MOSL: SHRIRAM CITY UNION FINANCE (Buy)- Headwinds wither, albeit slowly
​Shriram City Union Finance:Headwinds wither, albeit slowly
(SCUF IN, Mkt Cap USD2.1b, CMP INR2248, TP INR2650, 18% Upside, Buy)
- 2QFY18 PAT declined 3% YoY to INR2.0b. Operating profit rose 20% YoY (3% beat), driven by strong loan growth and controlled opex. However, a sharp increase in credit costs (+71% YoY) weighed on the bottom line.
- Recovery has been slow post demonetization and rollout of GST. In the last four quarters since demonetization, non-gold disbursements grew at an average of only 4% YoY. Total disbursements were largely driven by MSME (+8% QoQ) and gold (4% QoQ). Disbursement growth in 2Ws was 3% QoQ. We forecast 12%/18% disbursements growth in FY18/19.
- AUM of INR249b (+16% YoY) was led by 15% YoY growth in MSME loans. 2W and gold loan segments grew at 9% and 22%, respectively. We model 14%/15% AUM growth for FY18/19 as we expect moderate loan growth.
- With 40bp sequential expansion in the NIM (on AUM), NII grew 19% YoY. With opex growing (+17% YoY) slower than income growth (+19% YoY), CIR reduced by 100bp sequentially to 38%. An increase of 50bp/125bp QoQ/YoY in credit cost (400bp) largely tapered off growth in PPoP (+19% YoY). This manifested in a 3% YoY decline in PAT to INR2b.
Shriram City Union Finance Limited is an India-based non-banking financial company (NBFC). The Company is specialized on offering retail financing solutions, which include micro small and medium enterprise (MSME) loans. It offers a range of options for financing the purchase of two wheeler vehicles across manufacturers and brands. It offers loan against gold jewelry. It offers loans to finance the purchase of new and pre-owned passenger and commercial vehicles, which includes three wheelers, four wheelers, pre-owned and new cars. It offers home loans, through its subsidiary, Shriram Housing Finance Ltd. (SHFL).
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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