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1、,Company report,FIGDiversified Financial ServicesEquity India,abcGlobal Research,Shriram Transport Finance(SHTF IN)Neutral,Target price(INR)834.00Share price(INR)793.95Forecast dividend yield(%)1.1Potential return(%)6.1Note:Potential return equals the percentagedifference between the current share p
2、rice andthe target price,plus the forecast dividend yield,Initiate N:Near-term challenges,but fundamentals intact Securitisation and credit risk mitigation helped SHTF emergestronger from the FY09 crisis and FY12 mining sectorproblems,respectively,MarHSBC EPS,2012 a 2013 e55.58 60.97,2014 e72.42,Tig
3、htening regulations in the near term could structurally,HSBC PEPerformanceAbsolute(%)Relative(%),14.31M8.45.2,13.03M23.315.7,11.012M48.320.3,restrict profitability,but it should still remain at healthy levels Initiate Neutral with a target price of INR834,implying a,Note:(V)=volatile(please see disc
4、losure appendix)17 January 2013Tejas Mehta*AnalystHSBC Securities and Capital Markets(India)Private Limited+9122 22681243tejasmehtahsbc.co.inSachin Sheth*AnalystHSBC Securities and Capital Markets(India)Private Limited+91 22 2268 1224sachinshethhsbc.co.inTodd Dunivant*Head of Banks Research,Asia Pac
5、ificThe Hongkong and Shanghai BankingCorporation Limited+852 2996.hkView HSBC Global Research at:http:/*Employed by a non-US affiliate ofHSBC Securities(USA)Inc,and is notregistered/qualified pursuant to FINRAregulationsIssuer of report:HSBC Securities andCapital Markets(India)Private LimitedDisclai
6、mer&DisclosuresThis report must be readwith the disclosures andthe analyst certifications inthe Disclosure appendix,and with the Disclaimer,which forms part of it,potential return of 6.1%Resilient profitability in recent crisis:With a market share of over 25%,SHTF is a dominantplayer in Indias used
7、commercial vehicles(CV)finance market where entry barriers are high.Despite significant growth opportunity,AUM growth has been consistently calibrated toprevailing macro conditions.In FY10-12,AUM(on/off balance sheet loans)growth slowed,but RoA improved from 2.8-3%to 3.5-4%owing to higher securitisa
8、tion post the liquiditycrisis of FY09 and the mitigation of credit risks by exiting the mining sector portfolio in FY12.Regulatory risks to growth and profitability:Based on our economists macro expectations,AUM growth should remain stable at 15-17%in FY13-15,with further support coming fromthe rece
9、nt diversification into equipment finance business.However,the revised securitisationnorms should partially pull back its margins to pre-FY10 levels.We therefore expect netinterest margins to settle at 8.2%versus the 8.6%average seen over FY10-12,althoughcontinuing bank demand for priority sector lo
10、ans could revive the market over the mediumterm.Similarly,tighter NPL recognition norms would,if finalised,lead to one-time doublingof gross NPLs to 6.5-7%this year and lower profitability,although economic profits shouldnot be affected.Excluding the impact of revised NPL norms,EPS would grow at a 1
11、9%CAGR in FY13-15e with RoA and RoE moderating to 3.5%and 20.5%from 3.7%and 23%in FY12,in line with consensus.NPL norms,if finalised,could further lower RoA and RoE to3-3.2%and 18-19%in FY15e,respectively;these are not factored in our current estimates.Initiate Neutral:Over the past 12 months,SHTFs
