INSUBCONTINENT EXCLUSIVE:
Prabhudas Lilladher has a buy call on Shriram Transport Finance Company with a target price of Rs 1,568.
The current market price of Shriram
Transport Finance Company is Rs 1,164.80.
Time period given by the brokerage is one year when Shriram Transport Finance Company price can
Investment rationale by the brokerage-Group Restructuring to list holding company, provide exit to PE: Media reports suggest group
restructuring in Shriram Capital
First phase implies merger of SHTF+SCUF and second phase would involve reverse merger of combined entity into Shriram Capital, paving way
All the businesses will come under one listed entity and listing of holding company will provide exit to key PE shareholders like Piramal
Enterprise Ltd (PEL) and TPG (combined stake of 29 per cent), thus removing overhang on valuations.
Merger synergies to play out: SHTF-SCUF
merger can provide synergies from (1) AUMs: Creation of one of the largest asset financing NBFC with combined AUM of Rs1326bn which can grow
by 1.4x at 16-18 per cent CAGR over FY20-21E (2) Diversified loan profile with CV business at 53 per cent of AUM, the auto/MSME/ others
accounting for 19 per cent, 15 per cent and 13 per cent of the AUM respectively
(3) Network: Creation of strong distribution network comprising of >2300 branches and 53,000 employees which will support expansion and aid
power of both entities can enable NIM expansion of 110-120bps to 8.5-8.8 per cent (current SHTF NIMs: 7.5 per cent) aiding RoA increase by
20-30bps.
Expect ratings enrichment and PE re-rating: A full-fledged NBFC structure with lucid hierarchy will lower risk, strengthen balance
We expect re-rating as both SHTF and SCUF are trading closer to lower end of sector multiples at 1.4x PBV FY21E (SCUF being not rated,
consensus estimates considered)
We assign 1.8x PABV FY21E and have target of Rs 1,568 for SHTF
However, re-rating of P/ABV to 2x can take the stock to nearly Rs 2,000 which stands quite distant though.