Shriram Transport Finance

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About the Company

Shriram Transport Finance is India’s largest player in the commercial vehicle finance sector. It was established in 1979 and has more than 1348 urban and 885 rural centers. It is also one of the largest NBFC in India with a specialization in financing pre-owned trucks for small truck operators.

Q4 FY23 Updates

Financial Highlights & Results

Detailed results

1. Net interest income for Shriram Housing Finance grew by 3.84% year-on-year and 44.62% quarter-on-quarter, while profit after tax increased by 68.19% year-on-year.
2. The company has a total liability of Rs. 1,57,906 crores, with 23% through retail deposits, 22% through capital market borrowings, 26% through bank loans and institution loans, and 14% through securitization.
3. – Debt equity is at 3.65, which is the same as the previous quarter
4.  PAT for Q4 FY ’23 stood at 1,308.31 crores compared to 1,776.97 crores in Q3 FY ’23.
5. Earnings per share stood at 34.94 as against 47.46 in Q3 FY ’23 and 40.15 in Q4 FY ’22.
6. Their net interest income in Q4 FY ’23 showed a growth of 3.84% year-on-year and 44.62% quarter-on-quarter.
7. Net interest income for Q4 FY ’23 was Rs.105.30 crores as against Rs.72.80 crores in Q4 FY ’22 and Rs. 101.40 crores in Q3 FY ’23. 

Conference call highlights

1. The merger of Shriram Transport Finance and Shriram City Union Finance has been completed.
2. The company stated that the IT and HR functions have been fully integrated.
3. The company expects that the Indian economy is expected to grow at around 6.5% in the coming years, making it the fastest-growing major economy.
4. According to the government plans to invest Rs. 75,000 crores on major transport infrastructure projects for last-mile connectivity.
5. The sale of commercial vehicles grew by 11.6% in Q4, and the overall growth was 34.3% over the financial year ’22.
6. The good GST collections and growth in the sale of commercial vehicles indicate positive economic activity.
7. The company stated that disbursement growth in Q4 FY ’23 was 6.19% over Q3 FY ’23, with disbursements for the full year at Rs. 1,11,848.44 crores, a significant increase over FY ’22.
8. AUM as of March 31, 2023, grew by 4.61% over Q3 FY ’23 to stand at 1,85,682.90 crores.
9. Net interest income for Q4 FY ’23 grew by 0.41% over Q3 FY ’23, while the net interest margin was 8.55%.
10. Profit after tax for Q4 FY ’23 was lower than Q3 FY ’23 but significantly higher than FY ’22, standing at 1,308.31 crores.
11. The company stated that the subsidiary Shriram Housing Finance saw significant growth in disbursements and assets under management in FY ’23 compared to FY ’22.
12. Cost of Funds:

– Increased from 8.77% to 8.82% due to RBI policy rate increase

– Borrowing for the quarter: Rs. 20,000 odd crores

– Borrowing rate: close to around 9% through different sources

1. The company stated that ALM buckets have been positive and cumulative up to, ALM should be positive by Rs. 20,000 crore.
2. The company stated that the credit cost increased in Q4 FY ’23 compared to Q3 FY ’23 but remained within acceptable limits.
3. The company stated that Shriram Housing’s assets under management grew significantly in FY ’23 compared to FY ’22.
4. Shriram Housing Finance is investing in expanding its distribution through the addition of branches in key focus states.
5. The company stated that the segmental disbursement numbers for the quarter and year are as follows: commercial vehicles at Rs. 12,182.30 crores, passenger vehicles at Rs. 5,592.10 crores, construction equipment at Rs. 1,945.70 crores, farm equipment at 623.30 crores, MSME 3,572.80 crores, two-wheelers Rs. 2,339.50 crores, gold Rs. 2523.30 crores, personal loan Rs. 2,250.10 crores, and others at Rs. 25 crores.
6. The intangible amortization for the quarter is Rs. 302.58 crores, and going forward, it will be Rs. 75 crores per quarter or Rs. 300 crores per annum.
7. The company stated that the credit cost is on the higher side despite reducing the COVID-related provisioning to Rs. 1,100 crores from the earlier Rs. 1,650 crores due to a stress testing of the loan portfolio, resulting in an additional hit of Rs. 295 crore. 
8. The company is utilizing funds to provide waivers to customers impacted by COVID.
9. The company has recently done a private placement of a USC bond but is not planning to issue a dollar bond in the immediate future due to high landed costs.
10. The company will focus on onshore liquidity, including retail deposits and the domestic capital market.
11. The NIM on AUM has slightly increased to 8.55% despite flat net interest income on an absolute term and AUM growing by about 4-5% quarter-on-quarter.
12. The company stated that its cost-to-income ratio was 28.29% in this quarter as against 22.23% recorded in Q3. The cost-to-income ratio at the end of Q4 FY ’22 was 20%.
13. Shriram Housing Finance Limited is a dominant player in southern states and Gujarat and plans to expand distribution in selected focused geographies.
14. The company is confident in its ability to grow its MSME and personal loan segments faster due to its network and access to more locations.
15. The company stated that there has been a high loan booking in the last quarter and last few days, which is expected to lead to high AUM growth.
16. The company stated that there has been a goodwill or intangible write-off of 300 crores or 295 crores, and the outstanding balance of this intangible is now 1,210 Crores
17. When asked a question about growth prospects and loan growth guidance, the company maintains its commitment to 15% growth despite potential merger synergies and cross-selling opportunities between branches.
18. The company stated that there will be an emphasis on improving net profits rather than top-line growth.
19. When asked a question about liabilities, specifically repayment of ECBs and domestic bond experiences. No clear response was provided by the company.
20. The company did a buyback of offshore bonds in the previous two quarters but hasn’t done anything in the current quarter. They have maturities in July and August and are looking at those.
21. The company disbursed close to 1.2 million two-wheelers in the current financial year and expects this to grow by 10% to 12% depending on the industry’s performance. The growth is coming from Bihar, UP, Madhya Pradesh, Rajasthan, and some Northeastern states like West Bengal, while there is degrowth in South markets.
22. The company will look at market opportunities for bond issuances, both domestic and offshore.
23. The company stated that the reported margins have not seen any compression, and on a sequential basis, they have expanded by three basis points. The accretion to the interest income has been significant in the last three quarters.
24. The effective tax rate will be around 30% for the next couple of years.
25. The company is scaling up its gold loan business.

