Buy Shriram City Union Finance; target of Rs 2630: Edelweiss

Edelweiss' research report on Shriram City Union Finance

Shriram City Union Finance (SCUF) reported Q1FY18 PAT of INR1.9bn, which surpassed our estimate on better revenue traction – NII grew >18% YoY driven by margin expansion (up >130bps QoQ to 13.8%) on funding cost benefits and lower interest reversal. Growth showed signs of returning to normalcy – notwithstanding the high base, disbursements were up ~7% YoY, translating into ~17.5% AUM growth.

Outlook

We estimate 20-22% AUM CAGR and >45% earnings CAGR (albeit on low base) over FY17-19, with RoA/RoE of >4%/19%. At CMP, the stock trades at 2.5x FY19E P/ABV. We maintain ‘BUY/SO’ with TP of INR2,630.