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India Banks
Shriram City Union Fin - takeaways from management meeting
Event
We met with management of Shriram City Union Finance (SCUF IN, Rs500,
Not rated) to get an update on the company.
Impact
Not impacted by the recent loss of PSL status to bank on lending for
gold loans. The RBI has recently revoked the priority sector lending status
(under direct agri lending by banks) of NSFCs on lending for gold loans. This
is likely to raise cost of funds for NBFCs active in the gold loans segment.
However, SCUF management says it has never obtained lower cost funds
from banks in the name of lending to the agri sector. As such its cost of funds
will not be impacted.
Follow RBI guidelines for securitisation while assigning loans as well.
While there are no explicit guidelines for assignment of loans by NBFCs,
SCUF already deducts credit enhancements from its Tier I and Tier II capital.
It also amortises income from securitisation over the life of the asset.
Management believes it can maintain spreads. Management believes it
should be able to maintain its spreads currently at ~12%. This is primarily due
to two reasons:
⇒ There is sufficient pricing power available. Most loans have small EMIs so
even a ~200bp increase in loan rates will only result in a low absolute
increase in EMI.
⇒ The asset repricing happens at a fast rate as loans are of shorter tenor;
~18-24 months compared to 24-36 month tenor of liabilities. This results
in possible margin pressure being limited to a couple of quarters at
maximum.
Enhanced CAR requirement of 15% may lead to glut of capital raising by
NBFCs. Management believes that there may be a glut of capital raising by
NBFCs now that they have been mandated to have a minimum 15% capital
adequacy. SCUF itself is sufficiently capitalised for now with Tier I of 17%. It is
likely to need fresh capital only in 4QFY12/ 1Q13E.
NPLs have shown an improving trend. Gross NPLs have come down from
2.3% in FY10 to 1.8% in 9M11. Coverage has in the interim increased from
69% to 74%.
Outlook
Trades at ~18% discount to peers. The stock currently trades at 1.7x FY12E
P/BV as per Bloomberg estimates. This is at the lower end of the valuation
range of its peer NBFCs
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Banks
Shriram City Union Fin - takeaways from management meeting
Event
We met with management of Shriram City Union Finance (SCUF IN, Rs500,
Not rated) to get an update on the company.
Impact
Not impacted by the recent loss of PSL status to bank on lending for
gold loans. The RBI has recently revoked the priority sector lending status
(under direct agri lending by banks) of NSFCs on lending for gold loans. This
is likely to raise cost of funds for NBFCs active in the gold loans segment.
However, SCUF management says it has never obtained lower cost funds
from banks in the name of lending to the agri sector. As such its cost of funds
will not be impacted.
Follow RBI guidelines for securitisation while assigning loans as well.
While there are no explicit guidelines for assignment of loans by NBFCs,
SCUF already deducts credit enhancements from its Tier I and Tier II capital.
It also amortises income from securitisation over the life of the asset.
Management believes it can maintain spreads. Management believes it
should be able to maintain its spreads currently at ~12%. This is primarily due
to two reasons:
⇒ There is sufficient pricing power available. Most loans have small EMIs so
even a ~200bp increase in loan rates will only result in a low absolute
increase in EMI.
⇒ The asset repricing happens at a fast rate as loans are of shorter tenor;
~18-24 months compared to 24-36 month tenor of liabilities. This results
in possible margin pressure being limited to a couple of quarters at
maximum.
Enhanced CAR requirement of 15% may lead to glut of capital raising by
NBFCs. Management believes that there may be a glut of capital raising by
NBFCs now that they have been mandated to have a minimum 15% capital
adequacy. SCUF itself is sufficiently capitalised for now with Tier I of 17%. It is
likely to need fresh capital only in 4QFY12/ 1Q13E.
NPLs have shown an improving trend. Gross NPLs have come down from
2.3% in FY10 to 1.8% in 9M11. Coverage has in the interim increased from
69% to 74%.
Outlook
Trades at ~18% discount to peers. The stock currently trades at 1.7x FY12E
P/BV as per Bloomberg estimates. This is at the lower end of the valuation
range of its peer NBFCs
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