You are on page 1of 8

BFSI

India I Equities

Result Update
31 October 2014

Shriram City Union Finance

Rating: Buy
Target Price: `1,903
Share Price: `1,742

Growth improves, higher spread; Buy
Key takeaways
AUM growth bottoms out; disbursements up. After four quarters of
decrease in AUM, SCUF’s AUM increased 2.9% yoy in 2QFY15 (to
`155.6bn). Lending shares of SME and two wheelers increased 320bps and
90bps to 52% and 18%, yoy, respectively. Disbursements increased 16.7%
yoy (8.1% qoq), driven by gold loans (up 54% yoy). Led by a sharper focus
on rural India, we expect 23% growth in AUM over FY14-17.
Spread on the rise, productivity decreases. Reported gross spread has
increased 160bps yoy, to 13.3%, on a higher yield on advances. Proportion
of retail liabilities in the overall borrowing mix has improved 230bps yoy, to
31%. Easing interest rates and increasing proportion of higher-yielding rural
SME finance could aid stable NIM of 12%+ over FY15-16. On continuous
investment in its employees, cost-assets increased 110bps yoy, to 5.6%. We
expect cost-assets to improve with the NBFC better leveraging its
investments in the present set-up.
High NPA coverage and capital adequacy. Gross NPA rose marginally
by 7% qoq. NPA coverage improved 180bps qoq to 80%, one of the best
amongst peers. We expect credit costs over FY15-16, at 2.7%, to remain
elevated (3% in FY14). Post the recent capital infusion of `7.9bn in Jun’14,
capital adequacy now stands at a high 30.44% with Tier 1 of 25.2%, and is
sufficient to support the NBFC’s healthy loan growth plans.
Our take. A strong rural-focused niche model, improving growth and
higher NIM would support +3.5% RoA over FY15-16. We maintain Buy. At
our target price, the stock will trade at 3.0x FY15e BV and 2.5x FY16e BV.
Our target is based on the two-stage DDM (CoE: 16.0%; beta: 1.1; Rf:
8.5%). Risks. Below-expected growth and higher NPA, change in RBI
norms.

Key data

SCUF IN / SHCU.BO

`1,849 / `905
27723 / 8281
US$0.5m
`117bn / US$1.9bn
65.9m

52-week high / low
Sensex / Nifty
3-m average volume
Market cap
Shares outstanding

Shareholding pattern (%)

Sep-14

Promoters
- of which, Pledged
Free Float
- Foreign Institutions
- Domestic Institutions
- Public

33.8
66.2
24.8
2.4
39.0

Financials (YE: Mar)

Net interest income (`m)
Net profit (`m)
EPS (`)
Growth (%)
PE (x)
PABV (x)
RoE (%)
RoA (%)
Dividend yield (%)
Net NPA (%)

Jun-14 3-Jun-14

33.8
66.2
23.5
2.9
39.8

33.8
66.2
23.7
3.0
39.5

FY15e

FY16e

20,542
6,474
98
11.8
17.2
2.8
18.1
3.5
0.7
1.3

24,198
7,864
119
21.5
14.2
2.4
17.1
3.5
0.8
1.3

Source: Anand Rathi Research
Quarterly results (YE: Mar)

2QFY14

2QFY15

% yoy

1HFY14

1HFY15

% yoy

Net interest income (`m)

4,419

5,100

15.4

8,743

10,102

15.5

Non-interest income (`m)

140

207

47.7

314

333

6.2

Operating expenses (`m)

1,759

2,150

22.2

3,487

4,172

19.6
148bps

Cost-to-income (%)
Pre-provisioning profit (`m)
Provisions (`m)

38.6

40.5

192bps

38.5

40.0

2,800

3,157

12.8

5,569

6,262

12.4

919

1,089

18.5

1,929

2,297

19.1

Kaitav Shah

8.9

+9122 6626 6545
kaitavshah@rathi.com

PBT (`m)

1,881

2,069

10.0

3,640

3,966

Tax (`m)

