Shriram City Union Finance - Consolidation and conservatism - a priority - ICICI Securities

Shriram City Union Finance's (SCUF) Q2FY21 earnings were a reflection of the ongoing consolidation phase - flat operating performance YoY/QoQ. Few promising trends leading to upward earnings revision include: i) September collection efficiency at ~95%; ii) <1.5% customers not paying even a single installment and estimated restructuring at <1%, iii) contingency buffer of 2.6%, iv) setting itself comfortable on liquidity raising of Rs31bn this quarter; and v) gold loans & two-wheelers driving disbursements. However, normalisation still seems some time away: 1) Disbursements are down >40% YoY (AUM down 7%), 2) conservative stance in MSME and personal loans will keep AUM growth modest; and 3) credit cost will be volatile given the profile of customer base. Maintain HOLD. Potential exit of a large investor and the proposed mergers within the group can remain an overhang.

- September collection efficiency at 95%; estimated restructuring at <1%: Given the granular lending profile, focus was more on collection. The efforts yielded results with collection efficiency improving MoM - 80%/82%/95% over July/Aug/Sep, respectively. SME and two-wheeler, relatively vulnerable segments, witnessed 93% collection efficiency (95% pre-Covid). The company highlighted that 182k customers (~1.5% of AUM) had not paid a single EMI from March to August and of this, 122k paid in September. Given these developments, it doesn't expect more than Rs1.5bn restructuring - as rescheduling will be restricted to customer involved in running hotels, schools, hospitals and 4-5 customers involved in real estate.

- Contingency buffer of 2.6% will cushion earnings volatility: Pro forma gross stage-3 assets (including standstill overdues) were down QoQ from 7.28% to 6.67%. Key to watch out for will be the behaviour of 4-5% AUM in stage-2 that might lead to some uptick in stage-3 in Q3FY21. It has created Rs1.01bn Covid buffer - taking cumulative buffer to Rs7.07bn (2.6% of advances). On stage-3 assets, it carries 54% coverage and 4.4% on stage-1/2 assets. This suggests our estimate of 3.8%/3.2% credit cost for FY21/22E should be sufficient to navigate the cycle.

- Modest stance on disbursements (MSME and PL in particular) - Disbursements were up 2.3x QoQ, though still at 60% of Q2FY20 level. More than 50% disbursements were led by gold loans, followed by two-wheelers (new and pre-owned). In MSME, though it resumed disbursements, it was lower at 20% of Q2FY20 as it has strengthened in underwriting standards (higher rejection rates) and still follows conservative approach in this segment. With further uptick in Q3FY21, SCUF expects disbursements to settle at 70-80% of pre-Covid levels. AUM, after having declined 7% in Q2FY21, is expected to show improving trend and end almost flat at FY20 levels.

- Setting itself comfortable on liquidity: It mobilised 8.5bn retail TD at 9%, sourced Rs20.6bn term loans from banks, raised Rs1.5bn NCD under PCG scheme and securitised Rs750mn of portfolio. Liquidity backup comprising unencumbered assets of Rs26bn, SLR of Rs7.3bn and undrawn bank lines of Rs4.9bn is sufficient to manage interim growth.

Shares of SHRIRAM CITY UNION FINANCE LTD. was last trading in BSE at Rs.892.75 as compared to the previous close of Rs. 859.85. The total number of shares traded during the day was 1230 in over 385 trades.

The stock hit an intraday high of Rs. 898.35 and intraday low of 868.4. The net turnover during the day was Rs. 1086241.

Source : Equity Bulls

Keywords