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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

4 379.3 24.181 243.031 18.31 October 2014 Shriram City Union Finance – Growth improves.831 659 41.000 Source: Company.9 92.6 May-14 11.8 3.8x 1.5 17.000 2.151 203.4 13.988 4.791 3.452 13.2 624.600 Oct-13 28.2 62.6 6.2 4.3 2.656 2.842 7.374 7.6 2.0 3.100 10x 600 5x Oct-14 Apr-14 100 Source: Bloomberg.750 1.189 10.640 10.2x 1.600 SCUF 1.2 0.831 55 59 32.250 1.450 1.962 2.554 128.291 18.5 38.9 87.1 3.5 0.781 9.5 95.935 14.1 17.926 7.6 397 16. Anand Rathi Research Share capital Reserves & surplus Borrowings Current liab. Minority Interest Total liabilities FY13 20x 2.046 10.6 844.2 9.587 5.3) 24.232 6.211 15.850 SCUF 1.600 2. Anand Rathi Research Fig 2 – Balance sheet (`m) Year-end: Mar 2.962 66 25.2 6. 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 (%) 1.7 1.4 3.9 17.100 15x 1.154 301.6 12.3 8.5 5.340 21.430 243. of shares (m) Borrowings growth (%) Advances growth (%) Source: Bloomberg 2 .723 9.0 20.8 37.400 66 20.550 1.6 1.840 6.359 163.7 1.182 11.9 3.0x 600 Source: Bloomberg.289 47.8 7.632 170.655 7.4 13.5 Apr-14 FY17e Mar-14 FY16e Feb-14 FY15e Jan-14 FY14 Dec-13 FY13 Source: Company.3 61.3 12.0 22.0 11. Anand Rathi Research Fig 3 – Key ratios Year-end: Mar SCUF 800 Apr-10 230.1 8.050 950 Oct-14 850 Sep-14 11.542 15.5 0.679 23.2 94.5 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.9 3.429 15.010 19.791 9.1 0.8 Oct-08 133. 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.8 2.4 93.019 5.3 488.580 28.2 1.5 17.6 Apr-09 151.650 1. & prov.521 9.490 13.844 53.1 38.0 3.3 (5.0 Apr-12 17. higher spread.9 10.110 30.4 16.2 98.864 21.675 25.0 3.359 4.1 63.3 81.074 66 18.3 1.531 39.5 38.497 49.8 145.150 1.4 3.5 0.3 748.354 203.3 644.882 16.9 470.400 659 57.9 16.706 18.350 Bankex 1.862 16.2 6.1 64.160 4.271 120.0 Oct-09 185.6 4.207 213.800 1.501 19.4 878.0 Apr-13 24.535 730 6.0 6.662 6.496 31.798 2.276 21.4 3.4 723.3 10.5 22.7 Jun-14 11.400 1.9 93.6x 1.5 119.074 659 48. Bankex 1.2 0.3 15.943 30.706 3.7 Jul-14 12.957 14.734 163.198 17.474 24.5 1.417 301.734 163.1 11. Buy Quick Glance – Financials and Valuations Fig 1 – Income statement (`m) Source: Company.822 12.8) Oct-13 Advances Investments Cash & bank bal Fixed & other assets Total assets No.037 42.3 10.686 48.6 (3.5 18.4 37.315 20.7 3.0 Oct-12 20.775 24.0 Oct-11 16.390 127.1 3.8 1.577 21.769 142.817 19.8 399.873 18.6 64.7 Aug-14 11.1 8.220 11.729 5. 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 21.6 16.200 1.292 163.

000 60 40. Buy Result highlights Fig 7 – 2QFY15 Results vs Expectations (`m) 2QFY15 2QFY15e Var % 2QFY14 YoY % 1QFY15 QoQ % Net interest income 5.272 8.0 118bps Disbursements Gross NPA Source: Company.770 117.9 150.407 (2.001 2.759 22.6 Net NPA 830 850 (2.3 684bps 24.570 151.000 (%) 75 (`m) 50.3 1.3 718bps 29.2 120bps Tier-1 % 25.105 1.5 43bps 2.090 (1.8 3.157 3.2 4.100 5. Anand Rathi Research Fig 9 – AUM growth bottoms out Fig 10 – Disbursement growth looking up (`m) 180.0) 41. Anand Rathi Research Fig 8 – 2QFY15 results (`m) 2QFY15 2QFY14 % Chg 1HFY15 1HFY14 % Chg Net interest income 5.000 45 90.4 10.590 16.9 Source: Company.569 12.655 2.0) 4.290 3.7 (7)bps 0.9 2bps Net NPA % 0.9 2.743 15.277 7.2 18.200 29.4 658bps 78.3 2.000 30 (%) 90 60 30.6 Pre-provisioning profits 3.800 12.378 1.155 3.419 15.4 5.1 4.000 AUM Source: Company.000 Disbursements (RHS) Source: Company.102 8.0) 2.5 Non-interest income 207 140 47.1) 118.262 5.5 2QFY15 2QFY14 YoY 1QFY15 QoQ AUM 155.7 38.860 7.4 23.1) 1.000 120. higher spread.378 1.446 8.150 1.2 178bps Capital adequacy % 30.419 15.0 Pre-provisioning profits 3.487 19.6 0.000 150.8 3.2 Operating costs (%) 2.172 3.550 35. Anand Rathi Research 3 . 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 10.2) Gross NPA % 2.800 12.7 PAT 1.000 4QFY11 15 3QFY11 60.272 8.190 (1.5 Borrowings 115.101 (0.6 (5)bps NPA coverage % 80.8 6.0 73.420 8.4) 840 (1.100 4.4 PAT 1.7 333 314 6.180 2.000 30 20.000 2QFY12 0 1QFY12 30.157 2.31 October 2014 Shriram City Union Finance – Growth improves.090 (2.