Analyst’s View

Shriram Finance is the flagship company of the Group which provides financial services such as commercial vehicle finance, passenger vehicle finance, SME finance, and retail lending (personal loans, gold loans, and two-wheeler loans). The company has been in the business for more than 40 years now. It remains to be seen how the company’s near-term performance will pan out given the steady rise in inflation. Given the company’s strong working, Shriram Finance is a good financial service stock to watch out for.

Q3 FY23 Updates

Financial Highlights & Results

Detailed Results:

1. On the operational metrics, there is a disbursement growth of Rs. 29,245.26 crores as against Rs. 22,931.70 crores in the same period of the previous year and as against Rs. 25,789.32 crores in Q2 financial year ’23. 
2. Assets under Management stands at Rs. 1,77,498.17 crores as compared to Rs. 1,56,848.63 crores in the previous year, an increase by 13.17% as compared to Rs. 1,59,358.20 crores in quarter 2 FY ’23. 
3. Net interest income stands at Rs. 4,427.88 crores as against Rs. 2,387.97 crores in the same period of previous year and as against 4,104.86 crores in Q2 FY ’23.
4. Net interest margin was 8.52% as against 6.65% in the same period of previous year and 8.26% in Q2 FY ’23. 
5. Profit after tax stands at 1,776.97 crores in quarter 3 FY ’23, compared to 680.62 crores in quarter 3 FY ’22 and as against 1,555.11 crores in Q2 FY ’23. 
6. Earnings per share stood at 47.46 Rs. as against Rs. 25.26 in the quarter Q3 FY ’22 and Rs. 41.53 in Q2 FY ’23.
7. The credit cost for the current quarter stood at 1.75% as against 1.73% for Q2 FY ’23. 
8. The cost to-income ratio was 22.29% in this quarter as against 24.5% recorded in Q2 FY ’23.
9. For the subsidiary, Shriram Housing Finance Limited, they registered a disbursement growth of 30.33% to Rs. 1,001 crores as against 768 crores in the same period last year and as against 1,049 crores in Q2 FY ’23. 
10. Shriram Housing’s assets under management grew by 55.84% to 7,178.16 crores as compared to Rs. 4,606.15 crores the previous year and by 9.66% as compared to 6,545.92 crores in Q2 FY ’23.
11. Profit after tax for Shriram Housing increased by 27.19% to Rs. 36.38 crores in Q3 FY ’23 compared to 28.60 crores in Q3 FY ’22 and as against Rs. 34.03 crores in Q2 FY ’23.
12. Their earnings per share stood at Rs. 1.12 as against Rs. 0.88 in the quarter Q3 FY ’22.
13. The overall liquidity is Rs. 17,400-odd crores.
14. The leverage ratio is down from 3.9 to 3.63 in the current quarter.

Investor Conference Call Highlights 

1. The management stated that Shriram Finance Limited has completed its merger process and is now a combined entity.
2. The management stated that out of 2,900 branches, in 85% of the branches, they have at least run one additional product.
3. The management explained the breakup of liabilities. Total liabilities as of December stood at Rs. 1,53,228 crores, broken up into 27% through the term loan, bank loans route, around 23% from FD, retail FD, 24% is through the domestic bond market, capital market. Securitization is close to 13% and external commercial borrowing, including the bond and loan is at around 12%.
4. The management stated that Inflation numbers have come down, which should help in moderating liability costs.
5. The management informs that the auto industry showing buoyancy in demand, with Commercial Vehicle sales up by 16.6% and three-wheeler sales up by 67%
6. The management states that the GNPLs are different due to the acquisition of Shriram City Union Finance’s loan outstanding
7. The management does not expect the cost of borrowing to increase next quarter.
8. The management expects an increase in securitization volumes and in their bond offerings.
9. The management stated that the expense related to merger is around INR 19 crores, and it will be deferred over a period of five years.
10. The management stated that the current nine months profit minus dividend that they already paid, there will be a difference of around INR 2,800 crores which is on account of the goodwill and intangibles that they have created, which is kept as an asset. 1,300 is the goodwill and 1,500 is the intangibles.
11. The management informs that RoA is 3% on a long-term basis, and RoE would be anywhere between 16% to 18%.
12. The company is trying to reach out for SME business in the geographies which they have not been servicing till now like Southern and Western part. But there may not be a significant shift in overall ratios.
13. The management stated that the HR integration cost was about Rs. 60 crores, Rs. 70 crores, branding and advertisement cost of about Rs. 70 crores.
14. The management stated that there should be 25 to 30 basis point benefit, which will come out of repricing of Shriram City Union liabilities. 
15. The management stated their objective that the insurance cross-sell is done to help the customers to get better claims and quicker claims. The earnings out of it, the commission occurring out of the insurance, whatever is statutorily available or can be given, that they are getting from the insurance companies, both life and the general business.
16. The management informed that on the COVID provisioning, they had created a provision of Rs. 2,850 crores in Shriram Transport books.

