Thursday, 5 May 2011

Monetary Policy Impact on Shriram Transport Finance Complay Ltd (STFC)

This monetary policy announced on May 3rd has a new guideline whereby all loans by banks to NBFCs will now NOT be considered under priority sector lending (PSL). This has impacted the stock price of Shriram Transport Finance Complay Ltd (STFC) greatly. The stock has been hammered down by nearly 25% in the last few days. 
Let us quickly look at the facts:-
  • 20% of the companies funds come from banks. The rest is from retail and institutional borrowing.
  • The company foresees a slowdown in CV (commercial vehicle) sales in the next 3-6 months as interest rates rise.
  • Since the company primarily lends to used CV owners (70% of the loans are for used vehicles), there is a lag when the slowdown would impact the company. 
  • It is possible that the slowdown may hit in the next financial year and the company may grow at 10% instead of the 15%-20% it hopes to do now.
  • The company does not expect any significant impact on NIMs after the monetary policy
  • FY12 Q1 results would need to be keenly watched for possible future direction of the company.
  • The stock may not breach the 52 week low of about 530. I would be really surprised to see it go down much below 600.
Even if I assume a slowdown and a 10% growth for FY12, the expected FY12 EPS would be about Rs. 60. The expected price at an approximate PE band of 12-14 would result in an approximate price of 720-840.

I think STFC may be providing a good risk-reward situation for long term investors.

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