SECTOR: BANKING AND FINANCE
Shriram City Union Finance Ltd
STOCK INFO.
BLOOMBERG
BSE Sensex:17,103
S&P CNX:5,197
SCUF IN
REUTERS CODE
17 July 2012
Initiating Coverage
(Rs CRORES)
ACCUMULATE
Rs750
SHCU.BO
Y/E MARCH
FY11
FY12
FY13E
We recommend ACCUMULATE on Shriram City Union
Finance (SCUF) with target of
Rs
940 in 12 months time.
INVESTMENT ARGUMENTS:
High Quality Growth :
We expect SCUF to deliver loan growth of
30% during FY13E, driven largely by small business loans (SBLs).
SBLs have delivered a CAGR of 50% during the last 5 years and
constitute ~20% of total AUM. They are secured by property and are
referenced from Shriram Chits, which ensures superior asset quality.
Other major products are Auto Loans (35% of AUM) and Gold Loans
(30% of AUMs). The company will progressively reduce focus on
Gold loans due to impending regulatory issues.
Asset Quality-Impeccable track record:
SCUF offers excellent
asset quality despite operating in potentially risky low end of market.
The track record speaks for itself. The credit cost as % of AUM has
remained less than 2% across economic cycles and now stands
at 1.3%.
Group's Chit Fund Business, Source of worthy customers:
We
draw a lot of confidence from the fact that SCUF does not originate
loans from third parties. Origination and credit evaluation are both
done in house and Shriram Chits refer 95% of customers. Track record
of customer in chit fund helps in better credit evaluation of the customer.
The underlying chit is held as security and if needed additional collateral
is in the form of property and personal guarantee.
Housing Finance:
SCUF also has a housing finance subsidiary, which
has ~
Rs10
crore of AUM. The subsidiary has been valued at around
2.2x P/B in the recent round of funding. We are not considering it in
our valuations.
Valuation and View
Market generally is not favourable to multi product NBFCs due to risk
of competition from Banks. But NBFCs with sustainable high return
ratios and good asset quality trade at almost similar valuations as
compared to Banks (STFC, MMFS, Bajaj Finance trade at 1.5-2x P/
BV vs 1.5-2.5x for Pvt Banks). We believe, SCUF, with its track
record of high asset quality, high growth and superior return ratios will
rerate over time and current trailing valuations will roll over to the next
year (P/ABV 2.3x/1.8x of FY12/FY13E, PE 12x/9x of FY12/FY13E).
Trailing valuation (FY12) is at a discount to last 9 year median valuation,
which offers margin of safety. Recommend
ACCUMULATE
with a
target of
Rs
940(P/ABV of 2.3xFY13E and PE of 11xFY13E) in
12 months time.
NII
Other Income
Adj PAT
BV/Share (Rs)
EPS (Rs)
EPS growth (%)
P/E (x)
P/BV (x)
Div yld (x)
ROE (%)
732
0
241
245
49
23%
11
2.13
1.15%
22%
1,128
0
338
330
65
33%
12
2.27
0.85%
23%
1,526
0
465
423
85
31%
9
1.77
1.12%
23%
STOCK DATA
52-W High/Low Range (Rs)
Major Shareholders (as of June 2012)
Promoter
Domestic Inst & Govt.
Foreign
Public & Others
Average Daily Turnover(6 months)
Volume
Value (RsCr)
1/6/12 Month Rel. Performance (%)
1/6/12 Month Abs. Performance (%)
750/461
55%
10%
5%
30%
8,104
0.50
8/24/29
13/33/23
KEY FINANCIALS
Shares Outstanding (Cr.)
Market Cap. (Rs Cr.)
Market Cap. (US$ m)
Sales CAGR 3 Yrs to FY12
PAT CAGR 3 Yrs to FY12
5.24
3928
714
37.25%
42.44%
Maximum Buy Price :
Rs
Rs765
Rakesh Tarway
(rakesh.tarway@motilaloswal.com);Tel:+912230896679

