Shriram City Union Finance - Rurally entrenched, multi-product play - Anand Rathi

- AUM growth set to pick up, with improved prospects of the gold-loan financing business. Other products such as SME finance, two-wheeler loans, etc., continue to augment growth. Additionally, SCUF is poised to benefit from customer-sourcing from Shriram Chits. This is likely to drive the 18% loan CAGR over the next two years

- NIM is likely to improve given the greater share of higheryielding assets such as SME finance and two-wheeler finance than gold loans

- Productivity has been stable despite the slowdown in AUM growth. Ahead, we expect expenses to grow in line with asset growth, with cost-to-AUM stable at 4.1%

- While asset quality has deteriorated, GNPA at 2.5% is lower than peers. Additionally, a 73% NPA coverage ratio is likely to provide a sound cushion against additional delinquencies

- At our price target of Rs. 1,184, the stock would trade at 2.1x FY15e and 1.9x FY16e BV. Our target is based on the twostage DDM (CoE: 16%; beta: 1.1; Rf: 8.5%).

Risks. Below expected growth and higher NPA.

Source : Equity Bulls

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