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Research
Shriram City Union Finance - SME loans aid business growth and NIMs - Edelweiss
Posted On : 2012-05-22 10:49:53( TIMEZONE : IST )
Shriram City Union Finance's (SCUF) Q4FY12 PAT at INR976mn, up 17% QoQ, surpassed our expectation. Primary driver of the outperformance was NII (up 26% QoQ at INR3.4bn) given steady yields on SME and gold loans. This was further enriched by 16% AUM growth QoQ to INR134bn, of which SME loans constituted 30%. Credit costs have been maintained as GNPAs held up the good run at 1.6% with >70% coverage. Incrementally, management wants to grow the SME portfolio and believes that given its diversified presence, turbulence in the gold loan business will not be a dampener. Maintain 'BUY' with TP of INR765.
Business loans buoy AUM growth
AUMs grew 68% YoY (16% QoQ) primarily led by business loans, which surged 47% QoQ. Next growth drivers have been two-wheeler and gold loans, up 20% and 17% QoQ, respectively. Incrementally, SCUF wants to focus on business loans and targets taking them to 50% plus of balance sheet even while eyeing 30% plus assets growth. These loans typically have a ticket size of INR0.7mn and are high yielding with 22-23% rates. Further, a large part of these are collateralised against properties, promoter guarantee, amongst others. We expect loans to post 24% CAGR over FY13-14E.
NIMs steady; gross NPLs under control
Due to higher contribution of high-yielding SME loan disbursements, lending yields marginally increased to 20.8% in Q4FY12. CoF moderated 50bps to 11.4% as INR9.1bn of portfolio was securitised. Hence, NIMs came in at 11.4%, up 20bps QoQ. Decline in rates and focus on high yielding products will help sustain NIM at 11% plus for FY13-14E. Gross NPLs came off marginally to 1.55% (1.64% in Q3FY12) while credit cost was capped at ~200bps. We expect gross NPAs to remain at sub 2.5% by FY13E.
Outlook and valuations: Positive; maintain 'BUY'
While traction in disbursements sustains coupled with stable margins, we believe asset quality will also continue to provide succour. We like SCUF for its presence in highyielding, high-growth business and a superior RoA of 3% plus. The stock is trading at 7.9x FY13E earnings for 18% CAGR in EPS over FY13-14E and at 1.6x FY13E adjusted book for sustainable RoE of 20% plus. We maintain 'BUY/Sector Outperformer'.
