This Transport Finance Stock Has Potential To Grow 35% In 1 Year: Emkay Global

The Indian equity markets are bearish at the present moment. So, buying stocks that have good potential to grow in the future, is the lookout for investors now. The brokerage firm Emkay Global recommended investors to buy the stocks of Shriram Transport Finance (SHTF), for a 35.3% growth.

Target Price

The Current Market Price (CMP) of Shriram Transport Finance (SHTF), is Rs. 1168. Emkay Global has estimated a Target Price for the stock at Rs. 1580. The company is expected to offer a 35.3% upside, in 1 year.

Stock Outlook
Current Market Price (CMP)	Rs. 1168
Target Price	Rs. 1580
1 year return	35.30%

Company performance

Shriram Transport (SHTF) posted Q3 earnings of Rs. 6.8bn. Portfolio AUM growth picked up at 8% YoY, driven by 23% YoY growth in disbursements. The pick-up was seen across all segments. NIMs on AUM have improved by 21bps QoQ due to the re-pricing of LT debt at current rates. The company's collection efficiency improved to 101% in Q3 from 99% in Q2. Additionally, SHTF clocked disbursements at Rs. 155bn, including Rs. 5.74bn for new vehicles and Rs. 148.20bn for used vehicles. NII was Rs24bn vs. Rs21.5bn in Q3FY21, up 11.2% YoY. NIMs stood at 6.55% vs. 6.44% in Q2FY22, up 11bps due to an improvement in CoFs.

Comments by Emkay Global

Gibing a buy rating to this stock, Emkay Global said, "We retain our Buy rating on SHTF, using the excess return on equity (ERE) method for FY23E-24E RoE of ~14%. We raise NIMs for FY22/FY23/FY24 by 14bps on an average, we increase GS3/NS3 and credit costs to reflect the impact of the new NPA regime, and we raise the risk-free rate from 6.25% to 6.5%. Consequently, the computed cost of equity rises to 13.25%. Having conservatively accounted for the new NPA regime, SHTF can focus on its growth path and the merger with Shriram City Union Finance (SCUF)."

About the company

According to official sources of the company, GDP growth is pegged around 7-8%, and automatically there has to be credit growth of 15%. Next year the company is expecting to see higher growth and recovery. Shriram Transport Finance Company, the country's largest player in commercial vehicle finance, was established in 1979. They have a niche presence in financing pre-owned trucks for Small Truck Owners (STOs) and have a network of 1,585 branches, 856 rural centers and tie up over 500 private financiers across the country.

Disclaimer

The above stock was picked from the brokerage report of Emkay Global. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.