CRISIL maintains fair value of Rs 673 to Shriram City Union

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CRISIL maintains fair value of Rs 673 to Shriram City Union

CRISIL Research has come out with its report on Shriram City Union Finance. The research firm has maintained the fundamental grade of 3/5 to the company in its October 31, 2011 report.

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Shriram City BSE | NSE 31/05/12 Are Mutual Funds betting on Shriram City?

CRISIL Research has come out with its report on Shriram City Union Finance . The research firm has maintained the fundamental grade of 3/5 to the company in its October 31, 2011 report.

Shriram City Union Finance Ltd's (Shriram City's) Q2FY12 earnings were broadly in line with CRISIL Research's expectations on account of growth in total operating income and lower provisions despite increase in cost to income ratio. We are likely to retain our estimates post interaction with the management as we maintain our cautious stance on the asset quality during H2FY12 given the challenging environment. We maintain the fundamental grade of 3/5.

Q2FY12 result analysis
• Q2FY12 total operating income grew 11.4% q-o-q (up 47.2% y-o-y) to Rs 2,424 mn, primarily driven by net interest income which grew 17% q-o-q to Rs 2,399 mn. Non-interest income was subdued at Rs 25 mn in Q2FY12, however it was Rs 131 mn in Q1FY12 as the company earned interest on fixed deposits and dividends. Hence, the contribution of net interest income grew to 99% of the total income in Q2FY12 as against 94% in Q1FY12.

• Operational costs grew 35.4% q-o-q (up 46.7% y-o-y) to Rs 826 mn largely due to increase in other operating expenses which grew by 42.3% q-o-q to Rs 636 mn. The other operating expenses as % of total operational costs increased to 26% in Q2FY12 from 21% in Q1FY12. Staff costs as % of total operational costs remained almost flat at 7% in Q2FY12. Hence, operating efficiency deteriorated; its cost to income ratio increased 594 bps q-o-q (down 2 bps y-o-y) to 35.2%. We await details from the management for the same.

• Provisions and contingencies declined 4.4% q-o-q (47.1% y-o-y) to Rs 346 mn.

• Profit after tax was almost flat q-o-q (up 45.8% y-o-y) on account of higher cost to income ratio despite growth in total operating income and lower provisions. EPS was almost flat q-o-q at Rs 16.3 in Q2FY12.

Valuation: Current market price has strong upside
We maintain our fair value of Rs 673 per share based on the price-to-book multiple method. We had assigned a price to book (P/B) multiple of 1.9x on FY13 adjusted book value. Accordingly, the valuation grade is 5/5.

Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report.  The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.

© CRISIL Limited . All Rights Reserved. Published under permission from CRISIL"

To read the full report click on the attachment