26 SEPTEMBER 2016
SECTOR: FINANCE
Shriram City Union Finance
BSE SENSEX
28294
Y/E MARCH
NII (Rs Cr.)
PPP (Rs Cr.)
NP (Rs Cr.)
EPS (Rs)
EPS Growth (%)
BV/Share (Rs)
P/E (x)
P/BV (x)
RoE (%)
RoA (%)
Div yld (%)
KEY FINANCIALS
Shares Outstanding (Cr)
Market Cap. (INR Cr)
Market Cap. (US$ M)
3 yrs NII Growth to FY16 (%)
Past 3 yrs NP Growth (%)
Dividend Payout (%)
STOCK DATA
52-W High/Low Range (INR)
Major Shareholders (as of Jun'16)
Promoter
Non Promoter Corp Holding
Public & Others
Average Daily Turnover(6 months)
Volume
Value (INR cr)
1/6/12 Month Rel. Performance (%)
1/6/12 Month Abs. Performance (%)
44,970
8.4
-5/30/16
-3/43/27
33.8
18.1
48.1
2349/1332
6.59
13,977
2,118
13
6
19
FY16
2,389
1,423
530
80.4
(5)
684
26.4
3.1
12.3
2.7
0.7
FY17E
2,883
1,801
655
99.4
24
763
21.3
2.8
13.7
2.9
0.8
S&P CNX
8723
(INR CR)
CMP: INR2120 TP: INR3000 (+42%) Buy
Portfolio re-alignment phase over; growth at inflection point:
After growing its AUM at a 36% CAGR over FY07-13, SCUF went
into consolidation mode, given the challenging macro environment. The
management scaled down growth and re-aligned its gold loan portfolio
in light of the tightening regulations for gold loan companies and the
sharp volatility in gold prices. As a result, AUMs grew at a meagre
7% CAGR over FY13-16. This phase was marked by realignment of
loan book away from gold and in favor of small enterprises and two
wheelers. The share of gold loans reduced from 36% in FY12 to 17%
in FY16. With the portfolio realignment done with; and strong CAR of
~26%, we expect SCUF to get back into growth mode and deliver
21% CAGR in AUM over FY16-18E.
Vast under-served market for small enterprise loans with low
competition:
Out of ~3.6cr MSME units, only 4% are registered as
companies and just 7% seek external sources of credit. Most of the
MSMEs' funding requirements are sourced from a mix of equity, family
& friends, trade credit and money lenders which are expensive and
not guaranteed. The total gap in MSME funding is estimated to be
around INR 8.2 lac cr of which the debt gap is INR 5.5 lac cr and
equity gap is INR 2.7 lac cr. SCUF is tapping into the vast potential of
the small enterprises who find it difficult to deal with unscrupulous
money lenders on one hand and highly organised banks on the other,
thus bridging the gap between the two. SCUF does not face any
competition owing to the unorganized nature of business dealings by
small enterprises and also due to the extremely low ticket size (Avg.
of INR 10 lacs for SCUF) which deters larger private players. 80%
of branch network of SCUF (total of 1,000+ branches) exists in
underpenetrated segments across semi-urban India with huge potential
for growth. We expect small enterprise loans to grow at a CAGR of
23% over FY16-18E.
Valuations and View:
We believe that SCUF's current valuation of
2.4x/2.2x FY18 P/BV (standalone/consolidated) is attractive in the
context of 1) niche franchise; high entry barriers for new players in
small enterprise loans, 2) highly profitable business underpinned by
strong pricing power; RoA to average 3.0% during FY17-18 and 3)
expectation of acceleration in earnings growth. On relative basis too,
we believe the company deserves to trade at premium valuations over
asset financiers (where our average target multiple is 3x) owing to
higher structural loan growth offering better visibility, lower cyclicality
and superior asset quality. However we assign a P/B multiple of 3x
Sep 2018 for the standalone business; at par with asset financiers to
be conservative. We initiate coverage on SCUF with a price target of
INR 3,000 (INR 2865 for standalone business and INR 135 for housing
finance subsidiary).
