EUR 120.00 For Business Accounts Only

MOSL: SHRIRAM CITY UNION FINANCE (Buy)-No major deterioration in asset quality; restructuring minimal

SHRIRAM CITY UNION FINANCE: No major deterioration in asset quality; restructuring minimal

(SCUF IN, Mkt Cap USD1.6b, CMP INR1856, TP INR2150, 16% Upside, Buy)

 

Elevated credit costs drive PAT miss

• Shriram City Union Finance (SCUF) posted PAT of INR2.1b (up 8% YoY; 14% miss) in 1QFY22. PPOP was largely in-line at INR5.7b (flat YoY). While NII stood at INR8.8b (in-line), credit costs stood at INR2.9b (~16% above est.), leading to the PAT miss.
• 1QFY22 was characterized by a sequentially muted performance in disbursements (due to lockdowns) and ~55bp deterioration in GS3.
• The company should deliver RoE/RoA of ~14%/4% in FY23E. We maintain our Buy rating, with TP of INR2,150 per share (1.4x FY23E BVPS).

 Disbursements impacted by second COVID wave; AUM flat QoQ

• In 1QFY22, disbursements were impacted across products. Auto/LAP loans witnessed the highest sequential decline at 79%/52%; MSME/2W loans also fell 40%/20% QoQ to INR10.9b/INR12.3b. The repayment rate stood at 15% (down ~410bp QoQ). As a result, AUM was flat QoQ at INR296b.
• As MSME financing has taken a backseat in the past few quarters, its share in the AUM mix has declined ~935bp to 49% over the past year. In Shriram Housing, the loan book was flat QoQ at INR39.1b (up 65% YoY). The GNPL ratio deteriorated 43bp QoQ to 2.3%.