BFSI

India I Equities

Result Update
31 October 2014

Shriram City Union Finance

Rating: Buy
Target Price: `1,903
Share Price: `1,742

Growth improves, higher spread; Buy

Key takeaways
AUM growth bottoms out; disbursements up. After four quarters of
decrease in AUM, SCUFs AUM increased 2.9% yoy in 2QFY15 (to
`155.6bn). Lending shares of SME and two wheelers increased 320bps and
90bps to 52% and 18%, yoy, respectively. Disbursements increased 16.7%
yoy (8.1% qoq), driven by gold loans (up 54% yoy). Led by a sharper focus
on rural India, we expect 23% growth in AUM over FY14-17.
Spread on the rise, productivity decreases. Reported gross spread has
increased 160bps yoy, to 13.3%, on a higher yield on advances. Proportion
of retail liabilities in the overall borrowing mix has improved 230bps yoy, to
31%. Easing interest rates and increasing proportion of higher-yielding rural
SME finance could aid stable NIM of 12%+ over FY15-16. On continuous
investment in its employees, cost-assets increased 110bps yoy, to 5.6%. We
expect cost-assets to improve with the NBFC better leveraging its
investments in the present set-up.
High NPA coverage and capital adequacy. Gross NPA rose marginally
by 7% qoq. NPA coverage improved 180bps qoq to 80%, one of the best
amongst peers. We expect credit costs over FY15-16, at 2.7%, to remain
elevated (3% in FY14). Post the recent capital infusion of `7.9bn in Jun14,
capital adequacy now stands at a high 30.44% with Tier 1 of 25.2%, and is
sufficient to support the NBFCs healthy loan growth plans.
Our take. A strong rural-focused niche model, improving growth and
higher NIM would support +3.5% RoA over FY15-16. We maintain Buy. At
our target price, the stock will trade at 3.0x FY15e BV and 2.5x FY16e BV.
Our target is based on the two-stage DDM (CoE: 16.0%; beta: 1.1; Rf:
8.5%). Risks. Below-expected growth and higher NPA, change in RBI
norms.

Key data

SCUF IN / SHCU.BO

`1,849 / `905
27723 / 8281
US$0.5m
`117bn / US$1.9bn
65.9m

52-week high / low

Sensex / Nifty
3-m average volume
Market cap
Shares outstanding

Shareholding pattern (%)

Sep-14

Promoters
- of which, Pledged
Free Float
- Foreign Institutions
- Domestic Institutions
- Public

33.8
66.2
24.8
2.4
39.0

Financials (YE: Mar)

Net interest income (`m)

Net profit (`m)
EPS (`)
Growth (%)
PE (x)
PABV (x)
RoE (%)
RoA (%)
Dividend yield (%)
Net NPA (%)

Jun-14 3-Jun-14

33.8
66.2
23.5
2.9
39.8

33.8
66.2
23.7
3.0
39.5

FY15e

FY16e

20,542
6,474
98
11.8
17.2
2.8
18.1
3.5
0.7
1.3

24,198
7,864
119
21.5
14.2
2.4
17.1
3.5
0.8
1.3

Source: Anand Rathi Research

Quarterly results (YE: Mar)

2QFY14

2QFY15

% yoy

1HFY14

1HFY15

% yoy

Net interest income (`m)

4,419

5,100

15.4

8,743

10,102

15.5

Non-interest income (`m)

140

207

47.7

314

333

6.2

Operating expenses (`m)

1,759

2,150

22.2

3,487

4,172

19.6
148bps

Cost-to-income (%)
Pre-provisioning profit (`m)
Provisions (`m)

38.6

40.5

192bps

38.5

40.0

2,800

3,157

12.8

5,569

6,262

12.4

919

1,089

18.5

1,929

2,297

19.1

Kaitav Shah

8.9

+9122 6626 6545

kaitavshah@rathi.com

PBT (`m)

1,881

2,069

10.0

3,640

3,966

Tax (`m)

609

691

13.4

1,194

1,310

9.7

PAT(`m)

1,272

1,378

8.3

2,446

2,655

8.5

Clyton Fernandes

21

21

(2.5)

44

45

1.5

+9122 6626 6744

clytonfernandes@rathi.com

EPS (`)
Source: Company, Anand Rathi Research

Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL) is a full service brokerage and equities research firm and the views expressed therein are solely of
ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within
India and to no countries outside India. Disclosures and analyst certifications are present in Appendix.
Anand Rathi Research

India Equities

31 October 2014

Shriram City Union Finance Growth improves, higher spread; Buy

Quick Glance Financials and Valuations

Fig 1 Income statement (`m)

Source: Company, Anand Rathi Research

Share capital
Reserves & surplus
Borrowings
Current liab. & prov.
Minority Interest
Total liabilities

