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MOSL: SHRIRAM CITY UNION FINANCE (Buy)-Disbursements down-Asset quality healthy

SHRIRAM CITY UNION FINANCE: Disbursements down; Asset quality healthy

(SCUF IN, Mkt Cap USD1.2b, CMP INR1325, TP INR1600, 21% Upside, Buy)

 

• Core PBT of INR3.8b was largely flat QoQ/YoY and in line with our estimates. However, given the lower-than-expected tax rates, PAT beat our estimate by 6% (+19% YoY to INR3.0b).
• 2QFY20 was one of the toughest quarters since the liquidity crisis. The quarter was characterized by slowdown in MSME disbursements (down 44% YoY), leading to 19% YoY decline in total disbursements to INR52b. The company is taking a cautious stance on MSME disbursements.
• Thus, AUM growth declined 2% QoQ (flat YoY) to INR297b. While management expects 10% YoY AUM growth in FY20, our estimate is lower at 2% YoY.
• Yield on AUM declined 100 bp YoY to 19.1%, while cost of funds increased by a similar quantum YoY to 9.9%. SCUF cut down its CP exposure (down QoQ from INR11b to ~INR6b) and increased its borrowings from retail sources and long-term borrowings. The company also securitized INR14b+ during the quarter via PTCs (INR9.3b) and direct assignments (INR5b).
• In 1HFY20, disbursements have declined 10% YoY to INR115b, while core PBT has grown 5% to INR7.6b. RoA/RoE for 1HFY20 is 3.77%/16.5%.
• GS3 ratio declined 20bp QoQ to 8.7%. PCR (on stage 3 loans) was stable QoQ at 43%. Quarterly write-offs increased to INR2b from the run-rate trend of the past few quarters at ~INR1.6-1.7b.