609

691

13.4

1,194

1,310

9.7

PAT(`m)

1,272

1,378

8.3

2,446

2,655

8.5

Clyton Fernandes

21

21

(2.5)

44

45

1.5

+9122 6626 6744
clytonfernandes@rathi.com

EPS (`)
Source: Company, Anand Rathi Research

Anand Rathi Shares and Stock Brokers Limited (hereinafter “ARSSBL”) is a full service brokerage and equities research firm and the views expressed therein are solely of
ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within
India and to no countries outside India. Disclosures and analyst certifications are present in Appendix.
Anand Rathi Research

India Equities

2 6.4 878.9 92.289 47.5 0.831 659 41.8x 1.2 0.359 4.0 Apr-12 17.9 17.791 3.0 11.5 Apr-11 FY17e Oct-10 FY16e Apr-10 FY15e Oct-09 FY14 Apr-09 Net interest income NII growth (%) Non-interest inc Total income Total Inc growth (%) Op.864 21.2 94.250 1.400 659 57.359 163.7 3.587 5.232 6.9 16.2 624.1 38.8 145.3 10.1 8.926 7.600 Oct-13 28.0 3.0 Oct-12 20.962 66 25.798 2.9 10.6 12.154 301.943 30.074 659 48.291 18. Anand Rathi Research Fig 3 – Key ratios Year-end: Mar SCUF 800 Apr-10 230.189 10.550 1.1 64.6 4. expenses Operating profit Op profit growth (%) Provisions PBT Tax PAT PAT growth (%) FDEPS (`/share) DPS (`/share) Fig 4 – PE band FY13 Oct-08 Year-end: Mar Fig 5 – Price-to-book band FY14 FY15e FY16e FY17e 554 593 21.010 19.000 Source: Company.2x 1.5 18.31 October 2014 Shriram City Union Finance – Growth improves.0 Apr-13 24.679 23.100 10x 600 5x Oct-14 Apr-14 100 Source: Bloomberg.1 3.292 163.400 66 20.862 16.110 30.4 3.1 0.7 Jul-14 12.7 1.5 95.632 170.0x 600 Source: Bloomberg.6 2.3 644.350 Bankex 1.6 6.207 213.5 17.390 127.501 19.542 15.3 1.8 2.182 11.3 10.580 28.831 55 59 32.734 163.0 22.600 SCUF 1.9 3.840 6.791 9.5 119.160 4.3 (5.276 21.3) 24.8 1.2 1.0 6.000 2. Anand Rathi Research Fig 2 – Balance sheet (`m) Year-end: Mar 2.050 950 Oct-14 850 Sep-14 11. Bankex 1. Anand Rathi Research 200 Oct-14 Apr-14 Oct-13 Apr-13 Oct-12 Apr-12 Oct-11 Apr-11 Oct-10 0 Fig 6 – SCUF vs.037 42.4 3.450 1.8 399. higher spread.6 Apr-09 151.031 18.8 3.769 142.882 16.5 38.3 748.686 48.656 2.988 4.4 93.4 3.775 24.5 17.6 16.2 0.211 15.655 7.662 6.1 8.9 93.2 98.4 16.4 13.150 1.374 7.675 25.100 15x 1.5 Apr-14 FY17e Mar-14 FY16e Feb-14 FY15e Jan-14 FY14 Dec-13 FY13 Source: Company.873 18.706 3.4 723. Minority Interest Total liabilities FY13 20x 2.1 3.429 15.6 397 16.842 7.3 8.640 10.046 10.729 5. Anand Rathi Research Share capital Reserves & surplus Borrowings Current liab.430 243.521 9.452 13.151 203.7 1.0 Oct-11 16.535 730 6.800 1.7 Jun-14 11.6 64.496 31.3 488.935 14.4 37.8 37.400 1.5 0.3 15.3 61.3 24.5 5.200 1.8 7.315 20.0 Oct-09 185.844 53.6 May-14 11.817 19.2 62. & prov.474 24.490 13.9 3.4 379.1 63.3 81.3 2.019 5. Anand Rathi Research Anand Rathi Research 400 Nov-13 NIM (%) Other inc / total inc (%) Cost-income (%) Provision coverage (%) Dividend payout (%) Credit-deposit (%) Investment-deposit (%) Gross NPA (%) Net NPA (%) BV (`) Adj BV (`) CAR (%) RoE (%) RoA (%) Dividend yield (%) 1.0 3.354 203.074 66 18.8) Oct-13 Advances Investments Cash & bank bal Fixed & other assets Total assets No.1 11.5 38.781 9.957 14.706 18.0 3.9 87.6 844.962 2.734 163.0 20.2 6.5 0.750 1.723 9.1 17.7 Aug-14 11.822 12.2 4.2 9.650 1.220 11.5 1.3 12.4 13.417 301.340 21.6 (3.6 1.531 39.577 21.271 120.198 17.554 128.181 243.8 Oct-08 133.9 470. Buy Quick Glance – Financials and Valuations Fig 1 – Income statement (`m) Source: Company.850 SCUF 1.600 2.5 22.497 49.6x 1. of shares (m) Borrowings growth (%) Advances growth (%) Source: Bloomberg 2 .