12、12-month forward multiples have declinedfrom three-year averages of 11x PE and 2.3x PB to 9.5x PE and 1.8x PB due to high interestrates and regulatory risks.They have recently improved back to the three-year levels,helpedby the broader market rally.We believe this rerating is not sustainable due to
13、continuingregulatory risks and the overhang from TPGs impending exit from SHTF.Therefore,compared to current valuations,we value SHTF at lower 12-month forward multiples of 10 xPE and 1.9x PB.Blending these with our EPM assumptions and factoring in the impact ofNPL norm changes,we arrive at a target
14、 price of INR834.Key downside risks:rates rigidity,higher slippages,regulatory risks.Key upside risks:higher securitisation,better margins.Index BOMBAY SE IDXIndex level 19,987 Free float(%)59RIC SRTR.BO Market cap(USDm)3,306Bloomberg SHTF IN Market cap(INRm)180,111Source:HSBC Source:HSBC,Shriram Tr
15、ansport Finance(SHTF IN)Diversified Financial Services17 January 2013Financials&valuation,abc,Year to,3/2012a,3/2013e,3/2014e,3/2015e,Year to,3/2012a,3/2013e,3/2014e,3/2015e,P&L summary(INR m),Growth(y-o-y%),Net Interest IncomeNon-interest IncomeI Income from term depositsI Income from investmentMis
16、c incomeTotal Operating incomeOperating expenseStaff costsOther oper expensePPOPProvisionsProvision for NPAsOtherOther non-oper profit(loss)HSBC PBTExceptionalsProfit-before taxTaxationPATMinorities+pref dividendAttributable profitHSBC attributable profitBalance sheet summary(INRm)Total assetsCustom
17、er loans(net)I Investment assetsOther assetsTotal LiabilitiesCustomer depositsDebt securities issuedOther liabilitiesTotal capitalOrdinary equityMinorities+other capitalIEA(avg)IBL(avg)Capital adequacy(%)RWA(INRm)Tier 1Tier 2Total capitalPer share data(INR)EPS reported(fully diluted)HSBC EPS(fully d
18、iluted),31,9042,3624941,8214734,2667,8353,7014,13426,4317,6227,6041818,80918,8096,23512,574-12,57412,574357,775219,81339,54498,418297,852231,27466,57859,92359,923327,775215,045417,25714.4%7.9%22.3%55.655.6,34,9011,9493701,5195936,8498,2453,8174,42828,6048,0087,9901820,59620,5966,79713,799-13,79913,7
19、99426,520300,73933,32592,456354,651283,60671,04571,86971,869380,460257,440511,82414.0%6.8%20.8%61.061.0,40,2542,0644071,5956242,3188,7644,0084,75533,5549,0909,0711924,46424,4648,07316,391-16,39116,391518,309383,41837,61497,277432,299354,93177,36886,00986,009457,883319,269647,88613.3%5.8%19.0%72.472.
20、4,46,4052,1764361,6756548,5819,3434,2465,09739,23810,0159,9952029,22329,2239,64419,579-19,57919,579616,535471,68142,511102,343513,594429,80583,789102,941102,941549,469392,368801,49612.8%5.0%17.9%86.586.5,Net interest incomeNon-interest incomeOperating expensePPOPProvisionsPBTPATCustomer loans(net)To
21、tal AssetsRWACustomer depositsRatios(%)NIMGross yieldCost of fundsSpreadNPL/gross loansCredit costCoverageNPL/RWAProvision/RWANet write-off/RWANPL/NTENet loans/total assetsRWA/total assetsAvg IEA/avg total assetsAvg IBL/avg total liabCost/incomeNon-int income/total incomeROAA(including goodwill)ROAE
22、(including goodwill)Return on avg tier 1Leverage(x)Valuation dataPE(diluted EPS)P/PPOPP/BVPSP/NTEDividend yield(x)P/Asset,9.622.26.111.747.41.72.210.713.126.58.4917.9611.456.523.163.6485.91.661.8311.5861.441.1797.2563.8123.36.893.7323.0823.086.214.296.803.003.000.820.50,9.4(17.5)5.28.25.19.59.736.81
23、9.222.78.2217.3311.296.033.183.0783.01.871.5613.3270.511.2097.0265.6522.85.293.5220.9420.946.013.026.282.502.500.880.42,15.36.06.317.313.518.818.827.521.526.68.2616.9311.035.903.352.6580.01.991.4014.9873.971.2596.9267.5821.14.883.4720.7620.766.010.965.362.092.091.070.35,15.35.46.616.910.219.519.523.
