecks and progress on the implementation of stalled projects already cleared should

contribute to growth.

Source: STFC

3



FY14

432,111

200,627

632,738

Economic performance of the commercial vehicle

industry (FY 2013-14)

GDP growth showed a sluggish growth in the year 2013

14.The uneven political climate led to stagnant economical

scenario – thereby leading to lowe

investments in infrastructure and core industries

leading to lower capital expenditure and le

The process for new licenses was set into

onset of the new Government.


tap to bare minimum when it came to funding at competitive rates by the banks. The core industries and


among the most challenging year for the Indian commercial vehicles sector. India’s cycle

commercial vehicle industry is not new to downturns.. The medium and heavy truck segment

accounts for the bulk of the industry’s load-carrying capacity - shrank 26 per cent in 2012


14 grew marginally by 3.53% as compared to year 2012

senger vehicles declined by 6.05%. Medium & Heavy Commercial Vehicles (M&HCVs)

th of 25.33% and Light Commercial Vehicles also dropped by 17.62%. Three

Passenger Carriers and Goods Carriers declined by 12.74% and 2.53% respectively.

registered growth of 7.31%. The heavy goods transport vehicles sector faced many challenges

growth in manufacturing, mining and quarrying sectors, pressure on margins as the

eight rate increases were not commensurate with fuel price increases. This resulted into lower demand for

credit from urban areas. The rural and semi-urban credit demand was maintained due to impressive

rate is projected to pick up to a range of 5% to 6% in 2014-15. Easing of domestic


3



Economic performance of the commercial vehicle

growth showed a sluggish growth in the year 2013-

The uneven political climate led to stagnant economical

thereby leading to lower infusion of

infrastructure and core industries – also

enditure and less job creation.

r new licenses was set into motion, with the


funding at competitive rates by the banks. The core industries and


e Indian commercial vehicles sector. India’s cycle-prone

commercial vehicle industry is not new to downturns.. The medium and heavy truck segment - which

shrank 26 per cent in 2012-13 and shrank


14 grew marginally by 3.53% as compared to year 2012-13 (last year). The

Medium & Heavy Commercial Vehicles (M&HCVs)

l Vehicles also dropped by 17.62%. Three

d by 12.74% and 2.53% respectively. Two Wheelers

registered growth of 7.31%. The heavy goods transport vehicles sector faced many challenges in terms of

growth in manufacturing, mining and quarrying sectors, pressure on margins as the

eight rate increases were not commensurate with fuel price increases. This resulted into lower demand for

urban credit demand was maintained due to impressive

15. Easing of domestic




Company Overview

Established in 1979, Shriram Transport Finance Co Ltd. is the largest asset financing NBFC with assets under

management of Rs 53,102.11crore. The company

market share of 20-25% in the strategic segment of 5

network of 654 branches and partnership with over

owned commercial vehicle industry and thereby ensured inclusive growth to its st

lakh first time users and driver-turned-owners.

Subsidiary

Construction Equipment Business

The company capitalizes upon the trend among small road transport operators to diversify into construction

equipment as the second income opportunity through its subsidiary

offers a wide range of pre-owned and new commercial construction e

etc. to first time users, including the existing customers. During 2013

topline of Rs. 543.95 crore and a net profit of Rs.86.83 crore. The company had an

March 31, 2014.

Auto malls

Shriram Automall India Limited, a subsidiary of the

during 2013-14. Automall is the first-of-its

buyers and sellers. This platform has become a unique mechanism to ensure price discovery of the pre

vehicles. Automall offers absolute transparency in valuation process, backed with assured title, quality and

performance of the vehicle to the buyers and assured payment to the sellers.

disbursements (by volume) are from customers who have bought vehicles through automalls.

Investment Rationale

Shriram Transport’s leadership position in pre

(about 22% market share) is rooted in its strong customer relationships,

expertise and experience in pre owned CV valuation and strong local

intelligence. Given that it lends primarily to small road transport

operators (SRTOs) and first time u

profile and may not have a numbe

expertise gain significance. Moreover the company is increasing its rural

reach to capture the increase in penetration of CVs in rural areas driven

by better

inco

The company has 700 branch offices, 635 rural centres and tie up with

approximately 500 private financiers. Also, STFC has 16410 employees

(pan India) including 9681 field officers.

4




management of Rs 53,102.11crore. The company is a leader in organized financing of pre

25% in the strategic segment of 5-12 year old trucks. Having a pan

branches and partnership with over 500 private financiers, the company has revitalized the pre

cle industry and thereby ensured inclusive growth to its strong customer base of over 6

owners.

upon the trend among small road transport operators to diversify into construction

equipment as the second income opportunity through its subsidiary - Shriram Equipment Finance Co. Ltd. It

owned and new commercial construction equipment including forklifts, cranes, loaders

etc. to first time users, including the existing customers. During 2013-14, Shriram Equipment Finance registered a

topline of Rs. 543.95 crore and a net profit of Rs.86.83 crore. The company had an AUM of Rs. 3

Limited, a subsidiary of the company, operates 32 Automalls, 11 of which were opened

its-kind mall that offers a common meeting platform for

buyers and sellers. This platform has become a unique mechanism to ensure price discovery of the pre


to the buyers and assured payment to the sellers. Nearly 30% of Shriram Transport’s


Investment Rationale

Pioneer in pre-owned commercial vehicle financing sector

Shriram Transport’s leadership position in pre




operators (SRTOs) and first time users (FTUs) , who have low credit

profile and may not have a number of necessary documents , this



by better road infrastructure and higher goods demand due to rising

incomes.