Analyst’s View

Shriram Finance is a leading NBFC in India, offering a diverse range of financial products and services to a broad customer base. With its vast network and strong credit ratings, the company has established itself as a trusted financial partner for individuals and SMEs across the country. SFCL’s focus on rural and semi-urban areas gives it a competitive advantage over other NBFCs in India. Moreover, the company’s credit ratings, which are consistently among the highest in the industry, have given investors confidence in its financial stability. However, like other NBFCs in India, SFCL faces risks related to asset quality, liquidity, and funding. Given its strong market positioning & competitive advantages, it remains an interesting stock to keep track off.

Q2 FY2023 Updates

Detailed Results:

1. The company had a good quarter with revenue growing by 14% and profits growing  by 38% YoY on the consolidated basis.
2. The company clocked a disbursement growth of 19.51% to Rs.17,769 crores against 14,868 crores in the same period of the previous year as against Rs.16,670 cores in Q1 of this year
3. The used vehicle disbursement increased by 15.27% to Rs.16,502 crores as against Rs.14,317 crores in the same period of the previous year as against Rs.15,754 crores.
4. The new Vehicle disbursement has gone up by 106% to Rs.1020 crores as against Rs.493 crores in the same period the previous year and as against Rs.784 crores in the Q1FY23
5. Overall, AUM grew by 11.18% on line with the guidance of 12% to Rs.135,249 crores compared to Rs.121,646 crores in the previous year and increased by 3.49% against the previous quarter of Rs.130,688 crores.
6. The net interest income increased by 22.85% to Rs.2693.96 crores against Rs.2192.82 crores in the same period the previous year and a marginal increase of Rs.2641.74 crores against the previous quarter.
7. The net interest margin improved to 6.98% against 6.44% in the same period the previous year and 6.91% in the previous quarter.
8. The EPS stood at 39.44 against 28.71 in this quarter.
9. The Gross Stage 3 declined by 7 basis points to 6.93% against 7.82% in the previous year and 7% in the previous quarter.
10. The net Stage 3 stood at 3.48% compared to 4.18% in Q2FY22 and 3.52% in Q1FY23.
11. The credit cost for the current quarter stood at 1.67% against the 2.68% full year.
12. The cost-to-income ratio marginally increased to 31.12% in this quarter against the 20.73% recorded in the same period the previous year.
13. The average collections of the September quarter were 100.13% of the total demand as against 99.03% of the corresponding quarter last year and 101.45% in the Q1 of the previous year.
14. For Q2 the company has mobilized 17,000 crores over gross mobilization.
15. The total debt outstanding as of September is Rs.125,586 crores.
16. The cost is marginally up compared to Q1 by 10 basis points down by 16 basis points YoY.
17. The company has liquidity of close to around Rs.2700 crores.
18. Liabilities for the next three months are Rs.13,000 crores so there will be a sufficient cushion for managing liabilities for the next six months also, management stated.
19.  The leverage ratio is at around 4.51% with excess liquidity being utilized leverage ratio showed slightly a drop below 4.5%.
20. HQLA is at 188% versus 191% in the previous quarter.
21. The employee count has increased in Q2 by 1056 employees, currently having 26776 employees as of September 30th.
22. The out fronting as of September 30th was Rs.683 crores.
23. The coverage ratio was 51.57% as against 51.62% and Stage 3 improved to 83.29% as against 82.49% in the previous quarter and Stage 2 was 9.78% as against 10.51% in the previous quarter.
24. The company maintained a coverage ratio of 3.29% as against 3.21% in the Stage 2 asset and a covering ratio of 8.84% as against 9.18% in the Stage 2 asset.
25. The PD was 7.35% as against the previous quarter of 7.34% in Stage 1 and 21.62% as against 21.75% in Stage 2
26. LGD was 44.75% as against 43.76%
27. The capital adequacy was at 22.48% and tier 1 was 20.59% and tier 2 was at 1.89% the company continued to have the COVID-related overlay of Rs.1741 crores as against close to Rs.1830 crores in the previous quarter.

