Buy Shriram City Union Finance; target of Rs 2500: Emkay Global Financial

Emkay Global Financial is bullish on Shriram City Union Finance has recommended buy rating on the stock with a target price of Rs 2500 in its research report dated July 29, 2022.

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August 02, 2022 / 17:39 IST

26 Aug, 2025 12:21

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Emkay Global Financial's research report on Shriram City Union Finance

For Q1FY23, Shriram City Union Finance (SCUF) reported earnings of Rs3.2bn, driven by NIM expansion and lower-than-anticipated provisions. Disbursements grew by 5% qoq/74% yoy, resulting in AUM growth of 4% qoq/17% yoy. NIMs increased by 85bps qoq/73bps yoy due to reduction in CoF and asset mix changes. Operating profit was Rs6.6bn and grew by 11% qoq/16% yoy. GS3 declined by 20bps qoq to ~6.1% and NS3 remained flat at 3.3%. COVID-related provisions stood at Rs3.4bn (1% of AUM) vs. Rs4.3bn (1.3% of AUM) as of Q4. Shriram Housing Finance Limited (SHFL) reported quarterly PAT of Rs0.3bn (+36 % qoq/ 176% yoy). SCUF is a play in retail financing across MSMEs, two-wheelers (2W), gold, personal, and auto, among others. With the merger on track, as well as its ability to leverage Shriram Capital’s customer base and appraise the ‘cash’ businesses, SCUF is set to accelerate growth in the post-pandemic era. SHFL, with access to the wider Shriram network, seeks to gain share in the fast-growing affordable housing finance segment.

Outlook

Considering the imminent merger of SHTF with SCUF, we link our TP of SCUF with that of SHTF using the merger share ratio i.e. ~1.55x. We roll over our forecasts to Sep’23E and retain our Buy rating with a Sep’23E TP of Rs2,500 (earlier Rs2,700) for FY23-24E RoE of 14%. Key downside risks: 1) Stake sale by current investors and 2) Merger integration risks.

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