Technology

Shriram Transport Finance Company (SHTF) is a NBFC with differentiated business model. The company pioneers in financing used commercial vehicles and had AUM of `95,306cr in FY18; it also focuses on small truck owners (having less than 5 trucks). SHTF has presence in almost all regions of the country with 1,213 branches.

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 ratios are at decade low levels (RoA/RoE –
1.9%/13% in FY18) primarily owing to higher credit cost, which we believe to normalize from 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 9x FY20E EPS. We recommend a BUY on the stock with a target price of `1,760 (2.7x FY2020E
ABV).

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