Shriram Transport Finance soars 10% in sharpest intra-day rally in 6 months

For Q2FY21, Shriram Transport reported a better-than-expected net profit at Rs 685 crore, on back net interest income of Rs 2,022 crore and lower-than-estimated provisioning.

Shares of Shriram Transport Finance Company rallied 10 per cent to Rs 762 on the BSE on Monday after brokerages maintained 'buy' rating on the stock post the July-September quarter (Q2FY21) results. The stock recorded its sharpest intra-day gain in the past six months. Earlier, on April 30, 2020, it had rallied 15 per cent in intra-day trade on the BSE.

At 12:00 pm, the stock was up 9 per cent at Rs 757, as compared to 0.22 per cent decline in the S&P BSE Sensex. The trading volumes on the counter more-than-doubled with a combined 8.4 million equity shares were changing hands on the NSE and BSE.

Shriram Transport is the largest asset financing non-banking finance company (NBFC) in the country and holistic finance provider for the commercial vehicle industry and seeks to partner small truck owners for every possible need related to their assets. The auto companies have reported strong set of sales numbers in the October month.

For Q2FY21, Shriram Transport reported a better-than-expected net profit at Rs 685 crore, on back net interest income (NII) of Rs 2,022 crore and lower-than-estimated provisioning. The company had posted profit of Rs 765 crore and NII of Rs 2,056 crore in previous year quarter.

Asset quality improved sequentially as gross non-performing assets (GNPA) ratio declined to 6.42 per cent from 8 per cent and NNPA ratio declined to 3.64 per cent from 5.1 per cent in Q1FY21. GNPA and NNPA stood at 8.8 per cent and 6.15 per cent as of Q2FY20. Assets under management (AUM) grew 4.8 per cent year on year at Rs 1.13 trillion during the quarter.

It's a long road to normalcy for commercial vehicles (CV) financiers and Shriram Transport being the largest CV financier, can see relatively more impact due to the current situation. Fortunes of Shriram are closely linked to the revival of economy and its long track record & improved underwriting can help it sail through tough times. Valuations at 7x delivered earnings are quite attractive and with any revival in economy, risks rewards look quite favorable for an investor, analysts at Antique Stock Broking said in results review. The brokerage firm maintains ‘buy’ rating on the stock with target price of Rs 1,090 per share.

“With an improving economic environment, collection efficiency has been on an uptrend over the past few months. While the company achieved 95 per cent collection efficiency in Sep’20, we plan to monitor the sustainability of this number over the next 1-2 months. We build in 2.8 per cent/2.6 per cent credit costs for FY21/22E. AUM growth pickup is likely to be gradual, in our view. The company is well-capitalized with leverage of sub-5x,” Motilal Oswal Securities said in result update and maintain price target of Rs 1,000 per share.

Meanwhile, the board declared an interim dividend of Rs 6 (60 per cent) per share, the record date for the entitlement thereof has been fixed as November 10, 2020.