Shriram City Union Finance Ltd
(BSE Code: 532498) (CMP: Rs.2107.80) (FV: Rs.10) (TGT: Rs.2500+)
Shriram City Union Finance Ltd (SCUFL) is a NBFC that provides long-term home loans. It provides growth capital to small enterprises. It offers a range of options for financing the purchase of two-wheeler vehicles across manufacturers and brands. Its customers comprise replacement equipment manufacturers, traders, grain merchants, small hoteliers and caterers and similar non-corporate businesses in semi-urban India. It offers loans against gold jewellery, loans to finance the purchase of new and pre-owned passenger and commercial vehicles, which includes three-wheelers, fourwheelers, pre-owned and new cars. It offers home loans through its subsidiary - Shriram Housing Finance Ltd (SHFL).
SCUFL’s assets under management (AUM) continued to witness a healthy growth (16.4% YoY, 3.5% QoQ) to Rs.249 bn in Q2FY18 predominantly led by growth of Gold loans (19.4% YoY, -0.7% QoQ), SME segment (14.7% YoY, 5% QoQ) and Others (28.2% YoY, 4.7% QoQ). Consequently, the loan mix was as follows – SME segment (55.4%); Two-wheeler (16.8%); Loan against gold (14.6%); and Others (13.1%). The management expects a ~18-20% AUM growth in FY18E and 20%+ in FY19E, driven by upside in the two-wheeler loan segment. Overall disbursements grew 10.2% YoY (5.8% QoQ) to Rs.61.4 bn for Q2FY18, majorly contributed by the gold loans segment, which grew 20.6% YoY and 4.4% QoQ. Total borrowings grew 17.2% YoY and 3.6% QoQ to Rs.181.3 bn in Q2FY18. The overall borrowing mix moved in favor of CP and cash credits and WCDL, which grew 115.4% YoY and 71.3% YoY respectively, resulting in a marginal improvement in cost of funds from 9.31% in Q1FY18 to 9.26% as of Q2FY18. The yield on assets grew 37 bps QoQ to 21.01%.
NIMs stand improved by 26 bps YoY and 43 bps QoQ, to reach a healthy 14.3%, contributed by the slight positive movements in yield on advances and cost of funds. Going forward, interest income reversals on account of migration to NPA recognition on 90-dpd (days past due) basis will keep margins under pressure in the near-term. The management has guided that the shift to 90 dpd from the current 120 dpd will take at least a year’s time.
Asset quality was slightly impaired because of the continuing impact of GST and demonetisation on the liquidity of small traders. Consequently, GNPA saw a 195 bps YoY (15 bps QoQ) rise at 6.91% and the NNPA was at 1.83% growing 48 bps YoY (6 bps QoQ). The management highlighted that though the collection team saw good results in October 2017, it expects the 90 dpd to remain at 9.3% GNPA levels, which could lead to a substantial surge in reported GNPA levels, post the dpd shift.
Net Interest Income (NII) was at Rs.8.73 bn, a stable growth of 18.7% YoY (7% QoQ). Operating profits were at Rs.5.4 bn, recording a 19.6% growth YoY (8.8% QoQ). However, increase in provisioning costs to 70.6% YoY (18.7% QoQ) led to a de-growth of 3% YoY (2.3% QoQ) in net profit. Cost to Income ratio was 38% v/s 39.1% in Q1FY18.
SHFL’s disbursements de-grew 63.5% YoY to Rs.1.2 bn for 2QFY18. Overall AUM contracted 8.1% YoY to Rs.16.1 bn. The management has guided their mix to shift away from construction financing by FY18E. NIM fell 132 bps YoY to 9.07%. However, due to lower provisioning and write-offs, PAT soared 60.6% YoY (-26.9% QoQ) to Rs.74 mn.
Technical Outlook: The SCUFL stock looks very good on the daily chart for medium-term investment. It is moving in a strong uptrend while making a higher high and higher low formation. The stock trades above all important moving averages like the 200 DMA level.
Start accumulating at this level of Rs.2107.80 and on dips to Rs.2057.80 for medium-to-long-term investment and a possible price target of Rs.2500+ in the next 12 months.