9 2.487 19.001 2.770 117. Buy Result highlights Fig 7 – 2QFY15 Results vs Expectations (`m) 2QFY15 2QFY15e Var % 2QFY14 YoY % 1QFY15 QoQ % Net interest income 5.8 6.419 15.4 PAT 1.550 35.800 12.100 4.6 0.157 3.569 12.4 10.0 118bps Disbursements Gross NPA Source: Company.655 2.570 151.000 30 20.277 7.419 15.2) Gross NPA % 2.0 Pre-provisioning profits 3.5 Non-interest income 207 140 47.378 1.000 120.6 Pre-provisioning profits 3.7 (7)bps 0.9 Source: Company.000 Disbursements (RHS) Source: Company.090 (1. higher spread.1) 118.272 8.31 October 2014 Shriram City Union Finance – Growth improves.5 Borrowings 115.446 8. Anand Rathi Research 3 .7 333 314 6.4) 840 (1.378 1.262 5.000 2QFY12 0 1QFY12 30.172 3.200 29.105 1.800 12. Anand Rathi Research Fig 9 – AUM growth bottoms out Fig 10 – Disbursement growth looking up (`m) 180.3 684bps 24.000 60 40.1 4.2 4.2 Operating costs (%) 2.102 8.4 5.0) 41.000 30 (%) 90 60 30.000 4QFY11 15 3QFY11 60.743 15.860 7. Anand Rathi Research Fig 8 – 2QFY15 results (`m) 2QFY15 2QFY14 % Chg 1HFY15 1HFY14 % Chg Net interest income 5.420 8.6 (5)bps NPA coverage % 80.000 AUM Source: Company.407 (2.090 (2. Anand Rathi Research Anand Rathi Research yoy growth (RHS) Disbursements 2QFY15 1QFY15 4QFY14 3QFY14 2QFY14 1QFY14 4QFY13 3QFY13 2QFY13 1QFY13 -30 4QFY12 0 3QFY12 2QFY15 1QFY15 4QFY14 3QFY14 2QFY14 1QFY14 4QFY13 3QFY13 2QFY13 1QFY13 4QFY12 3QFY12 2QFY12 1QFY12 4QFY11 3QFY11 -15 2QFY11 0 0 10.5 43bps 2.590 16.6 Net NPA 830 850 (2.157 2.150 1.000 45 90.4 658bps 78.9 150.3 1.290 3.0 73.100 5.3 718bps 29.1) 1.000 150.9 2bps Net NPA % 0.2 120bps Tier-1 % 25.4 23.000 (%) 75 (`m) 50.759 22.0) 2.272 8.101 (0.5 2QFY15 2QFY14 YoY 1QFY15 QoQ AUM 155.2 18.8 3.2 178bps Capital adequacy % 30.3 2.8 3.180 2.7 PAT 1.0) 4.190 (1.155 3.7 38.

