After global brokerage firm CLSA has reiterated its 'Outperform' call on the vehicle financing major, Shriram Transport, the counter buzzed in trade on the last trading day of the week to November 20, 2020. On Friday, the stock in a strong market settled higher by 2.5 percent while it made an intra-day high of Rs. 934.20 per share on the BSE.
Also, at the same time, the investment group raised the target price for the stock from Rs. 800 to Rs. 1050, which is an upside of nearly 30 percent.
Rationale for the raise in target price of Shriram Transport Finance stock
After the second quarter of the current fiscal year, the brokerage firm is of the view that the company continues to recover faster than expected with collection efficiency at 93 percent. And in light of this trend, the management is optimistic of realizing pre-Covid level disbursements by December.
Also, the medium and large commercial vehicles (M&LCVs) cycle is said to be due for an uptrend which has been delayed on account of the Covid 19 pandemic and the management expects a double-digit YoY growth in the segment for the upcoming years. The segment constitutes as much as 24% of the company's AUM.
There is also made a lowering in the credit cost for Fy22 by as much as 78-55 bps which points to a earnings recovery.
In the past one month, the vehicle financing major has logged gains to the tune of 42% and outperformed Nifty benchmark which during the same period has moved higher by 8%.
Besides the company is slightly cautious on the evolving environment and the brokerage firm CLSA estimates an AUM growth of 10% YoY for the FY22-23. "This is slightly conservative versus guidance of double-digit YoY growth. We cut estimated FY21-22 credit costs 78-55 bps although we continue to be cautious in an evolving economic environment," added the brokerage.