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SHRIRAM CITY UNION FINANCE
OUTPERFORMER (RS486, MCAP: RS24BN / US$528M)
• Shriram City has displayed remarkable responsiveness to changes in the operating environment in the past two years.
Its product mix has shifted away from consumer durables and 2-wheeler financing, while secured loans (auto, gold
and business loans) gained prominence during the period. Consequently, the share of secured loans increased from
32% of the portfolio in FY08 to ~70% in Q3FY11.
• Healthy loan growth, a favorable asset-liability gap, and rising loan yields are expected to offset the impact of rising
interest expenses on margins in the near term. As the average duration of assets is 16 months, they get re-priced ahead
of deposits, which is beneficial in a rising interest rate environment. Also, the management’s focus on short-duration
gold loans (~3 months) would help Shriram City maintain margins in a rising interest rate scenario.
• SCUF’s funding sources continue to be biased towards institutional funds, which comprised ~55% of total debt as of
December 2009. The company has access to diverse sources of funding, which has helped it maintain the proportion of
retail to institutional funds at 40:60 over the past couple of years.
• The management indicated that, given the diverse sources of funding as well as presence across multiple product
segments, the RBI directives on gold loans (loans sanctioned to NBFCs for on-lending to individuals or other entities
against gold jewellery and securitized gold loans portfolio would not be classified as agriculture loans) would have
only a limited impact on SCUF.
• SCUF expects strong disbursement growth as demand in rural and semi-urban regions continues to be robust. The
business banking segment and gold loans are expected to be the key drivers of growth. We expect SCUF's overall
disbursements to expand to Rs77bn in FY11 and Rs97.7bn in FY12, a CAGR of 39%.
• The management plans to add ~150 branches and gain access to ~200 branches of associate companies by FY12. In line
with Shriram City’s business strategy, the new branches will also be located in semi-urban and rural areas (implying
limited competition from banks and NBFCs).
• SCUF managed to contain gross NPAs at ~2% and net NPAs at ~1% over FY08-10 by adopting an aggressive write-off
strategy and efficient collection mechanism. According to the recent RBI directives, the lender made standard asset
provisions of Rs162m (amounting to 0.25% of the loan book) in Q3FY11. Going forward, as the portfolio mix shifts
towards the low-default and high-collateral gold and business loan segments, we expect provisioning expenses to
decline to ~1.6% of average loans in FY11-12.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
SHRIRAM CITY UNION FINANCE
OUTPERFORMER (RS486, MCAP: RS24BN / US$528M)
• Shriram City has displayed remarkable responsiveness to changes in the operating environment in the past two years.
Its product mix has shifted away from consumer durables and 2-wheeler financing, while secured loans (auto, gold
and business loans) gained prominence during the period. Consequently, the share of secured loans increased from
32% of the portfolio in FY08 to ~70% in Q3FY11.
• Healthy loan growth, a favorable asset-liability gap, and rising loan yields are expected to offset the impact of rising
interest expenses on margins in the near term. As the average duration of assets is 16 months, they get re-priced ahead
of deposits, which is beneficial in a rising interest rate environment. Also, the management’s focus on short-duration
gold loans (~3 months) would help Shriram City maintain margins in a rising interest rate scenario.
• SCUF’s funding sources continue to be biased towards institutional funds, which comprised ~55% of total debt as of
December 2009. The company has access to diverse sources of funding, which has helped it maintain the proportion of
retail to institutional funds at 40:60 over the past couple of years.
• The management indicated that, given the diverse sources of funding as well as presence across multiple product
segments, the RBI directives on gold loans (loans sanctioned to NBFCs for on-lending to individuals or other entities
against gold jewellery and securitized gold loans portfolio would not be classified as agriculture loans) would have
only a limited impact on SCUF.
• SCUF expects strong disbursement growth as demand in rural and semi-urban regions continues to be robust. The
business banking segment and gold loans are expected to be the key drivers of growth. We expect SCUF's overall
disbursements to expand to Rs77bn in FY11 and Rs97.7bn in FY12, a CAGR of 39%.
• The management plans to add ~150 branches and gain access to ~200 branches of associate companies by FY12. In line
with Shriram City’s business strategy, the new branches will also be located in semi-urban and rural areas (implying
limited competition from banks and NBFCs).
• SCUF managed to contain gross NPAs at ~2% and net NPAs at ~1% over FY08-10 by adopting an aggressive write-off
strategy and efficient collection mechanism. According to the recent RBI directives, the lender made standard asset
provisions of Rs162m (amounting to 0.25% of the loan book) in Q3FY11. Going forward, as the portfolio mix shifts
towards the low-default and high-collateral gold and business loan segments, we expect provisioning expenses to
decline to ~1.6% of average loans in FY11-12.
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