0 3QFY13 38 2QFY13 4. Buy Fig 11 – AUM mix: Rising business finance and two-wheeler loans 100% 80% 60% 40% 20% .Auto Loans .0 1QFY14 36 4QFY13 3.5 30 1.0 0 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 0.0 1QFY12 (%) Cost-income (RHS) Source : Company.0 1QFY15 32 4QFY14 1.Others Source : Company Fig 12 – Cost-income increasing 30 Cost-assets 2QFY15 0.5 Gross NPA (%) Net NPA (%) NPA Coverage (%) Source: Company Anand Rathi Research 4 .5 (%) 90 3.0 3QFY12 42 2QFY12 (%) 6.Loans against gold . higher spread.0 15 0.Two wheeler Loans .Personal Loans .0 45 1.31 October 2014 Shriram City Union Finance – Growth improves.0 75 2.SME Loans 2QFY15 1QFY15 4QFY14 3QFY14 2QFY14 1QFY14 4QFY13 3QFY13 2QFY13 1QFY13 4QFY12 3QFY12 2QFY12 1QFY12 0% .5 60 2.0 3QFY14 34 2QFY14 2. Anand Rathi Research Fig 13 – High NPA coverage (%) 3.0 1QFY13 40 4QFY12 5.

0 Source: Bloomberg.5%).8 2.5x FY16e BV. At our target price. improving growth and higher NIM would support +3.2 +1SD 2.31 October 2014 Shriram City Union Finance – Growth improves.8 1.6 -1SD 1. Our target is based on the two-stage DDM (CoE: 16. beta: 1.4 SCUF 2.5% RoA over FY15-16.6 +2SD 2.2 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. Rf: 8. Buy Valuations A strong rural-focused niche model.0 Mean 1. 5 .0%. We maintain Buy. Fig 14 – Past one-year forward-P/BV 2. Anand Rathi Research Risks Anand Rathi Research  Slowdown in the rural economy would lead to slower loan growth and mounting delinquencies. the stock will trade at 3.  Regulatory changes could impact the business model and profitability of the company.1.0x FY15e BV and 2. higher spread.4 -2SD 1.

729 39.503 9.842 3. Anand Rathi Research Anand Rathi Research 6 .662 53.675 2.706 11.866 Borrowings 127.292 5.206 40.9 98.400 301.6 Non-interest income 397 1.822 21.6 Provisions 3.501 Employee expenses 2.428 49.706 Growth (%) 47.1 6.4 19.587 3.134 28.400 301.531 9.943 13.074 243.289 17.9 24.2 20.916 6.3 119.8 Operating expenses 6.844 21.9 15.355 34.291 57.429 16.935 14.118 19.374 185. higher spread.708 3.521 230.5 6.686 18.239 2.220 4.160 2.291 170.417 163.542 24.31 October 2014 Shriram City Union Finance – Growth improves.988 4.632 57.141 3.359 Taxes 2.430 30.252 4.535 151.359 18.840 3.734 163.490 142.580 28.723 4.8 55 59 66 66 66 81.864 9.817 2.271 120.5 21.655 5.882 25.5 6.181 7.373 Other expenses 4. 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 21.142 13.2 15.231 Net interest income 16.010 19.769 48.3 15.4 5.046 730 6.412 7.4 Tax rate (%) Profit after tax Growth (%) Number of shares (m) Earnings per share Source : Company.5% loan growth over FY14-17e with 24.354 23.031 1.151 6.791 14.232 3.831 203.564 13.4 10.862 11.554 128.207 Net worth 22.706 4.431 31.926 4.791 20.775 24.3 4.477 8.037 10.679 213.962 Other Liabilities & Provisions Minority interest Investments Cash & bank balances Fixed & other assets Total assets Source : Company.770 5.110 16.433 7.2 21.9% CAGR in earnings over the same period.8 18.253 11.831 203.577 31.873 30.5 17.312 6.474 7.983 42.665 16.276 7.734 163.3 33.128 10.316 47.4 145.345 13.315 Total income Non-interest income / total income (%) Pre-provisioning profit Growth (%) 49.957 Profit before tax 6.937 Interest expended 14.154 Total liabilities 163.194 4.198 28.3 33.156 7.781 33.390 41. Buy Financials We expect 21.074 243.019 42.7 34.452 9.340 1.962 Advances 133.1 87.6 9.5 33. Fig 15 – Income Statement Year-end: Mar (`m) FY13 FY14 FY15e FY16e FY17e Interest income 30.

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