Shriram City Union Finance Ltd (SCUF IN) - NIMs stabilize; but asset quality remains weak - CSEC Research

- SCUF's, AUM continued to witness a healthy growth (16.4%YoY, 3.5%QoQ) to INR 249bn in 2QFY18 predominantly led by growth in Gold loans(19.4%YoY, -0.7%QoQ), SME segment (14.7%YoY, 5.0%QoQ) and Others (28.2%YoY, 4.7% QoQ). Consequently the loan mix was noted at SME segment (55.4%), Two Wheeler (16.8%), Loan against gold (14.6%) and others (13.1%). Management expects a ~18-20% AUM growth in FY18E and 20%+ in FY19E, driven by upside in 2Wheeler loan segment.

- Overall disbursements saw a growth of 10.2% YoY (5.8%QoQ), and stood at INR 61.4bn for 2QFY18, majorly contributed by the gold loans segment, which grew by 20.6% YoY and 4.4% QoQ.

- Total Borrowings of the company stood at INR 181.3bn as at 2QFY18, growing at 17.2% YoY and 3.6% QoQ. The overall borrowing mix moved in favor of CP and cash credits & WCDL, which grew by 115.4%YoY and 71.3% YoY respectively, resulting in a marginal improvement in cost of funds from 9.31% in 1QFY18 to 9.26% as of 2QFY18. The yield on assets grew by 37bps QoQ and is now at 21.01%.

Valuation: The stock is currently trading at of 2.3X P/BV FY19E. With concern about asset quality deterioration (due to a shift to 90dpd by FY19) and margin compression, which would in turn keep return ratios low, we downgrade the stock to UNDERPERFORMER with a revised Target Price of INR 2,038, implying a P/BV of 2.1X on FY19E.

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.2247 as compared to the previous close of Rs. 2323.4. The total number of shares traded during the day was 885 in over 250 trades.

The stock hit an intraday high of Rs. 2335.15 and intraday low of 2223.2. The net turnover during the day was Rs. 2000324.

Source : Equity Bulls

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