Shriram Transport’s 1QFY15 PAT declined 10% YoY and (up 4% QoQ to INR3b (In line). Moderation in AUM growth (+4% YoY to INR544b), decline in disbursements (7% YoY), and improvement in margins (10bp QoQ) are key highlights of the quarter; buy.

1. 26 July 2014
1QFY15 Results Update | Sector: Financials
Shriram Transport Finance
Sunesh Khanna (Sunesh.Khanna@MotilalOswal.com); +91 22 3982 5521
Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com); +91 22 3982 5415
BSE SENSEX S&P CNX
CMP: INR886 TP: INR1,130 Buy26,127 7,790
Bloomberg SHTF IN
Equity Shares (m) 226.9
M.Cap. (INR b) / (USD b) 201/3.3
52-Week Range (INR) 1,021/465
1, 6, 12 Rel. Per (%) 1/20/3
Financials & Valuation (INR billion)
Y/E MAR 2015E 2016E 2017E
Net Inc. 40.9 49.1 57.9
PPP 31.7 38.2 45.1
PAT 14.7 19.2 23.7
Cons.PAT 15.9 20.5 23.8
EPS (INR) 65.0 84.5 104.5
EPS Gr. (%) 16.6 30.1 23.7
Cons. EPS
(INR)
70.1 90.4 105.3
Cons. EPS Gr.
( )
16.6 29.1 16.5
BV/Share
(INR)
420.1 492.2 581.4
Conso. BV
( )
435.5 513.5 603.5
RoA on AUM
(%)
2.3 2.6 2.8
RoE (%) 16.6 18.5 19.5
Payout (%) 14.5 14.5 14.5
Valuations
P/Cons. EPS
( )
12.6 9.8 8.4
P/Cons. BV (x) 2.0 1.7 1.5
Div. Yield (%) 0.9 1.2 1.5
 Shriram Transport’s 1QFY15 PAT declined 10% YoY and (up 4% QoQ to INR3b
(In line). Moderation in AUM growth (+4% YoY to INR544b), decline in
disbursements (7% YoY), and improvement in margins (10bp QoQ) are key
highlights of the quarter.
 Continued weakness in underlying asset class led to three year high credit cost
of 2.2%. GNPA ratio down 12bp QoQ to 3.7% and PCR stood at 80%.
 NII (incl. securitization income) grew 7% YoY and down 6% QoQ to INR9.6b.
Margins declined 47bp YoY to 6.54%. by a) interest reversals due to higher
asset quality stress, b) reducing off higher spread balance sheet book and c)
shift in AUM mix towards non CV segment.
 Led by lower securitization of INR1.7b and higher repayments, off balance
sheet AUM declined 17% QoQ and YoY to INR139b and its share in overall AUM
declined to 26% vs 31% a quarter ago and 32% a year ago
 Equipment finance business reported weak trends with sharp increase in GNPA
(+100bp QoQ to 2.3%) and moderate growth of 8% YoY (flat QoQ) to INR34b.
Led by higher credit cost ROE for the quarter stood at 4% v/s 25% a year ago.
Asset quality trend in this business remains weak however, mgmt remains
confident of recovery in 2HFY15
Valuation and view: SHTF’s return ratios are at cyclical low, with decadal high
credit cost and lowest margins. However, incremental data points like increase in
freight rates and improved utilization levels initial sign that worst may be behind
for CV cycle. We expect gradual improvement as stability in business and
regulatory side is emerging. Growth to remain moderate in near term and to be
driven by non-CV segment. SHTF is well placed to ride the up-cycle with niche
customer segment, strong presence in used CV financing and healthy
capitalization. Maintain Buy.
Investors are advised to refer through disclosures made at the end of the Research Report.

