Shriram City Union Finance's (Shriram City's) Q2FY14 results were in line with CRISIL Research's expectations. Disbursements grew 9 percent q-o-q helped by 82.8 percent q-o-q increase in gold loan disbursements as traders borrowed to increase supplies ahead of the festive season. The overall disbursement growth was arrested by political disruptions in Andhra Pradesh which impacted non-gold business segments. Andhra Pradesh constitutes 45-48 percent of its total disbursements. Assets under management (AUM) declined by 1.8 percent q-o-q (down 5 percent y-o-y) to .151 bn. Following lower-than-expected AUM growth in H1FY14, we lower our FY14 AUM growth estimates to 14.6 percent from 21.1 percent. We expect H2FY14 AUM growth to be better than H1FY14 as we expect (i) the momentum in gold loans to continue in H2FY14 due to higher gold prices and loan requirement from traders and (ii) non-gold business growth to revive, as the management believes that business in AP will stabilise soon. We maintain our fundamental grade of 4/5.
Non-gold disbursements muted q-o-q while gold loan disbursements revived
Total disbursements grew by 9.0 percent q-o-q to .35.6 bn with gold loan disbursements increasing 82.9 percent q-o-q to .11 bn. Disbursements excluding gold loans declined by 8 percent q-o-q to .24 bn owing to the political turmoil (Telangana issue) in Andhra Pradesh which hampered normal business activities. SME (major AUM contributor) disbursements declined 9 percent to .13 bn. Spreads rose marginally by 31 bps q-o-q to 8.7 percent because yields grew 37 bps q-o-q to 20.6 percent owing to higher contribution from high-yielding SME loans (up by 300 bps q-o-q to 49 percent).
Asset quality deteriorated marginally following a weak macro environment
Gross NPAs grew marginally by 17 bps to 2.46 percent in Q2FY14 following a weak macroeconomic environment. Hence, overall gross NPAs (150 days past due) grew 7 percent q-o-q to .3.8 bn. Credit costs declined by 9 percent q-o-q (down 20 bps to 2.4 percent of AUM), which led to PAT increasing 8 percent q-o-q to .1,272 mn. Net NPAs were flat at 0.7 percent of AUM. The company declared an interim dividend of .4 per share in Q2FY14.
Tier I capital improved on warrant conversion
In July 2013, the pending 3.05 warrants, out of 5.9 mn warrants issued in FY12, got converted into shares (one share per warrant) at an exercise price of .570. Hence, tier I capital increased by 278 bps q-o-q to 18.3 percent, taking the total capital adequacy ratio to 23.3 percent. We had already factored in the warrant conversion in our model.
Earnings estimates largely maintained, fair value retained at .1,059
Following lower-than-expected AUM growth in H1FY14, we lower our FY14 AUM growth estimates to 14.6 percent from 21.1 percent. On account of lower-than-expected provisions in H1FY14, we lower provision estimates by 7 percent in FY14. Accordingly, we largely retain our FY14 PAT estimates. We continue to value Shriram City using the P/B method. Our fair value is maintained at .1,059 (1.9x FY15 adjusted book value and valuing housing subsidiary at book value). At the current market price of .1,097 per share, our valuation grade is 3/5.
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.
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