MOSL: SHRIRAM CITY UNION FINANCE (Buy)-Disbursements rebound, asset quality improves
SHRIRAM CITY UNION FINANCE: Disbursements rebound, asset quality improves
(SCUF IN, Mkt Cap USD1.6b, CMP INR1698, TP INR2100, 24% Upside, Buy)
- PAT of INR2.5b beat our estimates by 18%, while NII was largely in line with estimates. Lower opex and credit costs led to the PAT beat.
- Disbursements (INR66b) rebounded from a sluggish 3Q, almost reaching a record peak, despite tepid gold loan disbursements. The two key lending segments - MSME and 2Ws - fired on all cylinders with disbursements close to record highs. As a result, AUM grew 3% QoQ (7% YoY) to INR296b.
- An encouraging trend over FY19 was the control on operating expenses. Opex/Avg. AUM declined ~40bp YoY to 5.1%. We believe there is scope for further operating leverage benefits to play out over the medium term.
- While yields were sequentially stable, cost of funds declined 50bp to 8.9% leading to 20bp QoQ improvement in spreads; we await management clarity on the same.
- Gross Stage 3 loans improved 20bp QoQ to 8.9%. The company maintains 44% ECL provision on its GNPLs and 6.7% overall ECL on its loan book. Overall credit costs for the year were 2.7%, which is modestly higher than the long-term average.
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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