Technology

SHTF reported 2QFY19 PAT of `609cr (up 23% yoy/6% qoq), helped by strong AUM growth and marginal improvement in NIM. NII increased 25% yoy with reported NIM increased 6bps (8bps qoq) to 7.52%. Operating profit growth was healthy at 23% YoY to `1,622cr. Asset quality improved QoQ with Gross Stage 3 ratio falling 40bps QoQ to 8.71% (on AUM) while coverage ratio remained stable at 34%.

Outlook & Valuation: We expect SHTF’s AUM to grow at CAGR of 20% over FY18-20E led by stronger CV volume, macro recovery and improving rural market. The company’s return ration are at decade low levels (RoA/RoE –
1.9%/13% in FY18) primarily owing to higher credit cost, which we believe to normalize FY19E onwards, which would propel RoA/RoE to 2.8%/20.7% in FY20E. At CMP, the stock is trading at 2.1x FY20E ABV and 10x FY20E EPS. We recommend a BUY on the stock with a target price of `1,760/-.

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