(pan India) including 9681 field officers.

4




ed financing of pre-owned trucks with a

year old trucks. Having a pan-India presence with a

500 private financiers, the company has revitalized the pre-

rong customer base of over 6

upon the trend among small road transport operators to diversify into construction

Shriram Equipment Finance Co. Ltd. It

quipment including forklifts, cranes, loaders

14, Shriram Equipment Finance registered a

AUM of Rs. 3,418.39 crore as on

company, operates 32 Automalls, 11 of which were opened

kind mall that offers a common meeting platform for the potential

buyers and sellers. This platform has become a unique mechanism to ensure price discovery of the pre-owned


Nearly 30% of Shriram Transport’s


owned commercial vehicle financing sector

Shriram Transport’s leadership position in pre-owned CV financing




sers (FTUs) , who have low credit

r of necessary documents , this



road infrastructure and higher goods demand due to rising





Fundamentally Strong Financials

Source : CD Research

Assets under management on strong growth track

Consolidated assets under management (AUM) increased from Rs 55,250 crore in FY 2013

2014-15. The AUM consists of financing of medium and light commercial vehicles (MLCVs

(22%), Tractors (5.4%), others (3.4%) and heavy CVs (40%).

within next 2 years. As per Q2 FY15 results there has been a significant degrowth in the heavy vehicles segment as the

company is focused on growing more in mid and smaller vehicles segment. Moreover, the company is committed to

capturing semi urban and rural markets where heavy commercial vehicles are not much in use. Lastly, the economic

downtrend in 2013-14 led to slowdown in the industr

plying of heavy commercial vehicles.

Net interest income to grow as credit cost is expected to stabilize

The net interest income on consolidated basis was approximately Rs 3750 crore in FY 2013

we expect to increase by 9% and 12% in FY15 and FY16 respectively, as a function of stabilizing cost of borrowings

and increasing interest income , though the former is expected to make a relatively greater impact.

Consistency in asset quality

The company has been able to historically maintain its asset quality and the same is expected going forward. Gross

non-performing assets (NPA) and net non

provisioning may increase as the new RBI guideline has directed NBFCs to go with 90 days norm for recognizing

NPAs which were previously 180 days. As a result of which, going forwar

higher provisioning.

0

20000

40000

60000

80000

AUM AUM(off BS)

0200400600800

1000120014001600 Prov/write offRs Crs

Rs crs

5



under management on strong growth track

Consolidated assets under management (AUM) increased from Rs 55,250 crore in FY 2013

15. The AUM consists of financing of medium and light commercial vehicles (MLCVs

(22%), Tractors (5.4%), others (3.4%) and heavy CVs (40%). Going forward, we expect AUM to cross 65,000 crore


on growing more in mid and smaller vehicles segment. Moreover, the company is committed to


14 led to slowdown in the industrial and mining activity, which is responsible for generating

Net interest income to grow as credit cost is expected to stabilize

The net interest income on consolidated basis was approximately Rs 3750 crore in FY 2013


ome , though the former is expected to make a relatively greater impact.


non-performing assets stood at 3.83% and 0.83% respectively. Going forward


NPAs which were previously 180 days. As a result of which, going forward profitability may be impacted due to

AUM(off BS)

Prov/write off


0 2000 4000

2010

2011

2012

2013

2014

2015e

2016e

Rs crs

0.0

2.0

4.0

6.0

8.0

2010 2011 2012 2013 2014

%

5



Consolidated assets under management (AUM) increased from Rs 55,250 crore in FY 2013-14 to Rs 58,800 crore in FY

15. The AUM consists of financing of medium and light commercial vehicles (MLCVs-29%), passenger vehicles

Going forward, we expect AUM to cross 65,000 crore


on growing more in mid and smaller vehicles segment. Moreover, the company is committed to


ial and mining activity, which is responsible for generating

The net interest income on consolidated basis was approximately Rs 3750 crore in FY 2013-14 , which going forward


ome , though the former is expected to make a relatively greater impact.


assets stood at 3.83% and 0.83% respectively. Going forward


d profitability may be impacted due to

4000 6000

NII

2014 2015e 2016e

NII/AUM

Prov/AUM



Diversified fund mix

The company holds a sound and secure funding profile. About 82% of the funds are borrowed from banks and

institutions while only 18% from retail investors (mainly through fixed deposits and public issue of Non Convertible

Debentures). The outstanding securitized asset

accounts for 28% of the total AUM (decrease from 35% in FY13)

superior asset quality through transparent and impactful processes have resulted i

economical financial alternative.