FY18E
3,480
2,279
839
127.3
28
867
16.7
2.4
15.6
3.1
0.9
Maximum Buy Price: INR2250
Jehan Bhadha
(jehan.bhadha@motilaloswal.com); Tel:+912233124915
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Shriram City Union Finance
Diversified product offering; Expect overall AUM growth of 21% over FY16-18E:
SCUF has a
diversified loan book comprising of small enterprise (54% mix), two wheelers (18% mix), other auto (6% mix),
gold (17% mix) and personal loans (5% mix). We expect strong growth in small enterprise, two wheelers and
personal loans and forecast them to grow at a CAGR of 23%, 22% and 49% respectively; while gold loans are
expected to grow at 11% and auto loans (ex-two wheelers) are expected to remain flattish over the same
period. Loan growth will be a function of: (i) rise in number of borrowers (via customer references, Shriram
group database, targeting business clusters), (ii) increase in ticket size from the current average INR 10 Lacs,
(iii) Cross selling of products in all existing 1,000+ branches (currently only ~500 branches offer all products
while the rest offer only 1-2 products; thus there is huge scope for cross selling).
Housing subsidiary to add value in the long term:
The housing finance business is undertaken under a
majority owned subsidiary Shriram Housing Finance (77% owned by SCUF), focusing mainly on the self-
employed category in the rural and semi-urban regions. It cater to the largely under-served group of prospective
homeowners from the lower and middle-income strata in Tier 2 and Tier 3 Indian cities. As on FY16, the
outstanding AUM stood at INR 1,275cr which grew 73% YoY over FY15. It recorded profits of INR 29cr, a
growth of 43% over FY15; with an ROA of 2.7% in FY16. While Shriram Housing Finance currently contributes
in a negligible way to consolidated AUMs and profits, we believe the growth opportunity in this segment is huge.
CONCERNS
Credit costs likely to remain elevated:
SCUF currently recognizes NPAs based on 150-dpd basis and will
shift towards 90-dpd recognition by FY18 as per RBI guidelines. In our view, although fresh accretions to
NPAs have started receding, the credit costs would remain elevated due to migration to new regulations. We
expect credit costs to rise from 3.2% in FY16 to 3.6% by FY18E post which it should decline.
BACKGROUND
SCUF, part of the well-known Shriram Group, has successfully evolved as a multi-product lender over the past
decade. The core focus of the company remains small enterprise loans where it has a leading market share of
over 40% (Source: Frost & Sullivan). Like other group companies, SCUF has a well-entrenched business
focused on southern and western parts of India. AP, TN and Maharashtra contribute 40%, 27% and 14%
respectively to the company's AUM with the balance coming from other states. ~80% of branch network of
SCUF (Total: 1,000+) exists in underpenetrated segments across semi-urban India with huge potential for
growth and low competition. SCUF has robust in-house credit appraisal and risk management capabilities
which are further emboldened by access to the 'Shriram Ecosystem', deep local knowledge and in-depth
penetration through ~1,000+ branches and 25,000+ feet on street, which is nearly improbable to replicate. The
business is highly localized and therefore manpower oriented. The field force has strong domain knowledge and
personal knowledge of customers.