FY13

20x

2,100

15x

1,600
SCUF
1,100

10x

600

5x

Oct-14

Apr-14

100

Source: Bloomberg, Anand Rathi Research

Fig 2 Balance sheet (`m)

Year-end: Mar

2,600

Oct-13

28,706
18.6
2,110
30,817
19.1
11,501
19,315
20.6
4,957
14,359
4,781
9,577
21.8
145.4
13.0

Apr-13

24,198
17.8
1,675
25,873
18.2
9,862
16,010
19.2
4,220
11,791
3,926
7,864
21.5
119.4
13.0

Oct-12

20,542
15.5
1,340
21,882
16.3
8,452
13,429
15.4
3,723
9,706
3,232
6,474
24.2
98.3
12.0

Apr-12

17,791
9.2
1,031
18,822
12.8
7,182
11,640
10.9
3,842
7,798
2,587
5,211
15.9
87.9
10.0

Oct-11

16,289
47.6
397
16,686
48.2
6,189
10,497
49.4
3,840
6,656
2,160
4,496
31.3
81.1
8.5

Apr-11

FY17e

Oct-10

FY16e

Apr-10

FY15e

Oct-09

FY14

Apr-09

Net interest income

NII growth (%)
Non-interest inc
Total income
Total Inc growth (%)
Op. expenses
Operating profit
Op profit growth (%)
Provisions
PBT
Tax
PAT
PAT growth (%)
FDEPS (`/share)
DPS (`/share)

Fig 4 PE band

FY13

Oct-08

Year-end: Mar

Fig 5 Price-to-book band

FY14

FY15e

FY16e

FY17e

554
593
21,580 28,390
127,271 120,490
13,935 14,359
163,734 163,831

659
41,769
142,291
18,354
203,074

659
48,632
170,679
23,430
243,400

659
57,207
213,943
30,154
301,962

2,000

2.8x

1,800
1,600

2.2x

1,400
1,200

1.6x

1,000

Source: Company, Anand Rathi Research

200
Oct-14

Apr-14

Oct-13

Apr-13

Oct-12

Apr-12

Oct-11

Apr-11

Oct-10

Fig 6 SCUF vs. Bankex

1,850

SCUF

1,750
1,650
1,550
1,450
1,350
Bankex

1,250
1,150
1,050
950

Oct-14

850
Sep-14

11.2
6.8
37.3
61.1
8.9
93.0
3.7
1.4
878.6
844.9
16.5
17.9
3.5
0.7

Aug-14

11.6
6.5
38.1
64.3
10.9
92.0
3.7
1.3
748.4
723.4
16.5
17.1
3.5
0.7

Jul-14

12.0
6.1
38.6
64.6
12.2
94.0
3.6
1.3
644.2
624.3
15.5
18.1
3.5
0.7

Jun-14

11.5
5.5
38.2
62.0
11.4
93.7
3.3
1.3
488.9
470.6
16.0
20.4
3.2
0.6

May-14

11.8
2.4
37.1
63.3
10.5
95.3
2.2
0.8
399.4
379.9
17.5
22.8
3.1
0.5

Apr-14

FY17e

Mar-14

FY16e

Feb-14

FY15e

Jan-14

FY14

Dec-13

FY13

Source: Company, Anand Rathi Research

Anand Rathi Research

400

Nov-13

NIM (%)
Other inc / total inc (%)
Cost-income (%)
Provision coverage (%)
Dividend payout (%)
Credit-deposit (%)
Investment-deposit (%)
Gross NPA (%)
Net NPA (%)
BV (`)
Adj BV (`)
CAR (%)
RoE (%)
RoA (%)
Dividend yield (%)

1.0x

600

Source: Bloomberg, Anand Rathi Research

Fig 3 Key ratios

Year-end: Mar

SCUF

800

Apr-10

230,046
10,844
53,655
7,417
301,962
66
25.3
24.0

Oct-09

185,521
9,037
42,662
6,181
243,400
66
20.0
22.6

Apr-09

151,374
7,531
39,019
5,151
203,074
66
18.1
17.8

Oct-08

133,554 128,535
730
6,276
21,775 24,729
5,988
4,292
163,734 163,831
55
59
32.3
(5.3)
24.6
(3.8)

Oct-13

Advances
Investments
Cash & bank bal
Fixed & other assets
Total assets
No. of shares (m)
Borrowings growth (%)
Advances growth (%)

Source: Bloomberg

31 October 2014

Shriram City Union Finance Growth improves, higher spread; Buy

Result highlights
Fig 7 2QFY15 Results vs Expectations
(`m)

2QFY15

2QFY15e

Var %

2QFY14

YoY %

1QFY15

QoQ %

Net interest income

5,100

5,101

(0.0)