0% 50% 100%

FY09

FY10

FY11

FY12

FY13

FY14

Retail

Securitisation

Other InstitutionsSource : CD Research


0

1

2

3

4

5

2010 2011 2012 2013 2014 2015e

Gross NPA*

%

0

2000

4000

6000

8000

10000

12000

2010 2011 2012 2013 2014 2015e

Revenue

Net Profit

Rs Crs

6



holds a sound and secure funding profile. About 82% of the funds are borrowed from banks and


ed assets portfolio stood at Rs. 16,543 crore as on March 31, 2014

accounts for 28% of the total AUM (decrease from 35% in FY13). The steps initiated by the company to ensure

superior asset quality through transparent and impactful processes have resulted in expanding its realm of

100%

2015e 2016e

Net NPA*

2015e 2016e

Revenue

Net Profit

0.0

20.0

40.0

60.0

80.0

2010 2011 2012 2013

0 2000 4000

2010

2011

2012

2013

2014

2015e

2016e

Rs Crs

The securitization allows the company to mitigate the interest

risk by converting its floating liability to fixed price liability

but also enables the company to access low cost funds under

priority sector by RBI. However, due to the RBI guidelines we

expect the share of securitization to decrease further going

forward which will increase the cost of

net interest income.

Other borrowing instruments include term

deposits and subordinated debts.

The company enjoys ‘AA+’ credit rating from CARE and ‘AA/AA+’

from CRISIL.

Source: CD Research

6



holds a sound and secure funding profile. About 82% of the funds are borrowed from banks and


s portfolio stood at Rs. 16,543 crore as on March 31, 2014, which

The steps initiated by the company to ensure

n expanding its realm of

2014 2015e 2016e

OPM (%) NPM(%)

6000 8000

Profit EBIT

The securitization allows the company to mitigate the interest

floating liability to fixed price liability

but also enables the company to access low cost funds under

priority sector by RBI. However, due to the RBI guidelines we

expect the share of securitization to decrease further going

t of borrowing, and stress

Other borrowing instruments include term loans, fixed

The company enjoys ‘AA+’ credit rating from CARE and ‘AA/AA+’



Source: STFC

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2011 2012 2013 2014 2015e

Market Cap / Sales

EV/EBIDTA

0 20 40 60

2010

2012

2014

2016e

The pre-provision profits are expected to grow from Rs 3286 crore in FY15 to Rs 3766 crore in FY16. Income from

securitization declined by almost 50 % in FY14 and the downward trend is

in AUM will cause NII to rise substantially from 2016 onwards.

Return ratios namely ROE, ROCE, and ROA though may not achieve their peaks (as i

However as the economy is set to witness an upturn, which

as ROE in FY15 and FY16 to be around 15%

terms of profitability among peers of STFC, it comes across as t

Source: CD Research

7



2015e 2016e

Market Cap / Sales

80

EPS

0.0

5.0

10.0

15.0

20.0

25.0

2012 2013 2014

0.0

5.0

10.0

15.0

20.0

2011 2012 2013 2014

P / E P / BV

Source: CD Research

provision profits are expected to grow from Rs 3286 crore in FY15 to Rs 3766 crore in FY16. Income from

securitization declined by almost 50 % in FY14 and the downward trend is expected to continue. However, expansion

in AUM will cause NII to rise substantially from 2016 onwards.

Return ratios namely ROE, ROCE, and ROA though may not achieve their peaks (as in FY12) within next two years,

an upturn, which it will bring stability in returns. We expect ROCE as well

, while ROA to be around 2.4 %. Moreover, if we look at the valuations in

terms of profitability among peers of STFC, it comes across as the most fairly valued.

Capital Adequacy

The company’s capital adequacy ratio in 2013

percent. It has followed the trend retrospectively and the same

is expected to continue going forward.

requirements for NBFC, the minimum CAR is 15%. The

company maintains core capital (Tier 1 capital ratio) in the

range of 17.7%-18.9% and Tier 2 capital of about 4%.

Valuations and Profitability

Shriram Transport has historically received stable valuations

due to its fundamentally strong financial record and growth

prospects. For FY 2015 we expect the EPS to be at Rs 60.18 and

during 2016 to be at Rs 68.72 (growth of

7



2015e 2016e

Capital

Adequacy Ratio

(%)

Tier 1 capital

ratio(%)

Tier 2 capital

ratio(%)

2014 2015e 2016e

provision profits are expected to grow from Rs 3286 crore in FY15 to Rs 3766 crore in FY16. Income from

expected to continue. However, expansion

n FY12) within next two years,

will bring stability in returns. We expect ROCE as well

while ROA to be around 2.4 %. Moreover, if we look at the valuations in

The company’s capital adequacy ratio in 2013-14 was 23.5

retrospectively and the same

is expected to continue going forward. As per RBI regulatory

requirements for NBFC, the minimum CAR is 15%. The

company maintains core capital (Tier 1 capital ratio) in the

18.9% and Tier 2 capital of about 4%.

