Over the past five-to-six years, Shriram Transport Finance’s PAT has been in the Rs 1,200-1,300 crore range. Growth slowed and there were concerns on margins due to migration towards newer vehicle financing. Growth in the past 6-8 quarters (barring the quarters around demonetisation) has been good.
The impact of non-performing loan migration on yields as well as credit costs will end soon and FY19 will be a year of normalised return ratios. The company is investing for growth by expanding its branch network aggressively.
We expect return on equity to improve to over 18 percent from FY19 onwards which would be at the higher end compared to its NBFC peers and have a buy on the stock with target of Rs 1925 per share.
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