Angel Broking has initiated a buy call on Shriram Transport Finance Company Ltd. with a target price of Rs 1410. The current price of Shriram Transport Finance Company Ltd. is Rs 1181.45 Time period given by the analyst is 12 months when Shriram Transport Finance Company Ltd. price can reach a defined target.

BUY STFC

For Q3FY2020, STFC has reported a good set of numbers. For the quarter, PAT increased 38% YoY led by lower credit cost, AUM growth continued to be moderate at 5% YoY vs. 3.6% in Q2FY2020 and 14% in Q2FY2019. Disbursement increased 19% YoY driven by used (20% YoY) and new (17% YoY). AUM growth moderated; NIM declined: During the quarter, STFC reported AUM growth of 5% YoY, led by working capital (33% YoY on a low base) and used vehicle loans (8% YoY), while AUM of new vehicles and business loans declined 13% YoY.

NIM declined by 30bps/5bps you/QoQ owing to higher liquidity maintained on balance sheet around `7,800cr. Management sounded confident to improve NIM hereon as re-pricing of the existing loans and new borrowing is happening at a lower rate

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Angel Broking says, “We expect STFC’s AUM to grow at moderate CAGR of 11% over FY2019-22E, however, we expect operating parameters to improve at a healthy rate owing to improvement in NIM, asset quality. We expect STFC to report RoA/RoE of 2.8%/17.3% in FY2021E. At CMP, the stock is trading at 1.6x FY2021E ABV and 8x FY2021E EPS, which we believe is reasonable for a differentiated business model with return ratios. We recommend a BUY on the stock with a Target Price of `1,410.”