Shriram Transport has historically received stable valuations

due to its fundamentally strong financial record and growth

For FY 2015 we expect the EPS to be at Rs 60.18 and

during 2016 to be at Rs 68.72 (growth of 52% in FY16).



Knowledge driven and relationship driven business m

Shriram Transport has developed strong relationships and customer base

within the truck community,

model.

Each product executive is assigned 100

credit assessment, collection

operators such as tyre financing

which not only generates additional business for Shriram Transport but also

helps keep a check on overall levera

handholds the customers in times of distress and allows them to carry out part

payment of EMI in case of shortfall of cash flows

These practices help the company develop strong customer loyalty. Nearly 20% of its

existing customers. The company has developed strong base of over 1 million which helps it generate repeat

business. The company has linked the performance incentives of product executives to the collections which enables

it in managing asset quality. Such business model is a

been able to manage the same.

Shriram has entered into partnerships and co

agreement, the partner helps in sourcing of business and prepares all necessary documentations for loan approval

and disbursement. Incomes (net of funding costs) as well as los

partner in same proportion. These tie ups help the company gain and leverage local intelligence and personal base of

the partner/private financier.

Growth in new products

Shriram Transport has been trying to ramp up financing in new products l

and construction equipment. However, slowdown in the overall economy has impacted the growth in financing these

new products but going forward, we expect these pro

grow as monsoon deficit narrows.

The wholly owned subsidiary of the company, namely, Shriram Contruction Equipment Ltd started financing

construction equipment in FY11. We expect the economic upturn to cause rapid AUM growth in the same.

Risks and Concerns

Shriram Transport is present in only commercial vehicle finance. The CV industry is cyclical and competition in the

CV finance industry has intensified. Further, the current outlook i

shown substantial degrowth as per Q2FY15 r

depend on their CV for generating income and may not have other sources to

the company has managed its risks well,

mining activity in southern states.

8



Knowledge driven and relationship driven business m


within the truck community, the company operates on a relationship

model.

Each product executive is assigned 100-150 customers

credit assessment, collections and caters to all the financing needs of truck

perators such as tyre financing, credit cards for diesel and


helps keep a check on overall leverage to the borro


payment of EMI in case of shortfall of cash flows.

These practices help the company develop strong customer loyalty. Nearly 20% of its yearly disbursements are to the



t in managing asset quality. Such business model is also prone to scalability issues; however Shriram Transport has

Shriram has entered into partnerships and co-financing arrangement with over 500 private financiers. Under t


and disbursement. Incomes (net of funding costs) as well as losses, if any, are shared between the company and the

on. These tie ups help the company gain and leverage local intelligence and personal base of

Shriram Transport has been trying to ramp up financing in new products like tractors, small CVs, passenger


new products but going forward, we expect these products to grow at a faster pace. Tractor financing is expected to



ort is present in only commercial vehicle finance. The CV industry is cyclical and competition in the

Further, the current outlook in new CV financing (in which th

growth as per Q2FY15 results) remains unsteady. The company lends to risky borrowers who

depend on their CV for generating income and may not have other sources to meet the repayment obligation w

it has in the past been affected by sector-specific issues such as ban on

8



Knowledge driven and relationship driven business model


pany operates on a relationship-based

mers. He/she takes care of

s and caters to all the financing needs of truck

, credit cards for diesel and bills discounting


ge to the borrower. Further, he/she


yearly disbursements are to the



however Shriram Transport has

financing arrangement with over 500 private financiers. Under this


es, if any, are shared between the company and the

on. These tie ups help the company gain and leverage local intelligence and personal base of

, small CVs, passenger vehicles


Tractor financing is expected to



ort is present in only commercial vehicle finance. The CV industry is cyclical and competition in the

n new CV financing (in which the company has

. The company lends to risky borrowers who

meet the repayment obligation while

specific issues such as ban on



RBI has been focusing on tightening prudential norms for NBFCs to bring them at par with the banking industry. As

a result, the playing field between banks and NBFCs is getting leveled leading to increased competition as well as

lower profitability for NBFCs.

Cross Sectional Analysis

Asset Financing

NBFCs Equity CMP MCap

Shriram Trans. 227 1045 23712

M&M Financial 114 322 18371

Sundaram Finance* 111 1278 13978

Cholamandalam Inv 644 486 31248

Magma Fincorp 38 107 2019

0.0 20.0 40.0 60.0 80.0100.0

Shriram Transport Fin.

