Shri­ram City Union Fi­nance Ltd

Money Times - - Stock Watch -

(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.

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