CRISIL raises fundamental grade of Shriram City Union
CRISIL Research has come out with its report on Shriram City Union Finance. The research firm expects 33 percent CAGR over FY12-15 in assets under management to drive 39 percent CAGR in operating income.
April 25, 2013 / 14:18 IST
CRISIL Research has come out with its report on Shriram City Union Finance. The research firm expects 33 percent CAGR over FY12-15 in assets under management to drive 39 percent CAGR in operating income.
Chennai-based Shriram City Union Finance (Shriram City), the retail finance arm of the Shriram Group (group), is a diversified financier lending to the credit-underserved population in semi-urban and rural areas. CRISIL Research raises Shriram City's fundamental grade to 4/5 from 3/5, as the company's business performance has outperformed our expectations. The grade indicates that its fundamentals are superior relative to other listed securities in India. The upward revision in fundamental grade is supported by a) proven growth in Shriram City's assets under management (AUM) due to demand for credit from smaller cities, b) healthy asset quality backed by group support and c) the ability to sustain return ratios of above 20 percent (higher than industry average).Healthy AUM growth and asset quality, backed by group support
CRISIL Research believes that Shriram City scores over banks in rural markets due to its wider reach, faster service and in-house collections. As 80 percent of Shriram City's branches are in the semi-urban and rural pockets of South India, it is well-positioned to tap the increasing funding needs in these areas. We expect AUM to grow at a CAGR of 33 percent during FY12-15. Small business loan and gold loans will together constitute almost 80 percent of AUM in FY15. The group support has facilitated customer acquisition, healthy asset quality and cost efficiencies. Better positioned despite banks signalling competition in retail loans; banking license is a monitorableOur channel checks indicate that banks are focusing on retail loans, largely home loans, as corporate loans are drying up and banks need to do more priority sector lending. CRISIL Research believes going forward banks are likely to focus on other retail loans too along with home loans. Though this is not a short term threat, it can emerge over the next three-four years. CRISIL Research believes Shriram City's strong foothold in semi-urban / rural areas of South India, and established track record of its customers sourced by the group should help maintain Shriram City's positioning. Also, in case Shriram group applies and gets a banking license, the group structure may change, which also remains a monitorable for us.Well placed even if the RBI draft guideline for NBFCs gets implemented
CRISIL Research does not expect any major compression in Shriram City's return ratios if the RBI's draft guidelines for NBFCs are implemented because (i) Shriram City's tier I capital is above 10 percent and (ii) as a proactive measure, the company has moved towards 150 days NPA recognition norm for all segments instead of 180 days NPA recognition norm.Return ratios likely to remain above 20 percent
CRISIL Research expects 33 percent CAGR over FY12-15 in assets under management to drive 39 percent CAGR in operating income. Accordingly, net profit is expected to grow at 29 percent CAGR over FY12-15 to Rs 7.6 bn. RoE to marginally moderate to 23.1 percent in FY15 from 24.0 percent in FY12.Fair value maintained at Rs 1,116 per share
Applying 1.9x multiple on FY15E adjusted book value and valuing the housing subsidiary at book value, we maintain our fair value at Rs 1,116 per share. At the current market price of Rs 1,008, our valuation grade is 4/5. 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"
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