0 15 0.0 75 2. Anand Rathi Research Fig 13 – High NPA coverage (%) 3.Two wheeler Loans .0 1QFY15 32 4QFY14 1.Loans against gold .Personal Loans .0 1QFY12 (%) Cost-income (RHS) Source : Company.0 3QFY14 34 2QFY14 2.0 3QFY12 42 2QFY12 (%) 6.0 3QFY13 38 2QFY13 4. Buy Fig 11 – AUM mix: Rising business finance and two-wheeler loans 100% 80% 60% 40% 20% .31 October 2014 Shriram City Union Finance – Growth improves. higher spread.Others Source : Company Fig 12 – Cost-income increasing 30 Cost-assets 2QFY15 0.Auto Loans .0 1QFY13 40 4QFY12 5.SME Loans 2QFY15 1QFY15 4QFY14 3QFY14 2QFY14 1QFY14 4QFY13 3QFY13 2QFY13 1QFY13 4QFY12 3QFY12 2QFY12 1QFY12 0% .0 1QFY14 36 4QFY13 3.5 30 1.5 60 2.0 45 1.5 Gross NPA (%) Net NPA (%) NPA Coverage (%) Source: Company Anand Rathi Research 4 .0 0 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 0.5 (%) 90 3.

8 1.6 +2SD 2.31 October 2014 Shriram City Union Finance – Growth improves. Fig 14 – Past one-year forward-P/BV 2. We maintain Buy. Our target is based on the two-stage DDM (CoE: 16. Buy Valuations A strong rural-focused niche model.6 -1SD 1.4 -2SD 1.2 Oct-14 Apr-14 Oct-13 Apr-13 Oct-12 Apr-12 Oct-11 Apr-11 Oct-10 Apr-10 Oct-09 Apr-09 Oct-08 1.5x FY16e BV.0 Source: Bloomberg. 5 .5%).  Regulatory changes could impact the business model and profitability of the company.8 2.0 Mean 1.0%.2 +1SD 2. higher spread. At our target price. beta: 1.4 SCUF 2.1. Rf: 8.5% RoA over FY15-16. the stock will trade at 3. improving growth and higher NIM would support +3.0x FY15e BV and 2. Anand Rathi Research Risks Anand Rathi Research  Slowdown in the rural economy would lead to slower loan growth and mounting delinquencies.

345 13.542 24.775 24. higher spread.134 28.1 6.110 16.291 57.4 10.831 203.276 7.8 18.840 3.769 48.817 2.864 9.844 21.564 13.791 20.935 14.433 7.037 10.873 30.151 6.316 47.315 Total income Non-interest income / total income (%) Pre-provisioning profit Growth (%) 49.412 7.723 4.3 119.490 142.160 2.118 19.2 15.428 49.474 7.577 31.194 4.239 2.3 4.355 34.791 14.046 730 6.373 Other expenses 4.665 16.8 Operating expenses 6.271 120.232 3.632 57.5 21.141 3.503 9.822 21.5 6.291 170.957 Profit before tax 6.655 5.390 41.400 301.8 55 59 66 66 66 81.452 9.206 40.6 9.9 98.340 1.7 34.587 3.734 163.983 42.4 Tax rate (%) Profit after tax Growth (%) Number of shares (m) Earnings per share Source : Company.882 25. Fig 15 – Income Statement Year-end: Mar (`m) FY13 FY14 FY15e FY16e FY17e Interest income 30.359 18. Anand Rathi Research Fig 16 – Balance Sheet Year-end: Mar (`m) Share capital Reserves and surpluses FY13 FY14 FY15e FY16e 554 593 659 659 FY17e 659 21.477 8.679 213.292 5.019 42.359 Taxes 2.501 Employee expenses 2. Anand Rathi Research Anand Rathi Research 6 .1 87.926 4.781 33.943 13.9 15.706 11.2 20.252 4.5 6.6 Provisions 3.531 9.231 Net interest income 16.4 145.962 Advances 133.706 4.312 6.535 151.2 21. Buy Financials We expect 21.706 Growth (%) 47.417 163.253 11.400 301.031 1.154 Total liabilities 163.862 11.31 October 2014 Shriram City Union Finance – Growth improves.431 31.220 4.521 230.074 243.9 24.5 17.3 33.962 Other Liabilities & Provisions Minority interest Investments Cash & bank balances Fixed & other assets Total assets Source : Company.729 39.675 2.142 13.770 5.734 163.662 53.430 30.354 23.3 33.937 Interest expended 14.708 3.6 Non-interest income 397 1.4 19.866 Borrowings 127.554 128.289 17.010 19.5 33.831 203.916 6.181 7.156 7.9% CAGR in earnings over the same period.198 28.5% loan growth over FY14-17e with 24.128 10.580 28.207 Net worth 22.842 3.988 4.374 185.074 243.4 5.686 18.429 16.3 15.

