Shriram City Union FInance (SCUF IN) - Transition to 120dpd keeps margin under pressure - CSEC Research

Transition to 120dpd keeps margin under pressure

- SCUF's, AUM continued to witness a healthy growth (18.2%YoY, 2.6%QoQ) to INR 231.2bn in 4QFY17 supported by growth in SME (20.9%YoY, 2.8%QoQ). Share of Loan against SME, Two Wheeler, Loan against gold and other was noted at 54.7%, 17.5%, 14.8%, 12.9% respectively.

- Overall disbursement showed a pick up sequentially with 21.3% QoQ growth at INR 62.5bn lead by Gold loans which grew by 55.9%QoQ and SME which grew by 24.4%QoQ.

- Borrowings of the company increased by 3.6% QoQ to INR 170.4bn with the overall weighted average tenor to 20.08 months as against 18.86 months in 3QFY17. The total share of borrowings on floating rates, Semi-fixed & Fixed stands at 25%, 28% & 47% respectively as of 4QFY17.

- NIM declined (40bpsYoY, 138bpsQoQ) to 13.88% majorly led by a fall in yield on assets (84bpsYoY, 166bpsQoQ) and impact of interest reversal to the extent of INR 560mn (on account of shift to 120dpd NPL recognition). While the benefits of lower borrowings costs may accrue going forward, interest income reversals on account of migration to NPA recognition on 90-dpd basis will keep margins under pressure in the near term.

Valuation: The stock is currently trading at of 2.2X P/BV FY19E. With concern about asset quality deterioration (due to a shift to 90dpd by FY18) and margin compression, which would in turn keep return ratios low, we assign a P/BV of 2.1X on FY19E to arrive at a Target Price of INR 2,053. We rate the stock an MARKETPERFORMER. Risks: Slower ramp up in loan book and any stress in the SME segment might impact earnings.

Shares of SHRIRAM CITY UNION FINANCE LTD. was last trading in BSE at Rs.2156 as compared to the previous close of Rs. 2134.05. The total number of shares traded during the day was 299 in over 123 trades.

The stock hit an intraday high of Rs. 2194.2 and intraday low of 2120.1. The net turnover during the day was Rs. 641908.

Source : Equity Bulls

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