Shriram City Union Finance
ABOUT THE COMPANY:
SCUF is a multi product retail finance arm of Chennai based Shriram Group. It was
incorporated in 1986 as Shriram Hire Purchase Finance and changed name to SCUF in
year 2002. SCUF offers following products:
PRODUCT
SHARE OF AUM
Gold Loans
Auto Loans
2 wheelers
Small Business Loans
Personal Loans
31%
31%
12%
18%
8%
KEY RISK FACTORS:
Gold Loans:The
RBI has recently capped the LTV ratio in gold loans at 60%. SCUF is
conservative as compared to other participants when deciding LTV ratio for gold
loans.Incremental regulations will largely focus on companies, which have more than
50% of business from gold loans. SCUF has 30% of AUM from gold loans.
Sharp and sudden decline in gold prices in short period may pose significant risk of NPAs
in the gold loan portfolio. Further regulatory restrictions on Gold Loans like cap on lending
rates, restrictions on cash disbursements etc may curtail business opportunities/profitability
for the company.
Small Business Loans:
SBL as a product is offered to low end of the market. During
economic downturn small businesses face severe liquidity crunch, which can have a
significant impact on NPAs. SBLs are secured by Chit funds, gold and property. While
recovery from liquid assets like gold and chit funds is easier, property may be illiquid.
Shriram City Union Finance Valuation Chart (1 year trailing P/BV)
17 July 2012
2

Shriram City Union Finance
Financials and Valuation
Income statement
Y/E March
Interest Income
Interest Expenses
Net Interest Income
Change (%)
Other Income
Net Income
Change (%)
Operating Expenses
Operating Income
Change (%)
Loan Losses & Provisions
PROFIT BEFORE TAX
Tax
Tax Rate (%)
PAT
Change (%)
FY09
928
499
429
42%
7
436
40%
179
258
44%
78
180
63
35%
117
33%
FY10
1,103
518
585
36%
0
585
34%
182
403
56%
117
286
92
32%
194
66%
FY11
1,321
588
732
25%
0
732
25%
256
477
18%
116
361
120
33%
241
24%
FY12
2,057
929
1,128
54%
0
1,128
54%
427
701
47%
182
519
181
35%
338
41%
(Rs Cr)
Rs
FY13E
2,976
1,450
1,526
35%
-
1,526
35%
544
982
40%
272
710
245
34%
465
38%
Balance Sheet Abstract
Y/E March
Capital
Reserves & Surplus
Net Worth
Borrowings
TOTAL LIABILITIES
AUM on Books
AUM off Books
Change in Total AUM (%)
Net Fixed Assets
TOTAL ASSETS
E: MOSL Estimates
FY09
46
648
693
4,323
5,016
3,786
876
63%
37
5,016
FY10
49
951
1,000
4,667
5,667
4,813
484
14%
20
5,667
FY11
50
1,163
1,212
7,328
8,540
7,196
1,009
55%
29
8,540
FY12
52
1,678
1,731
10,836
12,566
11,415
2,625
71%
53
12,566
(Rs Cr)
Rs
FY13E
55
2,272
2,327
16,000
18,327
16,500
3,000
39%
53
18,327
Ratio
Y/E March
Spread Analysis (%)
Yield on average AUM (Books+off books)
Cost of average Borrowings
NIM
Profitability Ratios (%)
RoE
RoTA
Return on Avg AUM
Efficiency Ratios (%)
Operating Expenses to Net Income
Emp. Cost / Operating Expenses
Loan Losses and Provisions to Total AUM
Net NPA to Adv.
CAR
FY09
25%
14%
11%
FY10
22%
12%
11%
FY11
20%
10%
10%
FY12
18%
10%
10%
FY13E
18%
11%
8%
20.57%
2.77%
3.11%
22.94%
3.64%
3.90%
21.75%
3.39%
3.56%
22.98%
3.20%
3.04%
22.93%
3.01%
2.77%
41%
20%
1.7%
0.96%
25.74%
31%
20%
2.2%
0.71%
26.28%
35%
17%
1.4%
0.43%
20.52%
38%
22%
1.3%
0.38%
16.92%
36%
22%
1.4%
0.45%
16.91%
17 July 2012
3

Shriram City Union Finance
Valuation
Y/E March
Book Value (Rs.)
BV Growth (%)
Price-BV (x)
Adjusted BV (Rs.)
Price-ABV(x)
EPS (Rs.)
EPS Growth (%)
Price-Earnings (x)
Dividend per share
Dividend Yield (%)
FY09
151
119%
2.4
143
2.50
26
88%
14
4
1.14%
FY10
203
35%
2.2
197
2.30
40
55%
11
5
1.11%
FY11
245
20%
2.1
239
2.18
49
23%
11
6
1.15%
FY12
330
35%
2.3
323
2.32
65
33%
12
6
0.85%
FY13E
423
28%
1.8
409
1.83
85
31%
9
8
1.12%
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Shriram City Union Finance
No
No
No
No
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