4,419

15.4

5,001

2.0

Pre-provisioning profits

3,157

3,190

(1.0)

2,800

12.8

3,105

1.7

PAT

1,378

1,407

(2.1)

1,272

8.3

1,277

7.9

Source: Company, Anand Rathi Research

Fig 8 2QFY15 results

(`m)

2QFY15

2QFY14

% Chg

1HFY15

1HFY14

% Chg

Net interest income

5,100

4,419

15.4

10,102

8,743

15.5

Non-interest income

207

140

47.7

333

314

6.2

Operating costs (%)

2,150

1,759

22.2

4,172

3,487

19.6

Pre-provisioning profits

3,157

2,800

12.8

6,262

5,569

12.4

PAT

1,378

1,272

8.3

2,655

2,446

8.5

2QFY15

2QFY14

YoY

1QFY15

QoQ

AUM

155,570

151,180

2.9

150,290

3.5

Borrowings

115,770

117,090

(1.1)

118,090

(2.0)

41,550

35,590

16.7

38,420

8.1

4,155

3,200

29.8

3,860

7.6

Net NPA

830

850

(2.4)

840

(1.2)

Gross NPA %

2.9

2.5

43bps

2.9

2bps

Net NPA %

0.6

0.7

(7)bps

0.6

(5)bps

NPA coverage %

80.0

73.4

658bps

78.2

178bps

Capital adequacy %

30.4

23.3

718bps

29.2

120bps

Tier-1 %

25.2

18.3

684bps

24.0

118bps

Disbursements
Gross NPA

Source: Company, Anand Rathi Research

Fig 9 AUM growth bottoms out

Fig 10 Disbursement growth looking up

(`m)
180,000

(%)
75

(`m)
50,000

150,000

60

40,000

120,000

45

90,000

30

(%)
90

60

30,000
30
20,000

AUM

Source: Company, Anand Rathi Research

Anand Rathi Research

yoy growth (RHS)

Disbursements

2QFY15

1QFY15

4QFY14

3QFY14

2QFY14

1QFY14

4QFY13

3QFY13

2QFY13

1QFY13

-30
4QFY12

0
3QFY12

2QFY15

1QFY15

4QFY14

3QFY14

2QFY14

1QFY14

4QFY13

3QFY13

2QFY13

1QFY13

4QFY12

3QFY12

2QFY12

1QFY12

4QFY11

3QFY11

-15
2QFY11

10,000

2QFY12

1QFY12

30,000

4QFY11

15

3QFY11

60,000

Disbursements (RHS)

Source: Company, Anand Rathi Research

31 October 2014

Shriram City Union Finance Growth improves, higher spread; Buy

Fig 11 AUM mix: Rising business finance and two-wheeler loans

100%
80%
60%
40%
20%

- Auto Loans
- Loans against gold

- Two wheeler Loans

- SME Loans

2QFY15

1QFY15

4QFY14

3QFY14

2QFY14

1QFY14

4QFY13

3QFY13

2QFY13

1QFY13

4QFY12

3QFY12

2QFY12

1QFY12

0%

- Personal Loans
- Others

Source : Company

Fig 12 Cost-income increasing

30

Cost-assets

2QFY15

0.0
1QFY15

32

4QFY14

1.0

3QFY14

34

2QFY14

2.0

1QFY14

36

4QFY13

3.0

3QFY13

38

2QFY13

4.0

1QFY13

40

4QFY12

5.0

3QFY12

42

2QFY12

(%)

6.0

1QFY12

(%)

Cost-income (RHS)

Source : Company, Anand Rathi Research

Fig 13 High NPA coverage

(%)
3.5

(%)
90

3.0

75

2.5

60

2.0
45
1.5
30

1.0

15

0.0

0
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15

0.5

Gross NPA (%)

Net NPA (%)

NPA Coverage (%)

Source: Company

Anand Rathi Research

31 October 2014

Shriram City Union Finance Growth improves, higher spread; Buy

Valuations
A strong rural-focused niche model, improving growth and higher NIM
would support +3.5% RoA over FY15-16. We maintain Buy. At our target
price, the stock will trade at 3.0x FY15e BV and 2.5x FY16e BV. Our
target is based on the two-stage DDM (CoE: 16.0%; beta: 1.1; Rf: 8.5%).
Fig 14 Past one-year forward-P/BV
2.8
2.6
+2SD

2.4
SCUF

2.2

+1SD

2.0
Mean

1.8
1.6

-1SD

1.4
-2SD

1.2
Oct-14

Apr-14

Oct-13

Apr-13

Oct-12

Apr-12

Oct-11

Apr-11

Oct-10

Apr-10

Oct-09

Apr-09

Oct-08

1.0

Source: Bloomberg, Anand Rathi Research

Risks

Anand Rathi Research

Slowdown in the rural economy would lead to slower loan growth and
mounting delinquencies.