687 1 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 200 The research analysts. ARSSBL and/or Anand Rathi may trade for their own accounts as market maker / jobber and/or arbitrageur in any securities of the companies mentioned in the Research Report or in related investments. futures or other derivatives related to such securities (hereinafter referred to as “Related Investments”). or solicit investment banking or other business from. and we do not guarantee its accuracy or completeness. is. investors should not use this as a sole basis for making their investment decision and should consider the recommendations mentioned in the Research Report bearing in mind the aforementioned. Important Disclosures on subject companies Rating and Target Price History (as of 31 October 2014) 2.183 1. perform investment banking. to buy or sell any securities or any options.000 Date SCUF 1. It does not have regard to the specific investment objectives.200 1. stock picking. and we can not guarantee the same as analysis and valuation is a tool to enable investors to make investment decisions but. Past performance is not necessarily a guide to future performance.365 1. as the recommendations made by the analyst(s) are completely independent of the views of the other companies of Anand Rathi. or research associates principally responsible for the preparation of Anand Rathi Research have received compensation based upon various factors.000 7 4 6 800 600 2 400 3 1 2 3 4 5 6 7 8 12-Dec-11 30-Jul-12 02-Nov-12 31-Jan-13 22-May-13 29-Jul-13 02-May-14 30-Jul-14 Rating TP (`) Share Price (`) Buy Buy Hold Hold Hold Buy Buy Buy 680 837 898 1. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this Research Report. .903 512 706 778 1. firm revenues and overall investment banking revenues. The investors should note that ARSSBL is one of the companies comprising within ANAND RATHI group. may from time to time. Foreign currency rates of exchange may adversely affect the value. connected or catering to the companies mentioned in the Research Report.161 1. including quality of research. ARSSBL and/or Anand Rathi.214 1. if any.Appendix Analyst Certification The views expressed in this Research Report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the research analyst(s) was. The research analysts are bound by stringent internal regulations and also legal and statutory requirements of the Securities and Exchange Board of India (hereinafter “SEBI”) and the analysts’ compensation are completely delinked from all the other companies and/or entities of Anand Rathi. Anand Rathi Ratings Definitions Analysts’ ratings and the corresponding expected returns take into account our definitions of Large Caps (>US$1bn) and Mid/Small Caps (<US$1bn) as described in the Ratings Table below: Ratings Guide Large Caps (>US$1bn) Mid/Small Caps (<US$1bn) Buy >15% >25% Anand Rathi Research Ratings Distribution (as of 31 October 2014) Buy Anand Rathi Research stock coverage (182) 61% % who are investment banking clients 5% Hold 5-15% 5-25% Sell <5% <5% Hold 27% 0% Sell 12% 0% Other Disclosures This report has been issued by ARSSBL which is a SEBI regulated entity. competitive factors. Investors are cautioned to be aware that there could arise a potential conflict of interest in the views held by ARSSBL and other companies of Anand Rathi who maybe affiliated. Investors should note that income from such securities.126 954 1. or an invitation to make an offer.079 1.600 1. this Research Report is prepared for private circulation and use only. is not an exact and/or a precise science. Furthermore. Further.800 8 1.184 1. and which is in full compliance with all rules and regulations as are applicable to its functioning and governance. the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s). ARSSBL and/or Anand Rathi and its affiliates. and ANAND RATHI as a group consists of various companies which may include (but is not limited to) its subsidiaries. however. and may be on taking a different position from the ones which haven been taken by the public orders. strategists. directors. stakes and may service the companies covered in this report independent of ARSSBL. or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. views. investment management. even though there might exist an inherent conflict of interest. may fluctuate and that each security's price or value may rise or fall. Thus. and have no bearing whatsoever on any recommendation that they have given in the Research Report. the information herein has been obtained from various sources which we believe is reliable. investor client feedback. ARSSBL and Anand Rathi are fully complaint with all procedural and operational regulatory requirements. and employees may have a long or short position in any securities of the companies mentioned in the Research Report or in Related Investments. financial situation and the specific financial needs or objectives of any specific person who may receive this Research Report. its group companies who may hold positions. any entity and/or company mentioned in this Research Report. Neither the information nor any opinion expressed herein constitutes an offer. and. officers. even though. financial advisory or any other services not explicitly mentioned herein.400 5 1. its affiliates. should understand that statements regarding future prospects may or may not be realized. price or income of any security or related investments mentioned in this report.

