Monday, 31 December 2012

Stock Update: Shriram Transport (STFC) - Piramal plans to take a bite

Ajay Piramal (Piramal Group) is in advanced talks to buy US private equity firm TPG Capital's 20.27% stake in STFC, for around Rs 3,500 crs. Piramal is holding a lot of cash from his sale of his formulations business to Abott, and STFC stake gives him a foothold into one of the best financial intermediaries in India (in my opinion!).

Ajay Piramal is well-known for his business acumen and has a lot of followers in the value investing community. Hopefully, with this stake, there will be some focus on STFC. With the new roll out of auto malls, growth in the LCV and mini CV segments, STFC is likely to do fairly well. If CV financing picks up (a couple of years down the line), the profits would soar. The main reason I like STFC is that they have a very strong moat in their core business, which results in NIMs of 7-8% (double that of the best run banks like HDFC Bank).

With possibiliities of reduced interest rates in 2013, it may be a harbinger of good tidings for STFC.

Happy New Year & Happy Investing in 2013.

3 comments:

  1. Dear Abhishek -

    Hope you are doing good. I am a long time reader but this is my first comment.

    STFC is going around ~1.5x (Jun-13) book, which is probably the lowest bvm in 3-4 years (down from 700 levels to 500 levels) in last 2-3 months. At ~7.5x (annualized q1) earnings at ~12.5% discount [which is as good as any discount rate I guess] the market seems to have factored in negative to zero-ish long term growth, which seems rather counter-intuitive.

    Would like to know your thoughts on this.

    Subhodeep

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    Replies
    1. Hello Subhodeep,

      Thanks for reading my blog and posting your views.

      Personally, I think, we are in for some very tough times for financial companies. If interest rates go up from here, then things will get really tough. NPAs will start rising and assets can disappear pretty fast in that scenario. So, book value may not be a very good approximation of value now, since it is difficult to judge the quality and resilience of the book itself!

      Additionally, CV sales are stagnating and unlikely to really kick start unless we see a better economic climate. Another trigger may be the mining ban being lifted.

      I have booked profits (pared down) by about a third of my holdings. So, still hold more than 65% of my original holdings. I am thinking of bringing it down a bit further. Maybe leave 30-40% of the stock holding. I like the company and the business model. But in the short to medium term, there are better options available.

      Hope this helps. Happy Investing!

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    2. Hi Abhishek,

      Thanks for the reply. What you said makes sense - NPA's are a ticking time-bomb in the short to medium term.

      NPAs have a direct link with vote-bank politics - with elections around the corner, suddenly the powers-that-be may provide "loan relief" to "the poor" (irrespective of whether its private or government money). From experience I can say that political interference is the biggest threat in unsecured lending business.

      Thanks !

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