Investor Conference Call Highlights

1. The government has announced a national logistic policy aiming to achieve quick last-mile delivery to end transport-related challenges. The policy focuses on key areas such as process engineering, digitalization, and multimodal transport. It is a crucial move as high logistics costs impact the competitiveness of domestic goods in the international market.
2. Along with PM Gati Shakti which is a national master plan for multimodal connectivity and part of NIP spent of USD 1.35 trillion targets with a vision to develop technologically enabled integrated cost efficient resilient sustainable trusted logistic ecosystem in the country for accelerated and inclusive growth. According to the management, this is highly positive for the transportation and logistics industry and for our business.
3. Industry stats:
4. The commercial retail sales of the auto industry increased by 39.48% to 231,880 units in Q2 as against 166,251 units in Q2FY22 and a 3.37% increase QoQ.
   1. The heavy and medium commercial vehicles showed maximum growth of 48.93% with 79,650 unit sales against 53,481 units. A significant portion of these heavy commercial vehicles is dumpers and tippers which the demand is coming from the infrastructure industry.
   2. LCV numbers also showed good growth of 35% to 152,230 units compared to 112,770 units sold in Q2, last year.
   3. Tractor sales have been almost on par with last year’s half-year number with 319,642 numbers against 350,250 numbers, a marginal increase.
   4. The earth mowing and constructional equipment showed significant growth again for the first half of this year with 42,530 units being sold against 32,398 units.
5. The update on the merger, the company has received approval from all the regulators like NSE, BSE, and RBI. Then NCLT convened the Shareholders, Secured Creditors, and Unsecured Creditors meeting, IRDA, CCI. The final order of the NCLT was heard on October 19th, this month and the management expects the order in a week’s time. The growth outlook remained at the original guidance of 15% for the combined entity.
6. The company announced the buyback of offshore bonds in August and it did buyback close to around 256 million bonds which were maturing in 2025 and some part in October 2022.
7. The company has announced a buyback of the July 2023 bond with a capital of 250 million.
8. The incremental cost of borrowing is up by around 50-70 basis points, so the management expects the overall cost of liabilities to go up in the next quarter.
9. The management stated the cost to income has marginally increased in the current quarter primarily due to a one-time hit of Rs.65 crores because of the settlement of certain sales tax litigations in which the company had offered for the amnesty schemes and in the one-time visit which RBI had permitted last year.
10. The management stated on a new vehicle, quarter-on-quarter lending is going up because the company lends to existing customers who have already used vehicles. When they want to upgrade their vehicle, then the company funds them. The company don’t have a direct arrangement with any OEM or a dealer point for lending to the new vehicle business directly to a new customer.
11. The company carries an interest margin of 7% and maintains the same.
12. On the used vehicle, the company hs increased lending rates because as the liability cost goes up then the company pass it on the fresh contract, it increased rates by around 25-50 basis point depending upon the segments. Normally, the smaller ticket the lending rate increase will be much higher.
13. The company’s field team is 16,000 people total out of 25,000 and there are another 4000 people in the supervisory level.
14. The management stated on a standalone basis, they should maintain a 12% growth rate in H2. For the combined entity, management has the guidance of 15%.
15. The management stated normally, securitization demand is huge in Q3 and Q4. So, they think the company should go beyond, Q1&Q2 numbers and last year’s quantum which was 14,000.
16. The management stated the company has a headroom to improve NIM because it is carrying six months of liquidity which they aim to decrease to 5 and 4 and 3 gradually. So, the company has  an opportunity to improve the margins apart from increasing the lending rate for the new contracts.
17. The company’s total offshore debt is close to around Rs.25,000 crores. Bonds typically are 3 to 3.5 years. Landed cost including hedging is 9%.
18. The management stated repossession as a source for business activity has come down because the resale values of vehicles are good. Automall has more focus on the market business rather than the repossessed vehicle from the NBFC or bank.
19. On the merger of Shriram Transport and Shriram City Union, the management stated that they have done Pilot 1 with around 50 branches. Then, they scaled it up to 1200 branches across both companies. So, pilot 1 and pilot 2 is completed. Now post-merger it will be for all the branches, so the high-ticket lending or high-ticket business-like, SMEs and heavy commercial vehicles that is something which will be done more centrally but all other smaller tickets like two-wheeler, gold, and the LCVs and tractors all things should be able to do in all the branches.
20. There will be no trading period for SCUF but not for STFC, that will be maybe 10-15 days depending upon the regulatory requirement.
21. The management stated Stage 2 will remain range bond in between 10%-12%.
22. Current IRR range in Used CVs ranges any way between 14-18 it all depends upon the vintage of the vehicle and also ticket size. The higher the vintage, the lower the ticket size, the higher the rate. The weighted average differential between New and Used will be around 300 basis points.
23. Shriram City Union adds around 20-21% of Shriram transport’s debt to the merged entity. The management stated that post-merger they will try to reduce costs. It should around Rs.14,000 -Rs.15,000 crores of overall liquidity to be maintained post-merger.
24. The company has not opened any branches in the last quarter. The management stated going forward post-merger they will look at opportunities to open more branches or using the existing network of the combined entities.
25. According to the management, borrowing costs for the next quarter will go up anywhere between 8-10 basis points.
26. The management has given guidance of 2% as the credit costs for the full year.
27. Rs.5000-Rs.6000 crores is excess liquidity currently on the balance sheet.

Analyst’s View

Shriram Transport finance has been a pioneering vehicle finance NBFC in the Indian financial markets. Its role and journey have been immense. After an entire sectoral slowdown in the last few years, it now is growing in healthy double digits with high disbursements while keeping its financial health and ratios stable. Various upcoming impactful government policies and the said merger hold great potential for the growth of the company and its shareholders. The merger especially would put the company’s situation as a wide lending umbrella having various businesses under it. Having a proven track record over the past few decades with a strong parent company and management, Shriram Transport Finance is a must-add to the watchlist, while watching it compete with other well-known big lenders for the top lending positions.