24、019.023.78.1816.5910.855.743.462.3478.02.041.2515.8776.511.3096.8469.1519.64.483.4520.7220.726.09.184.581.751.751.260.29,DPSNAV,6.5264.8,7.0317.5,8.5380.0,10.0454.8,Price relative,NAV(including goodwill),264.8,317.5,380.0,454.8,958,958,ROAA deconstruction,858,858,Net interest incomeTotal interest in
25、comeTotal interest expenseIncome from investment,9.4716.777.300.54,8.9016.317.410.39,8.5215.977.450.34,8.1815.687.500.30,758658558,758658558,Other incomeOperating incomeOperating expensesStaff costsOther oper expPPOPProvisionsNon-op itemsPBT,0.1610.172.321.101.237.842.26-5.58,0.119.402.100.971.137.2
26、92.04-5.25,0.108.961.860.851.017.101.92-5.18,0.098.561.650.750.986.921.76-5.15,4583582011 2012Shriram Transport FinanceSource:HSBCNote:Price at close of 14 Jan 2013,2013Rel to BOMBAY SE SENSITIVE INDEX,4583582014,TaxationPAT,1.853.73,1.733.52,1.713.47,1.703.45,2,4,Shriram Transport Finance(SHTF IN)D
27、iversified Financial Services17 January 2013ContentsInvestment summaryValuationDupont analysisBusiness analysisDisclosure appendixDisclaimer,812163335,abc3,1984,1985,1986,1987,1988,1989,1990,1991,1992,1993,1994,1995,1996,1997,1998,1999,2000,2001,2002,2003,2004,2005,2006,2007,2008,2009,2010,2011,2012
28、,2013e,2014e,Shriram Transport Finance(SHTF IN)Diversified Financial Services17 January 2013Investment summary A well-established player in the used CV market,which has highbarriers to entry Growth and profitability supported by inherent market opportunity,strong risk management practices and higher
29、 securitisation Regulatory challenges to limit profitability to 3-3.2%RoA and 18-19%RoE on our estimates,abc,A strong,well-establishedplayer with stable growth anda profitable business modelUsed CV:a large and resilient marketThe CV industry remains a compelling long-termgrowth story as it is highly
30、 correlated to theeconomic growth of India.Within the broader CV market,the used CV,cash-and-carry businesses such as agriculture,where demand is less elastic to economicfluctuations.This is supported by other factors suchas a growing CV pool,the aspiration among driversto become owners,low EMI,the
31、steady flow oftransport demand and high freight rates.As a result,the used CV market has been growing steadily andis likely to continue to do so in the near future,implying healthy prospects for incumbents.,segment is the bigger than the new CVs segment asit is the aggregate of CVs on the road with
32、a vintageof 5-15 years.The used CV market caters mainly toChart 1:CV pool growth and used CV pool growth showing much more stable trends than new CV growth50%40%30%20%10%0%-10%-20%-30%-40%,4,Source:SIAM,HSBC,New CV Sales grow th,CV pool grow th,Used CV pool grow th,FY13E,FY14E,FY15E,FY07,FY08,FY09,F
33、Y10,FY11,FY12,Shriram Transport Finance(SHTF IN)Diversified Financial Services17 January 2013SHTF strengths=high entry barrierWith a total assets under management(AUM)(on-book+off-book loans)of around INR440bn,SHTFtoday is the largest among the organised players,having a market share of over 25%in t
34、he used CVsspace against a share of only 10-15%for otherorganised players such as banks;unorganised privatefinanciers still enjoy a share of around 55-60%(source:SHTF),implying a huge growthopportunity.Over the past 30-35 years,SHTF hasslowly but surely increased its dominance bydeveloping a busines
35、s model around factors thatkeep entry barriers high such as valuation of thevehicle,checking the authenticity of buyers andsellers,servicing unbanked customers with no credithistory,and physical collection and recoverymechanisms.We do not foresee any immediateincrease in competition and therefore ex
36、pect SHTFto continue dominating the used CV space in theforeseeable future.We expect calibrated AUM growth,supported by diversificationOver 80%of SHTFs AUM is linked to cash-and-carry goods operators,a segment where demand isusually fairly resilient to economic growth cycles.SHTF mainly finances use
37、d LCV and SCV(16tonnage CV),and vehicle demand has been moreresilient in this than in other segments due toimproving last-mile connectivity.Chart 3:AUM growth highly correlated to IIP and GDPgrowth,Despite the high growth opportunities,SHTFsAUM growth has always been calibrated to theprevailing econ