M&M Financial Services

Sundaram Finance*

Cholamandalam Inv

Magma Fincorp

OPM

%

*standalone, Mcap, sales, profit, equity in Rs crore

Source: CD Research

0.0 5.0 10.0

Shriram Transport …

M&M Financial …

Sundaram Finance*

Cholamandalam Inv

Magma Fincorp

P/BV Mk cap/ sales

9




the playing field between banks and NBFCs is getting leveled leading to increased competition as well as

Sales Profit OPM Mcap/

sales NPM ROA

8758 1262.7 72.1 2.7 14.4 2.2

5698 907.7 69.3 3.2 15.9 2.5

2341 456.3 82.0 6.0 19.5 2.9

3503 380.2 71.2 8.9 10.9 1.6

1943 161.8 58.7 1.0 8.3 1.1

0

2000

4000

6000

8000

10000

Shriram

Transport Fin.

M&M Financial

Services

Sundaram

Finance*

Cholamandalam

Sales

Rs Crs

The matrix displays financials and valuations of

financing companies. Shriram Transport Finance concentrates on

financing commercial vehicles only, whereas, other mentioned NBFCs

finance many other products like car loans, housing finance, gold loans

personal finance etc.

As far as CV financing is concerned, Shriram faces competition from

Cholamandalam Financial services, Magma Fincorp and Sundaram

Finance in 5-9 year segment while Shriram remains the dominant player

in the 9-12 year segment with slight competition from private financiers.

The yields are minimum in the 0-5 year segment where the dominant

players apart from the mentioned NBFCs are HDFC Bank, IndusInd

Bank and ICICI Bank.

15.0

Mk cap/ sales

9




the playing field between banks and NBFCs is getting leveled leading to increased competition as well as

ROE Int

cov P/BV P/E

13.8 1.4 2.6 18.7

16.0 1.6 3.2 20.2

17.2 1.6 5.3 30.6

12.7 1.3 10.5 82.2

9.4 0.9 1.2 12.5

Cholamandalam

Inv

Magma Fincorp

Profit

s financials and valuations of the major asset

financing companies. Shriram Transport Finance concentrates on

as, other mentioned NBFCs

loans, housing finance, gold loans

As far as CV financing is concerned, Shriram faces competition from

Cholamandalam Financial services, Magma Fincorp and Sundaram

remains the dominant player

12 year segment with slight competition from private financiers.

5 year segment where the dominant

m the mentioned NBFCs are HDFC Bank, IndusInd



Financials

Consolidated Quarterly Results

Revenue from Operations

Other Income

Total Income

Total Expenditure

EBITDA (other income included)

Interest

Depreciation

PBT

Tax

Net Profit

Minority Interest

Associate Profit

Net Profit after MI

Extraordinary Item

Adjusted Net Profit

EPS (F.V. 10)

Segment Wise Quarterly Results

Segment Revenue

Financing Activities

Facilitation service division

Total Income

Segment Results



Less : Interest on facilitation service

division

Total PBT

Capital Employed



Unallocated Reconciling Items

Total

10



Q2FY15 Q2FY14 % chg. H1FY15 H1FY14

2260.36 2100.44 7.6 4409.95 4129.72

0.88 3.23 -72.8 1.10 3.44

Total Income 2261.24 2103.67 7.5 4411.05 4133.16

624.05 525.85 18.7 1257.09 1088.36

EBITDA (other income included) 1637.19 1577.82 3.8 3153.96 3044.80

1162.98 1059.02 9.8 2215.74 1995.85

11.45 8.09 41.5 22.88 15.01

PBT 462.76 510.71 -9.4 915.34 1033.94

152.72 158.78 -3.8 292.40 315.74

Net Profit 310.04 351.93 -11.9 622.94 718.20

Minority Interest 0.00 0.00 0.0 0.00 0.00

Profit 0.00 0.00 - 0.00 0.00

Net Profit after MI 310.04 351.93 -11.9 622.94 718.20

Extraordinary Item 0.00 0.00 0.0 0.00 0.00

Adjusted Net Profit 310.04 351.93 -11.9 622.94 718.20

EPS (F.V. 10) 13.66 15.51 -11.90 27.45 31.65

Q2FY15 Q2FY14 % chg. H1FY15 H1FY14

2247.16 2087.46 7.7 4382.68 4100.97

14.08 16.21 -13.1 28.37 32.19

Total Income 2261.24 2103.67 7.5 4411.05 4133.16

463.28 509.22 -9.0 916.25 1033

-0.5 1.51 -133.1 -0.84 0.97

0.02 0.02 0.0 0.07 0.03

Total PBT 462.76 510.71 -9.4 915.34 1033.94

8768.43 7730.81 13.4 8768.43 7730.81

31.86 29.88 6.6 31.86 29.88

284.97 251.65 13.2 284.97 251.65

Total 9085.26 8012.34 13.4 9085.26 8012.34

10



H1FY14 % chg.

4129.72 6.8

3.44 -68.0

4133.16 6.7

1088.36 15.5

3044.80 3.6

1995.85 11.0

15.01 10.8

1033.94 -11.5

315.74 -7.4

718.20 -13.3

0.00 0.0

0.00 -

718.20 -13.3

0.00 0.0

718.20 -13.3

31.65 -13.3

H1FY14 % chg.