Q1 FY2023 Updates

Detailed Results:

1. Interest income for the quarter stood at Rs. 5127 cr, growing 10.6% YoY and remaining flat at 1.46% QoQ.
2. Net Interest Income grew 25% YoY to Rs. 2641 cr and remained flat QoQ.
3. AUM grew at 9.5% YoY to Rs. 130,688 cr.
4. AUM Breakup – HCVs & CEs: 46.51% | M & LCVs : 27.79% | Passenger Vehicles: 20.98% |      Tractors: 2.37% | Business Loans and WC Loans: 2.3%
5. New Vehicle share at 4.5%, used vehicles covers 95.5% of the vehicle AUM.
6. Branch Breakup – Urban: 214 | Rural: 1027 | Semi-Urban: 613 | Total: 1854
7. AUM Geography-wise Breakup – Urban: 34.8% | Rural: 51.2% | Semi-Urban: 14%
8. Asset Quality-

Gross Stage 3 (%):  7% | Net Stage 3 (%): 3.52%

Gross Stage (Amt): Rs.9061.7cr | Net Stage 3 (Amt): Rs. 4383.9cr

9. Capital Adequancy Ratio – Tier I: 20.62% | Total CRAR: 22.54%
10. Deposits grew 29.53% YoY, standing at Rs. 23,244 cr.
11. Cost-to-Income Ratio: 19.46%
12. Borrowing Profile-

Non-convertible Debentures: 18.73%

External Commercial Bonds: 17.39%

Term Loan: 18.81%

Public Deposits: 19.47%

Securitisation: 16.10%

Others: 9.5%

Investor Conference Call Details:

1. Scheme to approve the merger of Shriram Transport Finance and Shriram City Union Finance approved. Merger approved by exchanges, RBI and IRDA. CCI’s approval is pending.
2. Promoter Group bought 2.85% shares from the open market. Total promoter shareholding increased to 29.3%.
3. Vehicle sale has bounced back compared to last year where it was disrupted due to the Covid 2nd wave.
4. Improvement in the collection: Q1FY23: 101.45% | Q1FY22: 91.04%
5. New Vehicle disbursement grew at 256%, while used vehicle disbursement grew at 31% YoY.
6. Credit cost stood at 2.09% for the quarter. [was 2.68% for the FY22]
7. Raised $250M from United States Development Finance Corporation. Total Borrowing in this quarter was Rs. 12600cr
8. Cost of Liabilities: 8.6% | Incremental cost of borrowing for bonds increased by 50bps and overall 15bps.
9. Excess liquidity stood at Rs. 18000cr against maturities of Rs. 8000cr in the coming three months.
10. Higher Liquidity built to buyback costlier debt, especially USD denominated debt.
11. Covid One-Time-Restructuring update: Advances restructured –  Rs.1152crs, Outstanding amount as of Q1FY23 – Rs. 1163cr, 90+ DPD – 1.5%.
12. Excess provisions carried stands at Rs.6730 cr.
13. Effect of inflation: The rates are on contract and the EMI is fixed, so the customer knows the amount he has to pay. EMI neither goes up nor goes down.
14. Effect of higher fuel prices: Truck operators generally do not bear the rise in fuel costs, it gets passed on to the end consumer.
15. No concerns with raising debt, Priority sector securitisation has good demand, retail deposit mobilisation doing well. For the increased costs, management is confident of passing it to the end consumer.
16. Bank Loans: 75% MCLR Linked | 25% external benchmarks.
17. Securitization in % terms down from 17% to 16%, but the absolute amount has still increased. Management expects it to go back to 18-19% range. No case of higher collateral being asked for.
18. Peak sale of commercial vehicle was 1 million in 2019, which is yet to recover. In 2022, the sale was around 720,000 vehicles. Factors which affected the demand was the rise in steel prices and higher costs due to BS-6 norms.
19. Urban markets impacted a little due to inflation. Rural economy looking robust due to good monsoon, better realization of crops owing to price rises caused by geo-political tensions.
20. Demand for construction equipment is quite high, currently there is a long waiting periods for them.
21. STF still carrying close to Rs. 18,000 crores of Covid related provisioning.
22. Reduced the ticket size of business loans. So the number of disbursement has gone up but the volume remained low relatively.
23. Disbursement of working capital loan was paused due to Covid related fears last year, will go back in the current year and will target combined Business and WC loan share at around 5% next year.
24. Lending rate hiked by 25bps in June. NIMs expected to remain stable. [due to higher cost on incremental borrowing]

Analyst Views:

Shriram Transport Finance has been a pioneer in vehicle financing. The ability to accept public deposits can help it reduce its borrowing cost and gain a competitive edge against its competitors. Deposits share increased YoY from 17% to 19.5% this quarter. Although as of now the cost of deposits is not very different from the total cost of borrowing and thus does not help it lower its cost of deposits significantly. Another major drag on its funding cost is due to the their liquidity built-up. Going ahead, as this liquidity buffer is expended in buying back costlier debt, the drag will reduce.

