Shriram Transport Finance Q1FY19 Concall Summary

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Information about company

  • No of branches = 1,230 (with 854 rural centres)
  • No of employee = 24,533
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India’s economic scenario:

  • 7.7% EBITDA growth rate, making India as world’s fastest growing and major economy
  • Increase in GST collections to INR 97,000 crore per month in April-June 2018
  • Increase in MSP and goof rainfall in the past 2 years to boost consumption in rural areas

Industry overview:

  • 51.55% growth in committed vehicle segment for Q1FY19

Company’s Q1 financial information

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  • 21.975 growth in AUM to INR 1,00,000 crore in Q1FY19 against INR 82,597 crore in Q1FY18
  • Net interest income (NII) increased by 19.58% to INR 1,840.3 crore compared to INR 1,538.95 crore in Q1FY18
  • Profit increased by 24.37% yoy to INR 571.72 crore against INR 459.69 crore in Q1FY18, higher than AUM growth
  • Changes linked with adoption of Ind AS from IGAAP
  • Consideration of securitized portfolio as well for gross NPA calculations in Ind AS compared to considerations of only on books portfolio in IGAAP
  • Gross NPA is INR 9,127 crore as per Ind AS
  • Profitability increased from INR 540 crore (as per IGAAP) to INR 572 crore (as per Ind AS)
  • Increase in the book value by INR 40 crore due to adoption of Ind AS
  • Overall capital liquidity has gone up
  • ECL provisions to come down gradually from 2.5% over the period of time depending upon the operating environment
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Other financial information

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  • Revenue and interest cost are separately mentioned in the P&L statement in Ind AS compared to only net revenue in IGAAP
  • Operating expenses growth is 30.47% in this quarter is primarily due to increase in branch network and employee strength
  • Earnings per share (EPS) increased to INT 25.20 from INR 20.26 in this quarter
  • Net worth of company increased by INR 900 crore
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Coverage ratio

  • Coverage ratio has come down to 57% from 71% and is expected to stay within 55-60% in the future
  • Decrease in the coverage ratio has been one of the reasons for increase in the net worth of company
  • Cost guidance is 2% for FY19

Government decisions

  • Axle load capacity of vehicle was increased by 40%. This will reduce the demand of new vehicle in coming 2-3 months but won’t affect in long run due to strong economic activities
  • Increase in the life of vehicle from 15 years to 20 years by government of India. This should increase the demand of used vehicle
  • Reduction in the barriers due to GST has increased the coverage km per day by 20-25% thereby increasing their earnings, but increase in fuel prices reduced their margins. Thus, overall there is little advantage due to net effect

Disbursements of loans

  • Total disbursement is INR 13,425 crore = INR 1,936 crore from new vehicle + INR 10,955 crore from used vehicles + INR 534 crore from business loan
  • Duration of the loans are 6-9 months for working capital and 3-5 years for business loans
  • Interest rates are 20% for working capital and 15-18% for business loans
  • Provisions of loans are 78% in stage I, 13% in stage II and remaining 9% in stage 3
  • LGT is about 34%
  • Number of PV is 5.82 for stage I, 13.39 for stage II and 100% for stage III with LTV of 33.8

Inorganic growth strategy

  • Focus is more on the used vehicle loans in the rural areas
  • Fulfilling strong demand in the North and East region of country

Recent tie ups

  • Tie up with HPCL to provide fuel for 15 to 30 days credit with daily interest charged
  • Intended to enroll 1 lakh customers by June-19

Future projections

  • ROI of the company is expected to be around 2.2% at bottom cycle to 2.8% at top of the cycle
  • Expected assets growth rate to be 10% minimum incase economy is not going well
  • The credit cost as per Ind AS is expected to come down to about 2% by year-end
  • AUM target for this year is 18-20%
  • Cost to income ratio is about 22% and expected to maintain it around 20-24% in future
     

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