38、omic scenario to avoid takingundue risks during a downturn like the FY09crisis and FY12 economic slowdown.Based on our economists expectations of a gradualrevival in GDP and IIP in the coming quarters,wethink SHTF is likely to grow AUM at a CAGR ofaround 15-17%over FY13-15e.While SHTF has entered in
39、to a host of othervehicle segments,construction equipment hasbeen the winner.Housed under a separatesubsidiary since FY11,its AUM has alreadygrown to around 5%of consolidated AUM.Givenits small size,we expect high growth to continueand expect its share to increase to around 9-10%of consolidated AUM
40、by FY15e.On a consolidated basis,we therefore expect AUMto grow at a 17-19%CAGR over FY13-15e.High securitisation+steady assetquality=healthy profitabilitySHTF differs from its peers in the way that itgenerates returns.Its high securitisation policy(45%of AUM in FY12)coupled with a tightlycontrolled
41、 risk management process has helped itto improve margins,keep credit costs stable andimprove profitability over the past three years.Even in FY12,when it faced losses from defaultsin its mining sector portfolio as well as a slightdeterioration in asset quality,it was able to deliver,abc,75%60%45%30%
42、15%0%,20%15%10%5%0%,RoA of 3.7%and RoE of 23%after writing offlosses.Going forward,recent and upcomingregulatory changes and the continuing economicslowdown should affect its profitability,thoughwe expect the impact to be moderate.,AUM Grow th(YoY%),GDP(RHS),IIP(RHS),Source:Company data,HSBC5,FY01,F
43、Y02,FY03,FY04,FY05,FY06,FY07,FY08,FY09,FY10,FY11,FY12,FY13E,FY14E,FY15E,Shriram Transport Finance(SHTF IN)Diversified Financial Services17 January 2013Regulatory challenges ahead,but moderate impact onprofitabilityChart 4:Profitability trends,securitisation,margins could fall around 40-50bpy-o-y.Acc
44、ordingly,we expect margins to settle ataround 8.2%versus the earlier range of 8.5-8.75%,while RoA could decline to around 3.4-3.5%from an earlier range of 3.5-4%.That would,abc,35%30%25%20%15%,ROE,ROA(RHS),4.5%4.0%3.5%3.0%2.5%2.0%,push RoE down to 21%from 23%in FY12.Over the medium term,however,dema
45、nd frombanks for securitised papers for their prioritysector requirements remains high,which couldlower the impact on margins by FY15e,thoughwe are not building that into our estimates untilthere are visible signs of things improving.Change in NPL recognition and,Source:Company data,HSBC estimatesLi
46、mited impact on margins fromrevised securitisation normsCompared to peers,SHTF will be more affectedby the recent revision of securitisation norms,given that 45%of its AUM was off-book in FY12 higher than for most non-banking financialcompanies(NBFCs).Securitisation has boostedSHTFs margins by aroun
47、d 200 bps,whichimplies a NIM improvement of around 80-100bpon a blended basis.Following the changes,credit enhancement is nolonger allowed for direct assignment(80%of,provision norms to affect reportedasset qualitySHTFs asset quality is likely to be affected ontwo fronts:The ongoing economic slowdow
48、n would lead toan increase in gross NPLs,from 3%in FY12 to3.5%by FY15e,on our estimates,though weexpect credit costs to remain at around 275bp.In addition to this,the Reserve Bank of India(RBI)plans to increase the standard assetprovisions from 25bp to 40bp,which would alsoaffect the bottom line.Tab
49、le 1:Impact of 90-day NPL recommendations,SHTFs sell-downs were direct assignments until,FY15e,Increase in gross NPL,now),while minimum holding period(MHP)andminimum retention ratio(MRR)restrictions havebeen imposed.Moreover,an 8%cap has been set,Assumed increaseIncrease in gross NPLsNew gross NPL r
50、atio,(INR mn)%,scenarios50%75%100%8,167 12,251 16,3355.19 6.05 6.91,on spreads between the investing banks base rateand the portfolio yield of priority sector loans,andthe income tax department has raised taxation,Impact on NIIImpact on marginsAdditional provision hitAdditional std asset prov(25bp t