Q4 FY2022 Updates

Detailed Results:

1. Revenue increased by 12% while PAT increased by 47% on a consolidated basis while PAT on a standalone basis in 45%.
2. Consolidated EBITDA increased by 14% while EBITDA margins stand at 20.6%.
3. Net working capital for FY22 stands at 63 days.
4. Consolidated net debt to equity 0.29.
5. The total order book is at Rs.9,000.8 Cr. The irrigation segment constitutes 25% & EPC & HAM 75% of total order book.
6. Third-party order book accounts for 58% of the total order book position is distributed between state government contracts with 41% and 11% is from central government and balance 3% of order book is from other private players.
7. The outstanding order book position of INR 6,511 crores.
8. The percentage of physical progress as of 31st December 2021 for the HAM project is:
   1. Chittor to Mallavaram at 100%;
   2. Ramsanpalle to Mangloor at 100%;
   3. Trichy to Kallagam at 93.6%;
   4. Magadi to Somwarpet at 55.6%;
   5. Oddanchatram to Madathukulam at 56%
   6. Ramanattukara to Valanchery at 2.8%
   7. Valanchery to Kappirikkad at 2.4%
   8. Chittor to Thatchur at 0%
9. KNR received a new order post 31^st march for Six laning of Chittoor – Thatchur section (Package 3) in the state of Andhra Pradesh and Tamil Nadu on Hybrid Annuity Mode under Bharatmala Pariyoiana worth Rs.765 Cr.
10. ROE for FY22 stood at 17%.
11. Shareholders have approved 100% stake sale of KNR Shankarampet Projects Private Limited, KNR Srirangam Infra Private Limited and KNR Tirumala Infra Limited.
12. Standalone Net debt to equity stood at 0.

Investor Conference Call Highlights:

1. The industry saw 12,731 kilometers of road awarding which is a growth of 22% YoY.
2. The company has received financial closure for KNR Ramagiri Infra Private Limited which received the financial closure from NHAI on 30th March 2022 for HAM projects.
3. The toll collection for the Bihar project in Q4 FY22 and FY22 has been Rs. 10.42 crores and Rs. 38.58 crores respectively.
4. The company is targeting further order book inflow of Rs. 4,000 to Rs. 5,000 crores for FY23.
5. The income tax department has carried out a search operation at the company’s various business premises in March 2022. It has created no provision for any liability in the financial results.
6. The management states that giving any projection of EBITDA at this stage may not be right, but it will try to maintain EBITDA margin of at least 15-16%.
7. The company’s irrigation project has pending receivables of around Rs. 650 crores.
8. The company expects to incur capex of around Rs.120-150 Cr.
9. The company’s Retention receivable is around Rs. 181 crores and unbilled revenue are around Rs. 250 crores.
10. The management expects a few problems this year due to the early monsoon of 1 to 1-1/2 months coupled with higher receivables from the irrigation biz.
11. The company is currently not targeting Northern India due to the requirement of its quarry which the management, believes will be a margin decreasing activity.
12. The management states that it currently has a sufficient order book in its existing portfolio, but if it doesn’t get any orders, it will venture into railways, mining operation areas & metros.
13. The company’s EBITDA margins for irrigation are around 24%, HAM around 18%, and other roads are around 13%.
14. 60% of the contract value in irrigation projects has cost escalations while HAM & EPC are fixed price contracts with no cost escalation.
15. The company’s creditor days are based on purchasable calculator & not turnover.

Analyst’s View:

KNR has been one of the top performers in the construction industry. KNR has seen a great quarter with a 28% YoY rise in revenues. The company had a decent quarter with revenue & profit growth of 12% & 47% respectively. The company has done well to gather an order book of over Rs 9,000 Cr. It is already bidding for new projects and is targeting to get Rs 3000 Cr orders for irrigation projects in the coming year. The central govt push for PM Gati Shakti National Master Plan for multiple modal connectivities is expected to be a great boost for the entire industry and a seasoned player like KNR. It remains to be seen how the industry will fare going forward given the sustained rise in raw material costs and how long will it take for the Govt’s push in infrastructure to gain proper momentum. Nonetheless, given its strong balance sheet, good operational history, and resilient order book, KNR Constructions remains a pivotal construction sector stock to watch out for.

Q1 2020 Updates

*Includes a tax adjustment for earlier years of Rs 109.8 Cr

Detailed Results

1. 1. The company has had a moderately good quarter with 9% YoY rise in revenues and 11% YoY rise in PAT.
   2. The company had announced a final dividend of Rs 7 per share for FY19 which was paid out on 4^th of July 2019 which brings up the total dividend paid out in FY19 to Rs 12 per share.
   3. The company saw a rise in net interest income of 7.62% YoY.
   4. The cost to income ratio has been reduced from 23.04% in Q1FY19 to 21.78% in Q1FY20.
   5. AUM for the company has risen 5.77% YoY to Rs 1,06,343 Cr.
   6. The company has maintained a CRAR of 20.07% vs 16.92% a year ago.
   7. The segment wise AUM break up is:
      • HCVs: 46%
      • M&LCVs: 52%
      • Passenger Vehicles: 58%
      • Tractors: 38%
      • Business Loans: 74%
      • Others: 78%
   8. The number of branches has risen to 1585 from 1230 a year ago with additions of 150 rural branches and 205 urban branches.
   9. The urban portion of AUM has declined slightly to Rs 65990 Cr from Rs 66560 Cr a year ago. The rural portion of AUM has expanded 18.7% YoY to Rs 40350 Cr.
   10. The company has built up a very strong cash position of Rs 3153 Cr.
   11. The ROA for the company has improved 7 bps YoY to 2.26% currently.
   12. The RoE for the company has declined 73 bps YoY to 15.8% currently.
   13. In terms of borrowing profile, the company has drastically reduced its commercial paper borrowing to 1.77% from 6.07% a year ago. The other major change here is the increase of borrowings in foreign currency which has risen to 10% from 0.71% a year ago.