4100.97 6.9

32.19 -11.9

4133.16 6.7

1033 -11.3

0.97 -186.6

0.03 133.3

1033.94 -11.5

7730.81 13.4

29.88 6.6

251.65 13.2

8012.34 13.4

Figures In Rs crore

Figures In Rs crore



Consolidated Income Statement

Net Interest Income

Non Interest Income

Total Operating Income

Staff Costs

Operating Expenses

Pre-Provision Profits

Provision and contingency

Depreciation on Fixed Assets

Extraordinary gain/ (loss)

Provision for tax

Share in associate profit

Net Profit after MI

Extraordinary gain/(loss)

Adjusted Net Profit after MI

EPS (F.V.10)

11



FY12 FY13 FY14 FY15e

3442.92 3719.38 3751.54 4091.54

204.79 237.64 526.44 299.08

Total Operating Income 3647.71 3957.02 4277.98 4390.62

407.60 443.17 471.60 490.73

489.50 456.23 589.92 613.86

Provision Profits 2750.62 3057.62 3216.46 3286.03

775.73 872.24 1213.21 1262.43

PBDT 1974.89 2185.38 2003.25 2023.60

17.37 22.71 32.78 38.90

0.00 0.00 0.00 0.00

PBT 1957.51 2162.66 1970.46 1984.71

648.76 698.77 612.53 619.23

PAT 1308.75 1463.89 1357.94 1365.48

0.06 -0.46 0.00 0.00

Net Profit after MI 1308.81 1463.95 1357.94 1365.48

0.00 0.00 0.00 0.00

Adjusted Net Profit after MI 1308.81 1463.95 1357.94 1365.48

EPS (F.V.10) 57.86 64.52 59.85 60.18

Figures in

11



FY15e FY16e

4091.54 4590.25

299.08 458.70

4390.62 5048.95

490.73 570.13

613.86 713.18

3286.03 3765.64

1262.43 1466.69

2023.60 2298.95

38.90 38.91

0.00 0.00

1984.71 2260.04

619.23 700.61

1365.48 1559.43

0.00 0.00

1365.48 1559.43

0.00 0.00

1365.48 1559.43

60.18 68.72

Figures in Rs crore



Consolidated Balance Sheet

SOURCES OF FUNDS

Share Capital

Reserves

Total Shareholder’s Funds

Long Term Borrowings

Total Liabilities

APPLICATION OF FUNDS

Fixed Assets

Tangible Asset

Intangible Asset

Intangible Assets Under Development

Long Term Loans and Advances

Non Current Investments

Current Assets, Loans & Advances

Inventory

Trade Receivables

Cash and Bank

Current Investments

Short term loans and advances

Other Current Assets

Total CA & LA

Current liabilities

Provisions

Total Current Liabilities

Net Current Assets

Net Deferred Tax

Other Assets (Net Of Liabilities)

Total Assets

12




226.33 226.89 226.91 226.91

5806.32 7110.98 8283.27 9648.75

6032.65 7337.87 8510.18 9875.65

15160.25 20043.37 23962.08 28981.76

21192.91 27381.26 32472.27 38857.42

53.66 72.26 154.83 132.82

50.08 69.22 152.67 131.00

3.58 3.00 2.17 1.82

Intangible Assets Under Development 0.00 0.04 0.00 0.00

16528.65 21248.57 23769.64 31413.06

272.08 303.66 397.80 489.13

Current Assets, Loans & Advances

0.93 0.00 0.00 0.00

0.26 0.05 1.91 1.82

5321.81 6351.73 7118.44 8481.06

3394.17 2976.60 2037.46 1321.96

11064.14 15786.92 18412.32 22022.82

80.12 77.16 80.01 89.90

19861.43 25192.46 27650.13 31917.56

12354.76 17137.80 17257.43 22116.87

1652.15 1451.36 1604.61 1911.64

14006.91 18589.16 18862.03 24028.51

5854.52 6603.30 8788.10 7889.05

218.34 287.13 255.56 253.77

-1734.36 -1133.63 -893.67 -1320.42

21192.91 27381.26 32472.27 38857.42

Figures in

12



FY15e FY16e

226.91 226.91

9648.75 11208.17

9875.65 11435.08

28981.76 31300.30

38857.42 42735.40

132.82 95.09

131.00 92.09

1.82 3.00

0.00 0.00

31413.06 34301.77

489.13 534.11

0.00 0.00

1.82 1.90

8481.06 9614.99

1321.96 1444.96

22022.82 23689.38

89.90 90.23

31917.56 34841.46

22116.87 23874.47

1911.64 2076.32

24028.51 25950.79

7889.05 8890.67

253.77 268.00

1320.42 -1354.26

38857.42 42735.40

Figures in Rs crore



Key Financial Ratios

Growth Ratios

Revenue (%)

Net Profit (%)

EPS (%)

AUM (%)

NII (%)

Margins

Operating Profit Margin (%)

Net Profit Margin (%)

Return

ROCE (%)

ROE (%)

ROA (%)