Regulatory changes could impact the business model and profitability

of the company.

31 October 2014

Shriram City Union Finance Growth improves, higher spread; Buy

Financials
We expect 21.5% loan growth over FY14-17e with 24.9% CAGR in
earnings over the same period.
Fig 15 Income Statement
Year-end: Mar (`m)

FY13

FY14

FY15e

FY16e

FY17e

Interest income

30,431

31,355

34,206

40,316

47,937

Interest expended

14,142

13,564

13,665

16,118

19,231

Net interest income

16,289

17,791

20,542

24,198

28,706

Growth (%)

47.6

9.2

15.5

17.8

18.6

Non-interest income

397

1,031

1,340

1,675

2,110

16,686

18,822

21,882

25,873

30,817

2.4

5.5

6.1

6.5

6.8

Operating expenses

6,433

7,477

8,452

9,862

11,501

Employee expenses

2,239

2,708

3,141

3,706

4,373

Other expenses

4,194

4,770

5,312

6,156

7,128

10,253

11,345

13,429

16,010

19,315

Total income
Non-interest income / total income (%)

Pre-provisioning profit
Growth (%)

49.4

10.9

15.4

19.2

20.6

Provisions

3,840

3,842

3,723

4,220

4,957

Profit before tax

6,412

7,503

9,706

11,791

14,359

Taxes

2,160

2,587

3,232

3,926

4,781

33.7

34.5

33.3

33.3

33.3

4,252

4,916

6,474

7,864

9,577

31.3

15.9

24.2

21.5

21.8

55

59

66

66

66

81.1

87.9

98.3

119.4

145.4

Tax rate (%)

Profit after tax
Growth (%)
Number of shares (m)
Earnings per share
Source : Company, Anand Rathi Research

Fig 16 Balance Sheet

Year-end: Mar (`m)

Share capital
Reserves and surpluses

FY13

FY14

FY15e

FY16e

554

593

659

659

FY17e

659

21,580

28,390

41,769

48,632

57,207

Net worth

22,134

28,983

42,428

49,291

57,866

Borrowings

127,271

120,490

142,291

170,679

213,943

13.935

14,359

18,354

23,430

30,154

Total liabilities

163,734

163,831

203,074

243,400

301,962

Advances

133,554

128,535

151,374

185,521

230,046

730

6,276

7,531

9,037

10,844

21,775

24,729

39,019

42,662

53,655

5,988

4,292

5,151

6,181

7,417

163,734

163,831

203,074

243,400

301,962

Other Liabilities & Provisions

Minority interest

Investments
Cash & bank balances
Fixed & other assets
Total assets
Source : Company, Anand Rathi Research

Anand Rathi Research

Appendix
Analyst Certification
The views expressed in this Research Report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the
compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research
analyst(s) in this report. The research analysts are bound by stringent internal regulations and also legal and statutory requirements of the Securities and Exchange
Board of India (hereinafter SEBI) and the analysts compensation are completely delinked from all the other companies and/or entities of Anand Rathi, and have
no bearing whatsoever on any recommendation that they have given in the Research Report.
Important Disclosures on subject companies
Rating and Target Price History (as of 31 October 2014)

2,000

Date

SCUF

1,800

1,600
1,400
5

1,200
1,000

4
6

800
600

400

1
2
3
4
5
6
7
8

12-Dec-11
30-Jul-12
02-Nov-12
31-Jan-13
22-May-13
29-Jul-13
02-May-14
30-Jul-14

Rating

TP
(`)

Share Price
(`)

Buy
Buy
Hold
Hold
Hold
Buy
Buy
Buy

680
837
898
1,161
1,214
1,184
1,365
1,903

512
706
778
1,079
1,126
954
1,183
1,687

1
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14

200

The research analysts, strategists, or research associates principally responsible for the preparation of Anand Rathi Research have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking
revenues.
Anand Rathi Ratings Definitions
Analysts ratings and the corresponding expected returns take into account our definitions of Large Caps (>US$1bn) and Mid/Small Caps (<US$1bn) as described
in the Ratings Table below:
Ratings Guide
Large Caps (>US$1bn)
Mid/Small Caps (<US$1bn)

Buy
>15%
>25%

Anand Rathi Research Ratings Distribution (as of 31 October 2014)

Buy
Anand Rathi Research stock coverage (182)
61%
% who are investment banking clients
5%

Hold
5-15%
5-25%

Sell
<5%
<5%

Hold
27%
0%

Sell
12%
0%

Other Disclosures
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