Shriram City Union Finance - Growth Momentum Building Up; NIMs Surprise Positively; Result Update Q3FY15::Edelweiss

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Shriram City Union Finance’s (SCUF) Q3FY15 PAT at INR1.4bn (up 11% YoY) came in line with our estimates. Extending the Q2FY15 momentum, disbursements grew 9% QoQ to INR45bn feeding into 4% QoQ growth in AUMs to INR162bn. The growth was primarily a derivative of increased traction in business and 2-wheeler (2W) loans, a trend management expects to continue given its focus on building relationship-based products. Management is confident of reaching the 20% non-gold AUM target over next few quarters, deriving strength from improving macros. GNPLs inched up marginally QoQ to 3.02% (2.89% in Q2FY15); however, coverage remained strong at 79%. NIMs (calc.) were key earnings driver (up ~100bps QoQ) deriving support from higher yields (loan mix tilt) and lower funding cost. Given 3.9% RoA, healthy tier 1 of 25% (post preferential issue of equity to Piramal Enterprises) and improved growth visibility, we assign TP of INR2,470 (2.9x FY17E P/BV).

Green shoots of growth bounce back

Extending Q2FY15 momentum, disbursements were healthy primarily led by the 30% plus QoQ growth in small business and 24% QoQ growth in 2W loans. The company has completely stopped disbursements in consumer durable segment as the focus is now on longer tenure relationship-based products. Though SCUF is positive on the gold loan business, given limited focus it does not expect any major traction on this. Management highlighted that focus will continue to be on business and 2W loans, and expects this to form substantial proportion in longer run (small business proportion can inch up to 70% from current 50%). This tilt to higher yielding segment will also aid yields in turn supporting NIMs.

LINK
https://www.edelweiss.in/research/Shriram-City-Union-Finance--Growth-Momentum-Building-Up;-NIMs-Surprise-Positively;-Result-Update-Q3FY15/28189.html