Investors Conference Call Highlights

1. The company has reduced its exposure to new vehicle finance lending due to the ongoing auto sector slowdown.
2. They expect demand to rise from September onwards due to the festive season and the start of prebuying of BS-IV vehicles before the transition.
3. The company recently completed the issuance of significant notes of $ 250 million under the Global Medium Term Note Program.
4. The company also saw a rise in the marginal cost of borrowing which they were able to pass on to the customers due to their considerable pricing power in the used vehicles space.
5. The company expects to maintain their NIM as they expect bank lending rates to go down in the near future with the rate cuts due to the RBI’s expansionary stance.
6. The overall credit cost for the company has come down 20 bps YoY to 2% and the company expects it to remain stable at current levels.
7. The management clarifies that in most of the cases of new rural branches, the branches have been converted from existing rural centers and thus there were minimal additional costs occurring with the addition of these rural branches.
8. The management has stated that the provision coverage last year was higher than normal on account of Kerala floods while this year such an extra provision is not required. Thus provision coverage has fallen slightly in the quarter as compared to a year ago.
9. The hedging costs for the $ 500 million that the company has raised so far is around 10% of the transaction amount.
10. The company has done no reductions in this year so far as they anticipate good performance post the monsoons.
11. The current LTV levels in new vehicles are around 80% on average and 70% if it includes bodybuilding expenses. The LTV level in used vehicles is around 65%.
12. The management has mentioned that in working capital loans, the company allows an additional 5% grant to as fuel credit to vehicle loan takers if they have taken additional products like insurance from the company. This fuel credit is classified as working capital loans for the company and although it appears unsecured, it is being covered by the underlying asset.
13. The management has stated that the current level of 32% provisioning to remain stable for some time.
14. The company is maintaining an additional 2 months of disbursal amount in cash as they were directed by the Board to do so to maintain high liquidity.
15. The company should see NIMs rise from current levels when the banks pass on the rate cut in the near future.
16. The company maintains that the used vehicle market operates independent from the new vehicle market and that since the demand for used vehicles is higher in the rural areas, the company is focusing on expanding in the rural segment aggressively. The company has only 25-30% market share in the used vehicles space and thus they have enough room to grow in this focus segment.
17. The increase in the number of rural branches is mainly due to the breakup of large standalone branches into smaller branches to increase reach. Thus the number of branch managers has not risen as much as the number of branches and so the rate of addition of branches is not consistent with the growth rate in AUM.
18. The company’s stage 1 assets are around Rs 71,000 Cr while Stage 2 assets are around Rs 23,560 Cr.
19. The incremental cost of funds for the company in Q1 was at 9.5% while the incremental yield on advances was at 16% roughly.
20. The disbursement figures for Q1 were:
    • New Vehicles: Rs 891 Cr
    • Used Vehicles: Rs 11,260 Cr
    • Others: Rs 12,296 Cr
21. The company has seen demand for passenger vehicles go down in urban areas while the demand in rural remains good.
22. The management has guided that they expect AUM growth of FY20 to be around 14% to 16%.
23. The main reason behind this assumption is the anticipated rise in demand for BS-IV vehicles and used vehicles as the prices for BS-VI vehicles go up all over the table.
24. The management has tagged the period from September to November as vital as it would provide lead indicators as to how demand will be coming back into the market.
25. The company follows a thumb rule of converting any rural centre with more than 500 customers into a branch. Thus in most cases, the costs for setting up the branch like rent and furnishing have already been spent when it was a centre and there are minimal incremental costs on conversion.
26. The management sees the good monsoon as a good indicator of incoming growth and they expect times to get better going forward.

Analyst’s View

Shriram Transport Finance has been the market leader in commercial vehicles loans segment. The company’s focus on rural demand for used vehicles is expected to be the prime driver for growth for the company in the future. The shift from BSIV to BSVI should prove vital to the company as it would be increasing vehicle costs thus driving demand for the company’s core offerings of used vehicle loans. The management is quite optimistic of demand revival after the monsoons. It remains to be seen whether things will pan out as the management expects and how demand revives for the BS-IV vehicles before the impending BS-VI norms coming in at the end of the year. Nonetheless, given their strong rural network and their resilient performance in current tight liquidity conditions, Shriram Transport Finance is a stock to keep an eye out for anyone banking on the logistics and commercial vehicles space.

Q4 2019 Updates

* Includes an exceptional item of Rs 139.74 Cr

Detailed Results

1. 1. The total revenues for FY19 were up 16% YoY.
   2. The PAT for FY19 was up only 4% YoY.
   3. The Net Interest Income was up 15% YoY.
   4. The last quarter was not good for the company with only 7% YoY rise in revenues. Profits for the last quarter fell 22% although the profit of Q4FY18 was boosted by an exceptional item mentioned above.
   5. The AUM for the last quarter was up 8.54% YoY with book value rising 16.65% in the same period as compared to last year.
   6. The breakup of AUM changes for FY19 are as follows:
      • New Vehicles: Up 5% YoY
      • Used Vehicles: Up 7.76% YoY
      • Business Loans: Up 13.78% YoY
      • Working Capital Loans: Up 61.18% YoY
      • Others: Down 26.04% YoY
   7. The number of branches increased to 1545 in Q4FY19 as compared to 1213 in Q4FY18.
   8. The company has added 137 rural branches and 195 urban branches in the pat one year.
   9. The Net NPA ratio declined to 2.55% in FY19 as compared to 2.83% last year.

