Buy Shriram City Union Finance; target of Rs 2180: Motilal Oswal

Motilal Oswal's research report on Shriram City Union Finance

SCUF posted a 3QFY22 PAT of INR2.93b, up 5% YoY and 4% QoQ (12% beat). The beat on PAT was driven by lower credit costs, which were 9% below estimates (but up 8% QoQ/24% YoY) at INR2.2b. PPOP was largely in line at INR6.1b (up 8% YoY and 5% QoQ). 3QFY22 was characterized by a healthy ~23% YoY growth in disbursements with the company delivering record-high disbursements in 2W and personal loans. This led to AUM growing 13% YoY/6% QoQ to INR322.5b. GS3 increased 45bp QoQ to 7.3% as INR2.23b of additional loans were classified under Stage 3 because of the RBI circular. SCUF made provisions of INR976m on these loans (PCR: 44%) in 3QFY22. Access to liquidity has improved considerably for SCUF and it now appears on course to deliver a sustainable quarterly disbursement run-rate of INR70-80b. After two years of Balance Sheet consolidation, we now expect SCUF to deliver ~14%/~16% AUM/PAT CAGR during FY21-FY24. Adequate provision buffers insulate the Balance Sheet from any unforeseen contingencies on asset quality.

Outlook

We have made minor changes to our FY22/FY23 EPS estimates and expect SCUF to deliver an RoE/RoA of ~15%/3.2% in FY24. Maintain BUY with a TP of INR2,180 (premised on 1.3x Dec'23E BVPS), implying 22% potential upside.