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Monday, February 05, 2018

Antique Stock Broking call a 'Buy' on Shriram Transport Finance

CMP: 1335        Target: 1829
Quarterly performance - strong growth continues

In line with the pick-up in CV cycle, business momentum was strong and AUM growth at 18% YoY was higher than the upper end of the management guidance.
Earnings growth of 43% YoY was driven by a combination of double-digit AUM growth, stable margin, and declining credit cost. Key highlights of the performance are:
Asset growth was strongest in past seven quarters at 5% QoQ and 18% YoY. Used vehicles continued to dominate the loan book with 89% contribution.

Calculated margin improved 34bps YoY, aided by declining borrowing costs. As such, NII grew 21% YoY, a little faster than the balance sheet growth.

Asset quality remained stable with GNPAs at 8.0% vs. 8.1 in Sep17 (120 dpd). Credit cost at 65bps was the lowest since demonetization, aiding 43% YoY growth in earnings.

Management commentary: Management is seeing good traction from rural markets and construction-related areas. AUM growth rates should continue at 15%+ for few more quarters. GNPAs should rise 120 bps next quarter as they migrate to 90 dpd. Overall, they see credit cost coming down from 300bps level to 250bps level.

Our long-term view - strong earnings cycle ahead

Growth: Revival in rural economy, expected boom in construction activity and fading impact of demonetization & GST should ensure strong asset growth ahead. Relationship with trucking community, quick turnaround time, deep geographic presence, and repayment convenience are competitive advantages that will ensure AUM CAGR of 14% over FY18-20e.

Valuation: A combination of double-digit growth, stable margins and improving asset quality will ensure 32% earnings CAGR over FY18-20E and RoEs will revert to 18% levels.

Current valuation at 1.9x FY20E is the lowest among peers. We value it at 2.4x FY20E book or INR1,829 per share, given the prospect of a cyclical revival. Maintain BUY.

Emkay call a 'Buy' on Inox Leisure
CMP: 280        Target: 313


Bollywood content performance has been weaker than expected, which is resulting to subpar footfalls. Companies on the other hand are focusing on ATP increase to offset the impact of weak content. We believe continued rise in ATP would restrict footfall increase with content revival as ATP increase in 9MFY18 is 7.3% while overall footfalls have been flat. Revival in content performance is key for footfall growth and sustainable operating leverage. Recovery in advertisement revenue growth has been key positive and aiding operating leverage, which is expected to continue going forward. The company has outperformed on ad growth for third consecutive quarter. Inox has also been focusing on premium location in its key market to reduce gap in advertisement, SPH and ATP as compared to PVR.

GST implementation restrict comparison of operating performance on yoy basis on account of input tax credit. Inox outperformed for the third consecutive quarter on advertisement revenues with robust 33% yoy growth.

Management remains confident on healthy advertisement revenue growth going forward. We have revised ad growth estimates to 36% (vs 30%) for FY18 while it remains unchanged at 15% for FY19E.

We have aligned footfalls assumption due to continued weaker than expected Bollywood content performance. Now projecting footfalls increase of 8% each for FY19/20E. Maintain BUY with revised PT of Rs 313 (11.3x EV/EBITDA- 10% discount to PVR) with valuations roll forward to FY20.

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