Investors Conference Call Highlights

1. The company’s liquidity situation is stable currently with ample sources of cash present.
2. The company had seen subdued sentiments in the past 6 months mainly due to the liquidity crunch and the softening of the automobiles market.
3. The company saw cost of borrowings go up but since the brand has strong pricing power, they were able to pass it on to the end customers.
4. The company is focussing on rural expansion as it provides them with higher yields. The company has also reduced the LTV as compared to last year to this end.
5. The company has brought down overall credit cost to 1.92% in the current quarter as compared to 2.25% a year ago.
6. The company is also proposing a dividend of Rs7 per share bringing their total dividend for the year to Rs 12 per share.
7. The company expects their AUM to grow in the near future as BS VI implementation shall increase prices of vehicles by 15% to 20% thus pushing up demand for vehicle loans.
8. The company expects 12% to 15% growth in AUM by September and 18% to 20% for the whole financial year.
9. The company has disbursed around Rs 11958 Cr in vehicle loans in the last quarter out of which only Rs 812 Cr consist of new vehicle loans while the rest are for used vehicle loans.
10. The company expects the net interest margin to stay stable at 7.2% going forward in the near future.
11. The company plans to add around 250 branches in FY20.
12. The company states that they will continue to maintain current cash levels to keep a comfortable cushion for the year going forward.
13. The Loss Given Default rate for the company remains high at 32.46%.
14. The company states that in rural markets, the average LTV is lower than urban areas leading to a higher cost of acquisition for rural customers. In return, the company compensates for this using a higher lending rate. The lending rate for rural market is around 200 bps higher than urban market for similar products.
15. The company also guides that the overall credit cost should stay around the current levels in the near future.
16. The company expects heavy vehicle market to pick up after the elections as a lot of logistical activities and infrastructure spending have been suspended for this event. They also see real estate segment to pick up bringing in additional demand for heavy vehicles to transport construction materials.
17. The prediction of a normal monsoon season is also expected to push up demand as seen in the past.
18. The company also sees a lot of pre-buying of vehicles coming in once OEMs start providing price guidance for the vehicles made under new regulations. Thus the company expects a spurt in demand for vehicle loans to facilitate this pre-buying.
19. The company is also raising funds using dollar bonds and retail NCD issues so that they are not dependent on bank loans and are not caught in any problems from a mutual fund redemption run.
20. The incremental borrowing costs and bank lending rate for the company is at 9.5%.
21. The company is still evaluating the details of a possible merger with the other entities of the Shriram group but has declined any timeline for confirmation.
22. The outstanding cash and cash equivalents for the company stand at Rs 8000 Cr in the last quarter.
23. The company maintains that their collections have been string in the last quarter as disbursement have grown on a QoQ basis but AUM has largely stayed the same in this period.
24. The weighted overall costs for the entire dollar bond issue come out to around 10.25%.
25. The management concludes that rising credit demand, higher infrastructure spending post elections, normal monsoon and the transition from BS IV to BS VI shall prove vital for the company going forward and should help aid growth in the near future.

Analyst’s View

Shriram Transport Finance have been the market leader in commercial vehicles loans segment but they have witnessed muted performance in the last quarter as seen by their low revenue growth and drop in profits. The current focus on expanding to rural areas and the multiple factors like renewed infrastructure spending and the prospect of normal monsoon should help the company come back on their growth track. The shift from BSIV to BSVI should prove vital to the company as it would be increasing vehicle costs thus driving demand for the company’s core offerings of vehicle loans. However, one of their largest shareholders, Piramal Enterprise, has expressed its interest in exiting the Shriram Group investment if they get their desired valuation. Getting a new investor of the same pedigree and long term orientation is difficult for Shriram Group.  Nonetheless, Shriram Transport Finance is still a good bet to evaluate on the back of rising logistics segment and commercial vehicle lending.

Q3 2019 Updates

Financial Results & Highlights

Detailed Results

1. 1. Company AUM has risen 14% YoY to more than Rs 1,00,000 Cr.
   2. Revenues have gone up 18% YoY with interest income going up 16.12% YoY.
   3. PAT and EPS have both risen 17% YoY.
   4. For the 9M19, both PAT and EPS have risen 21% showing significant growth in profits and earnings this financial year.
   5. Book value has significantly gone up around 24% to Rs 664 per share vs Rs 534 last year.
   6. Segment wise breakup of AUM:
      • New Vehicles: Up 25% YoY
      • Used Vehicles: Up 11% YoY
      • Business Loans: Up 48% YoY
      • Working Capital Loans: Up 75% YoY
      • Others: Down 25% YoY
      • Total: Up 14.13% YoY
   7. The Securitised portfolio of the books went up 23% YoY.
   8. No of branches increased to 1348 vs 1121 last year with rural segment adding more than 150 branches and the urban segment adding 70 branches since Dec 17.
   9. Gross NPA remains below 9% of overall loan book and net NPA is around 2.78%.

Analyst’s View

Shriram Transport Finance have been the market leader in commercial vehicles loans segment and they continue to grow at good pace maintaining their status as top of the pack in this segment. The current focus on expanding to rural areas and branching out into newer business segments of business loans and working capital loans should help the company maintain its growth trajectory for quite some time in the future. On the other hand, the stable NPA ratios along with the increase in securitised portfolio of the company highlights their strong risk profile and overall financial health. The increase shown in the book value per share along with all the above signs help Shriram Transport Finance cement its status as a good stable investment option in the NBFC space.

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