Loan Book mix (Figs. in %)
FY12
Small Enterprise
2 Wheeler
Vehicle (ex 2W)
Personal
Gold
Others
Total
Excl. Gold - Total
29
10
10
5
35
10
100
65
FY14
51
18
10
3
17
2
100
83
FY16
54
18
6
5
17
0
100
83
FY18E
56
18
4
8
14
0
100
86
26 September 2016
2

Shriram City Union Finance
IVRCL: Financials and Valuation
Financials and valuation
Income Statement
AUM CAGR of 21%
over FY16-18E to
drive NII growth
Y/E March
Interest Income
Interest Expenses
Net Interest Income
Change
Non Interest Income
Net Income
Change
Operating Expenses
Pre - Provision Profits
Change
Provisions (excl tax)
PBT
Tax
Tax Rate (%)
Profit After Tax
Change
FY15
3,435
1,327
2,107
17%
97
2,204
17%
909
1,295
11%
454
841
283
34%
558
7%
FY16
3,772
1,383
2,389
13%
84
2,473
12%
1,049
1,423
10%
616
807
277
34%
530
-5%
FY17E
4,399
1,516
2,883
21%
102
2,986
21%
1,185
1,801
27%
803
998
343
34%
655
24%
FY18E
5,320
1,839
3,480
21%
127
3,607
21%
1,328
2,279
27%
1,001
1,278
439
34%
839
28%
(INR Cr)
FY19E
6,484
2,253
4,231
22%
159
4,389
22%
1,503
2,886
27%
1,047
1,839
631
34%
1,207
44%
Balance Sheet
Y/E MARCH
Equity Share Capital
Reserves & Surplus
Net Worth
Borrowings
Other Liabilities
Deff Tax Liabilities
Total Liabilities
Cash & Bank balances
AUM growth to revive
from 7% CAGR over
FY13-16 to 21%
CAGR over FY16-
18E
Investments
Loans
Net Fixed Assets
Deff Tax Asset
Total Assets
FY15
66
4,035
4,101
12,402
1,535
-
18,038
257
982
16,717
82
-
18,038
FY16
66
4,446
4,512
14,408
1,934
-
20,854
401
792
19,576
85
-
20,854
FY17E
66
4,966
5,032
17,497
2,338
-
24,867
416
742
23,610
98
-
24,867
FY18E
66
5,647
5,713
21,450
2,839
-
30,002
431
694
28,765
112
-
30,002
(INR Cr)
FY19E
66
6,665
6,731
26,619
2,999
-
36,348
446
696
35,076
129
-
36,348
Asset Quality
Asset quality to
remain under
pressure due to shift
to 90 dpd recognition
from 150 dpd today;
Although PCR
remains healthy
GNPA
NNPA
GNPA Ratio
NNPA Ratio
PCR
E: MOSL Estimates
491
107
3.1%
0.6%
78%
980
297
5.4%
1.5%
70%
1,530
444
7.1%
1.9%
71%
2,180
654
8.3%
2.3%
70%
(%)
2,380
714
6.8%
2.0%
70%
26 September 2016
3

Shriram City Union Finance
IVRCL: Financials and Valuation
Financials and valuation
Ratios
Y/E March
Spreads Analysis (%)
Avg. Yield on loans
Avg. Cost of Borrowings
Spread
Net Interest Margin
Profitability Ratios (%)
RoE
RoA
Cost to Income
CAR
FY15
20.1%
10.9%
9.2%
13.4%
FY16
19.5%
10.3%
9.2%
13.2%
FY17E
19.3%
9.5%
9.8%
13.4%
FY18E
19.5%
9.4%
10.0%
13.3%
FY19E
19.6%
9.4%
10.2%
13.3%
High CAR resulting
in optically low ROE
ROA to average at a
robust 3.0% for
FY17/18E
15.9%
3.2%
41.3%
29.0%
12.3%
2.7%
42.4%
26.1%
13.7%
2.9%
39.7%
22.9%
15.6%
3.1%
36.8%
20.9%
19.4%
3.6%
34.2%
19.7%
Valuation
Book Value Per Share (Rs)
Change
Price-BV (x)
EPS (Rs)
Change (%)
Price-Earnings (x)
Dividend Per Share (Rs)
Dividend Yield (%)
E: MOSL Estimates
622
27%
3.4
84.7
-4%
25.0
15.6
0.7%
684
10%
3.1
80.4
-5%
26.4
15.0
0.7%
763
12%
2.8
99.4
24%
21.3
17.0
0.8%
867
14%
2.4
127.3
28%
16.7
20.0
0.9%
1,021
18%
2.1
183.2
44%
11.6
24.0
1.1%
Stock trades at
attractive valuations
of 2.4x/2.2x FY18 P/
BV (standalone/
consolidated)
26 September 2016
4

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