2. 26 July 2014 2
Shriram Transport Finance
Quarterly performance and reason for deviation
Y/E March 1QFY15A 1QFY15E Var (%) Comments
Net Income 9,646 9,544 1
Net income in line with estimates
% Change (Y-o-Y) 7.0 5.9
Other Income 266 400
Total Net Income 9,912 9,944 0
Operating Expenses 2,515 2,650 -5 Higher than expected employee expense
Operating Profit 7,398 7,294 1
Provisions 2,966 2,825 5 Higher provisioning for standard assets
Profit before Tax 4,432 4,469 -1
Tax Provisions 1,368 1,352 1
Net Profit 3,064 3,117 -2
PAT In lIne with estimate
% Change (Y-o-Y) -10.2 -8.6
Source: MOSL/Company
Moderation in growth continues, AUM mix further increases towards old vehicles
 AUMs growth moderated to 4% YoY and 2.4% QoQ at INR544b. While used
vehicle loans growth was healthy (+12% YoY, 3.3% QoQ), moderation in new
vehicle loans (down 38% YoY and 10% QoQ) led to overall moderation in
growth.
 Sharp new vehicles in overall AUM declined to 10.5% v/s 11.4% in FY14 and
17.4% a year ago.
 Disbursements declined by 6.7% YoY (up 6.5% QoQ) to INR74.1b; New CV
disbursements were down 49% YoY but grew 39% QoQ, whereas disbursements
in the old CV segment stood at INR70b (down 2% YoY and up 5% QoQ).
 Off-books AUMs de-grew 16.4% YoY and 16.6% QoQ; led by lower securitization
of INR 1.7b during the quarter. Off books proportion of AUM declined to 25.5%
v/s 31.3% in FY14 and 31.6% in 1QFY14.
Margins improve 10bp QoQ; Likely to improve from hereon
 NII (including securitization income) grew 7% YoY and 6% QoQ to INR9.6b.
Margins improved 8bp QoQ to 6.54%.
 On a YoY basis margins have declined 47bp on the back of interest reversals
(due to high asset quality stress), reducing high spread off balance sheet book
and shift in AUM mix further towards old vehicles.
GNPA declines QoQ still high; Coverage ratio remain healthy at +79%
 GNPAs during the quarter declined 7% QoQ, GNPAs in percentage terms
declined 65bps YoY and 12bp QoQ at 3.74%.
 Provisioning expenses (including for standard assets) stood at INR2.9b,
increased 18% YoY and 21% QoQ basis. PCR remained healthy at +79%.
 Credit cost increased to 214bp in 1Q v/s 187bp in 4QFY14. This quarter
witnessed the highest credit in last three years.
 Stress levels have remained high on the back of weak economic environment,
low freight rates and increasing fuel costs. However, we expect environment to
improve in the 2HFY15.
Other highlights
 Securitization during the quarter at INR1.7b (lowest in last 8 quarters).
 CAR remained healthy at 22.9% with a tier 1 of 17.5%.

3. 26 July 2014 3
Shriram Transport Finance
Valuation and view
 SHTF’ return ratios are at cyclical low, with decadal high credit cost and lowest
margins. However, incremental data points like increase in freight rates,
improved utilization levels and collection rates and improving IIP etc all point
towards worse of the CV cycle is behind. We expect gradual improvement as
stability in business and regulatory side is emerging.
 Sharp decline in economic growth resultant impact on asset quality (cyclical high
credit cost and bottom margins) and regulatory changes led to risk adjustment
margins falling to five-year low and sharp decline in return ratios (RoE down to
16% from 30% in FY09).
 Near terms margins are likely to be under pressure due to higher cost of funds
led by budget proposals related to debt mutual funds. However, improvement
in cycle and lower stress addition, traction in used CV portfolio and higher
securitization will support margins in the medium term.
 Growth to remain moderate in near term and to be driven by non-CV segment.
While yields in passenger vehicle portfolio are near to CV segment, operating
cost is relatively high which will lead to some pressure on profitability in the
near term. While SHTF’s return ratios have moderated compared to its historical
trends, we expect ROA’s of ~2% and ROE of ~15% over FY14/16E.
 Increasing diversification coupled with the initiatives of penetrating deeper in
rural location, financing other vehicles like tractors, Passenger vehicles etc (30%
of the AUM vs 15% in FY10) augurs well in the long term
 Subsidiary profits have become sizeable and now contribute ~7% of
consolidated PAT. We expect contribution to rise further on a lower base and
growth rate is likely to be much higher than standalone business as the
environment will revive.
 SHTF is well placed to ride the up-cycle with niche customer segment, strong
presence in used CV financing and healthy capitalization. SHTF trades at 2x/1.7x
FY15/16E consolidated BV and 12.6x/9.8x FY15/16E consolidated EPS. Maintain
Buy with FY16E-based target price of INR1,130 (2.2x FY16E P/Consol Book).

4. 26 July 2014 4
Shriram Transport Finance
Story in charts
Disb. growth declined 7% YoY during the quarter (INRb) Proportion of off-book assets declined ~500bp QoQ (%)
60 64 60 55 61 67 67 63 68 70 71 69 74
40 36 40 45 39 33 33 37 32 30 29 31 26
1QFY12
1HFY12
9MFY12
FY12
1QFY13
1HFY13
9MFY13
FY13
1QFY14
1HFY14
9MFY14
FY14
1QFY15
OnBooks Off Books
AUM mix shifted further in favor of old CVs (%)
76 76 77 77 78 79 79 81 83 84 87 88 90
24 24 23 23 22 21 21 19 17 16 13 12 10
1QFY12
1HFY12
9MFY12
FY12
1QFY13
1HFY13
9MFY13
FY13
1QFY14
1HFY14
9MFY14
FY14
1QFY15
UsedCVs (%) New CVs (%)
Securitization during the quarter stand at INR2b
2
5
33
43
0
4
30
54
14
28
23
43
2
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
Assets Securitized(INR b)
NIMs (% on AUM) improve marginally sequentially
8.2
7.7
7.2 7.4
7.7 7.5
7.2 7.0
6.7 6.5 6.5 6.5
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
ReportedNIM (%)
Opex management led to control over C/I ratio despite
moderation in income growth
20 21
22
21
22
21
22 21
25
23
26
26
25
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15

