CRISIL maintains fundamental grade of 3/5 to Shriram City

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CRISIL maintains fundamental grade of 3/5 to Shriram City

CRISIL Research has come out with its report on Shriram City Union Finance. The research firm has maintained the valuation grade of 5/5 to the company in its January 31, 2012.

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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 valuation grade of 5/5 to the company in its January 31, 2012.

Shriram City Union Finance Ltd's (Shriram City's) Q3FY12 earnings were above CRISIL Research's expectations on account of growth in total operating income despite increase in the cost to income ratio. The growth in total operating income was driven by a healthy growth in the net interest income. We are likely to raise our estimates post interaction with the management. However, we maintain our cautious stance on the asset quality given the challenging environment. We maintain the fundamental grade of 3/5.

Q3FY12 result analysis
• Total operating income grew 12.5% q-o-q (up 43.4% y-o-y) to Rs 2,728 mn, driven by net interest income which grew 13.1% q-o-q to Rs 2,714 mn. We await details on the assets under management and net interest margins to analyse the financials. Non-interest income declined 44.4% q-o-q to Rs 14 mn. Net interest income contributed ~99% to the total income in Q3FY12, similar to Q2FY12.

• Operational costs grew 22.0% q-o-q (up 50.8% y-o-y) to Rs 1,008 mn due to staff costs and other operating expenses increasing q-o-q by 37.4% and 17.4%, respectively. The other operating expenses as % of total operational costs increased to 27% from 26% in Q2FY12. Staff costs as % of total operational costs rose to 10% against 7% in Q2FY12. Hence, the operating efficiency declined; its cost to income ratio increased 311 bps q-o-q (up 213 bps y-o-y) to 38.3% (highest in past four quarters). We await details from the management for the same.

• Provisions and contingencies increased 29.3% q-o-q (33.4% y-o-y) to Rs 447 mn.

• Profit after tax increased 3% q-o-q (up 42.2% y-o-y) on account of higher growth in total operating income despite increase in cost to income ratio. EPS was almost flat q-o-q at Rs 16.7.

Valuation: Current market price has strong upside
As we may revise our earnings estimates upwards, our fair value of Rs 673 per share based on the price-to-book multiple method may be revised. We had assigned a price to book (P/B) multiple of 1.9x on FY13 adjusted book value. The valuation grade is 5/5.

To read the full report click on the attachment

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.

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