Valuations

Market Cap / Sales

EV/EBIDTA

P / E

P / BV

Other Ratios

Debt-Equity Ratio

Current Ratio

Interest Cover Ratio

Spread Analysis

NIM on AUM

Average Cost of Borrowings

Turnover Ratios

Fixed Asset Turnover

Total Asset Turnover

Asset Quality

Gross NPA*

Net NPA*

Provisions and Write offs (as % of AUM)

Capitalization & Efficiency Ratios

Capital Adequacy Ratio (%)

Tier I capital ratio (%)

Tier II capital ratio (%)

Cost to Income ratio (%)

Opex/AUM

13




12.1 13.5 20.8 4.1

7.5 11.8 -7.2 0.6

7.5 11.5 -7.3 0.5

9.9 20.6 6.4 12.0

13.3 8.0 0.9 9.1

72.9 74.8 73.2 73.2

21.2 20.9 16.0 15.5

16.1 16.8 17.0 15.0

21.7 21.9 17.1 14.9

3.5 3.5 2.7 2.3

2.0 2.2 2.0 2.0

8.5 9.4 8.7 8.5

9.5 10.7 12.8 17.3

2.32 2.43 2.3 2.6

4.1 4.3 4.1 4.4

1.6 1.4 1.6 1.4

1.8 1.7 1.5 1.4

7.5 6.7 6.4 6.2

11.1 10.0 11.9 10.1

115.2 97.1 54.8 66.4

0.2 0.1 0.2 0.1

3.1 3.2 3.9 3.7

0.4 0.8 0.8 0.8

Provisions and Write offs (as % of AUM) 1.7 1.6 2.1 1.9

Capitalization & Efficiency Ratios

24.0 22.0 23.5 22.4

19.1 18.0 18.9 17.7

5.0 4.0 4.6 4.7

25.1 23.3 25.6 26.0

2.0 1.6 1.8 1.7

13



FY15e FY16e

15.0

14.2

14.2

12.0 8.0

12.2

73.2 72.9

15.5 15.4

15.0 14.9

14.9 14.6

2.3

2.2

9.4

17.3 15.1

2.2

4.1

1.4

1.4

6.5

10.1 10.7

66.4 106.7

0.1

3.9

0.8

2.1

22.4 23.5

17.7 18.9

4.7

26.0 26.2

1.8



Outlook and Recommendation

The commercial vehicle industry is expected to be benefited by higher freight rates, diesel price cuts and pick

the industrial cycle. As commercial vehicles,

operations, key trends in this sector significantly impact volumes. Infrastructural investments in India have slowed

down in the last five years, affected by official bottlenecks and clearance issues asso

organizations. Financing problems also cast a shadow over this sector as banks, which had previously lent money

to stalled infrastructure projects, have become wary of financing fresh projects. Easing of government policies

speed-up in economic activity might provide an impetus to infrastructural investments in the long run.

The real GDP growth rate is projected to pick up to a range of 5% to 6% in 2014

bottlenecks and progress on the implementation of stalled projects already cleared should contribute to growth.

The company has historically maintained strong fundamentals in terms of core capital adequacy, asset quality,

average borrowing costs and asset quality. Asset Under Management crossed 50,000 crore on standalone basis and

58,000 crore on consolidated basis in FY 13

penetration strategy adopted by the management (rural demand has been consistent). However, where

urban areas are concerned, industrial production and mining activity has not picked up on a large scale

hence the commercial vehicle industry is still waiting for the revival which will fuel CV demand from urban areas.

We expect AUM (consolidated) to grow at a CAGR of atleast 11% between FY14 to FY16.

Shriram enjoys ‘AA+’ credit rating from CRISIL a

net interest income and net profit are expected to ramp up from the last quarter of FY15 onwards. RBI regulation

for 90-day recognition for recognition of NPA will lead to higher provisioning

lower securitization could cause some pressure on the net interest income. However, as maintenance of asset

quality is strongly correlated to the economic cycle, we expect NPAs to show a downtrend going forward.

The top management boasts of strong domain knowledge and vast experience. The company has a strong second

line management and the decision making is decentralized at various business levels which enable quick

disbursements and collection from the customer. Moreo

Shriram group, it enjoys strong group support from the group in terms of organizational culture and availability of

management resources.

Shriram Transport expect that with stable government in center

company’s strong business model, innovative fund management techniques,

support of the lending institutions to the Company’s fund mobilization activities on account of good tr

debt servicing, the company should achieve better

The stock currently trades at 17.3 times FY15e earnings and 15.1 times FY16e earnings and seems reasonably priced

at these levels, however, in the light of pick up

recommend ‘Accumulate’ with a target of Rs 1237 based on 18xFY16e earnings over a time horizon of 6

14



The commercial vehicle industry is expected to be benefited by higher freight rates, diesel price cuts and pick

As commercial vehicles, (especially M&HCVs), are deployed on a large scale for infrastructural


by official bottlenecks and clearance issues assoc

problems also cast a shadow over this sector as banks, which had previously lent money

to stalled infrastructure projects, have become wary of financing fresh projects. Easing of government policies

up in economic activity might provide an impetus to infrastructural investments in the long run.