5. 26 July 2014 5
Shriram Transport Finance
Quarterly performance
FY13 FY14 FY15 Variation (%)
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q QoQ YoY
Profit and Loss (INR m)
Net Income 2,702 4,087 4,696 5,037 5,154 5,762 6,398 6,368 7,179 13 39
Operating Expenses 1,940 1,872 1,999 2,040 2,488 2,185 2,421 2,467 2,515 2 1
Employee 1,037 935 899 977 1,239 855 949 1,023 1,012 -1 -18
Others 903 937 1,100 1,063 1,250 1,329 1,473 1,444 1,502 4 20
Operating Profits 6,787 7,119 7,248 7,459 7,348 7,258 7,067 6,900 7,398 7 1
Provisions 2,026 2,106 2,126 2,193 2,503 2,533 2,800 2,458 2,966 21 18
NPAs/ Bad debts 1,946 2,018 2,081 2,179 2,392 2,494 2,788 2,493 2,874 15 20
Standard assets 80 89 45 14 111 39 12 -35 92 NA -17
PBT 4,761 5,013 5,122 5,266 4,845 4,725 4,268 4,442 4,432 0 -9
Taxes 1,543 1,638 1,662 1,713 1,435 1,457 1,254 1,493 1,368 -8 -5
PAT 3,219 3,376 3,460 3,552 3,410 3,268 3,014 2,950 3,064 4 -10
Asset Quality
GNPA 7,776 8,553 9,087 10,254 11,317 12,543 13,872 14,505 15,466 7 37
NNPA 1,576 1,754 1,921 2,416 2,412 2,517 2,817 3,029 3,135 3 30
Gross NPAs (%) 3.0 2.9 2.9 3.2 3.1 3.3 3.6 3.9 3.7
Net NPAs (%) 0.6 0.6 0.6 0.8 0.7 0.7 0.8 0.8 0.8
PCR (Calculated, %) 79.7 79.5 78.9 76.4 78.7 79.9 79.7 79.1 79.7
Ratios (%)
Cost to Income 24.2 21.6 22.3 22.8 27.6 24.2 26.0 27.0 26.1
Provision to operating profit 29.8 29.6 29.3 29.4 34.1 34.9 39.6 35.6 40.1
Tax Rate 32.4 32.7 32.5 32.5 29.6 30.8 29.4 33.6 30.9
Total CAR 21.3 20.5 19.2 20.7 20.3 19.9 22.2 23.4 22.9
Business Details (INR b)
AUM 419 441 465 497 525 538 534 531 544 2 4
On book Loans 256 294 311 314 359 375 379 365 405 11 13
Off book (Securitization) 163 147 155 182 166 163 155 166 139 -17 -16
Total Borrowings 213 238 282 310 339 360 362 359 364 1 7
AUM Mix (b)
New CV Loans 22 21 21 19 17 16 13 12 10
Used CV loans 78 79 79 81 83 84 87 88 90
Disbursements Details (INR b)
Total 53.7 61.7 70.0 77.0 79.4 72.5 64.6 69.5 74.1 12 13
New CV Loans 10.0 11.2 11.2 11.0 8.1 4.8 1.6 2.9 4.1 87 -50
Used CV loans 43.7 50.5 58.8 66.0 71.4 67.6 63.0 66.6 70.0 10 24
Securitization Details
Done during quarter (INR B) 0.0 3.9 30.4 53.6 13.7 27.8 22.7 42.7 1.7
Securitization inc as a % to net inc 66.3 52.9 47.5 43.6 42.8 36.1 31.3 30.2 25.6
Total Borrowing Mix (%)
Banks / FIs 76.0 77.9 81.2 81.6 81.2 82.3 81.4 80.5 79.9
Retail 24.0 22.1 18.8 18.4 18.8 17.7 18.6 19.5 20.1
Other Details
Branches 513 513 530 537 569 620 630 654 666
Employees 14,156 14,159 14,936 16,178 17,045 18,240 18,078 18,122 17,075
Source: Company, MOSL

6. 26 July 2014 6
Shriram Transport Finance
EPS: MOSL forecast v/s consensus (INR)
MOSL Consensus Variation
Forecast Forecast (%)
FY15 70.1 67.8 3.3
FY16 90.4 83.1 8.8
Shareholding pattern (%)
Jun-14 Mar-14 Jun-13
Promoter 26.1 26.1 25.8
DII 2.0 1.0 1.2
FII (FII Incl. depository receipts) 53.2 53.9 53.8
Others 18.7 19.0 19.1
Stock performance (1-year)

7. 26 July 2014 7
Shriram Transport Finance
Financials and valuations

8. 26 July 2014 8
Shriram Transport Finance
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Disclosure of Interest Statement SHRIRAM TRANSPORT FINANCE
 Analyst ownership of the stock No
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