Other Disclosures pertaining to distribution of research in the United States of America This material was produced by ARSSBL. The information contained herein has been obtained from published information and other sources. . to the extent permitted by law. solely for information purposes and for the use of the recipient. you agree to be bound by all the foregoing provisions. However. 5. By accepting this document. ARSSBL or its Affiliates may or may not. one or more of ARSSBL or its Affiliates may. provide investment banking. This document does not constitute an offer of. NY 10036) and elsewhere in the world by ARSSBL or an authorized affiliate of ARSSBL (such entities and any other entity. 3. expressions of opinion and other subjective judgments contained herein are made as of the date of this document. All rights reserved. or other securities business from. or an invitation by or on behalf of ARSSBL or its Affiliates or any other company to any person. controlled by ARSSBL. In particular. have a long or short position in any of the securities mentioned herein and may buy or sell those securities or options thereon. act upon or use the above material or the conclusions stated above. or the research or analysis on which they are based before the material is published to recipients and from time to time. All estimates. sold or redistributed without the prior written consent of Anand Rathi Shares and Stock Brokers Limited. directly or indirectly. to buy or sell any security. the political and economic environment. © 2014 Anand Rathi Shares and Stock Brokers Limited. any entity referred to in this report. which ARSSBL or its Affiliates consider to be reliable. ARSSBL accepts responsibility for its contents. This report or any portion thereof may not be reprinted. either on their own account or on behalf of their clients. The ability to assess such risks may also be limited due to significantly lower information quantity and quality. It is distributed in the United States of America by Enclave Capital LLC (19 West 44th Street. None of ARSSBL or its Affiliates accepts any liability or responsibility whatsoever for the accuracy or completeness of any such information. Emerging securities markets may be subject to risks significantly higher than more established markets. ARSSBL or its Affiliates may or may not have been beneficial owners of the securities mentioned in this report. Any US customer wishing to effect transactions in any securities referred to herein or options thereon should do so only by contacting a representative of Enclave Capital LLC. Suite 1700. Enclave Capital LLC is distributing this document in the United States of America. 6. company practices and market prices and volumes may be subject to significant variations. investment management or other services for or solicit to seek to obtain investment banking. ARSSBL or its affiliates may have or not managed or co-managed a public offering of the securities mentioned in the report in the past 12 months. the “Affiliates”). 4. 1. As of the publication of this report. Additional information on recommended securities/instruments is available on request. It is not to be reproduced under any circumstances and is not to be copied or made available to any person other than the recipient. New York. 2. ARSSBL does not make a market in the subject securities. ARSSBL or its affiliates may have or not received compensation for investment banking services from the issuer of these securities in the past 12 months and do not expect to receive compensation for investment banking services from the issuer of these securities within the next three months. from time to time.