The real GDP growth rate is projected to pick up to a range of 5% to 6% in 2014-15. Easing of domestic supply


ntained strong fundamentals in terms of core capital adequacy, asset quality,


58,000 crore on consolidated basis in FY 13-14, is further expected to grow at a rapid pace in view of the rural

penetration strategy adopted by the management (rural demand has been consistent). However, where

urban areas are concerned, industrial production and mining activity has not picked up on a large scale


We expect AUM (consolidated) to grow at a CAGR of atleast 11% between FY14 to FY16.

Shriram enjoys ‘AA+’ credit rating from CRISIL and most of its borrowings come from banks and institutions. The


day recognition for recognition of NPA will lead to higher provisioning by the company. This, coupled with



management boasts of strong domain knowledge and vast experience. The company has a strong second


disbursements and collection from the customer. Moreover, since the company functions under the umbrella of


expect that with stable government in center, estimates of better GDP growth rate, the

ompany’s strong business model, innovative fund management techniques, continued confidence of investors and

support of the lending institutions to the Company’s fund mobilization activities on account of good tr

ompany should achieve better performance going forward.


at these levels, however, in the light of pick up in credit demand from last quarter of FY15 onwards , we

recommend ‘Accumulate’ with a target of Rs 1237 based on 18xFY16e earnings over a time horizon of 6

14



The commercial vehicle industry is expected to be benefited by higher freight rates, diesel price cuts and pick-up in

e deployed on a large scale for infrastructural


ciated with governmental

problems also cast a shadow over this sector as banks, which had previously lent money

to stalled infrastructure projects, have become wary of financing fresh projects. Easing of government policies and

up in economic activity might provide an impetus to infrastructural investments in the long run.

15. Easing of domestic supply


ntained strong fundamentals in terms of core capital adequacy, asset quality,


d to grow at a rapid pace in view of the rural

penetration strategy adopted by the management (rural demand has been consistent). However, where-as the

urban areas are concerned, industrial production and mining activity has not picked up on a large scale yet and


nd most of its borrowings come from banks and institutions. The


by the company. This, coupled with



management boasts of strong domain knowledge and vast experience. The company has a strong second


ver, since the company functions under the umbrella of


of better GDP growth rate, the

continued confidence of investors and

support of the lending institutions to the Company’s fund mobilization activities on account of good track record of


in credit demand from last quarter of FY15 onwards , we

recommend ‘Accumulate’ with a target of Rs 1237 based on 18xFY16e earnings over a time horizon of 6-12 months.



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authorized recipient, and we are not soliciting any action based upon it. This report is not to be construed as

solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. The ma

upon information that we consider reliable, but we do not represent that it is accurate or

such. Neither CD Equisearch Pvt. Ltd., nor any person connected with it, accepts any liability arising from the use of this d

The recipient of this material should rely on their own investigations and

current opinions as of the date appearing on this material only. While we endeavor to update on a reasonable basis the inform

discussed in this material, there may be regulatory, complianc

and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice. If you

have any questions about this report please get in touch with CD Equisearch Pvt. Ltd.

CD Equisearch Pvt. Ltd. 10, Vaswani Mansion, 2nd Floor, Dinshaw Wachha Road, Churchgate Mumbai

2283 0652 / 0653, Fax +91 (22) 2283 2276, Email:

15



This document is meant for our clients only and is not for public distribution. This material is for the personal information

authorized recipient, and we are not soliciting any action based upon it. This report is not to be construed as

solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. The ma

upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as

such. Neither CD Equisearch Pvt. Ltd., nor any person connected with it, accepts any liability arising from the use of this d

The recipient of this material should rely on their own investigations and take their own professional advice. Opinions expressed are our

current opinions as of the date appearing on this material only. While we endeavor to update on a reasonable basis the inform

discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. Prospective investors

looking statements are not predictions and may be subject to change without notice. If you

touch with CD Equisearch Pvt. Ltd.

CD Equisearch Pvt. Ltd. 10, Vaswani Mansion, 2nd Floor, Dinshaw Wachha Road, Churchgate Mumbai

2283 0652 / 0653, Fax +91 (22) 2283 2276, Email: [email protected],Website: www.cdequi.com.

15



This document is meant for our clients only and is not for public distribution. This material is for the personal information of the

authorized recipient, and we are not soliciting any action based upon it. This report is not to be construed as an offer to sell or the

solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. The material is based

complete, and it should not be relied upon as

such. Neither CD Equisearch Pvt. Ltd., nor any person connected with it, accepts any liability arising from the use of this document.

take their own professional advice. Opinions expressed are our

current opinions as of the date appearing on this material only. While we endeavor to update on a reasonable basis the information

e, or other reasons that prevent us from doing so. Prospective investors

looking statements are not predictions and may be subject to change without notice. If you

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