Shriram City Union Finance Ltd Q2FY14 Results Update
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Last updated: May, 2013
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Shriram City Union Finance Ltd AUM growth muted; gold loan segment drove disbursements
Fundamental Grade 4/5 (Superior fundamentals) Valuation Grade 3/5 (CMP is aligned) Industry Consumer Finance 1 November 6, 2013
Fair Value 1,059 CMP 1,097 For detailed initiating coverage report please visit: www.ier.co.in CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters.
Shriram City Union Finance Ltds (Shriram Citys) Q2FY14 results were in line with CRISIL Researchs expectations. Disbursements grew 9% q-o-q helped by 82.8% 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% of its total disbursements. Assets under management (AUM) declined by 1.8% q-o-q (down 5% y-o-y) to 151 bn. Following lower-than-expected AUM growth in H1FY14, we lower our FY14 AUM growth estimates to 14.6% from 21.1%. 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% q-o-q to 35.6 bn with gold loan disbursements increasing 82.9% q-o-q to 11 bn. Disbursements excluding gold loans declined by 8% 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% to 13 bn. Spreads rose marginally by 31 bps q-o-q to 8.7% because yields grew 37 bps q-o-q to 20.6% owing to higher contribution from high-yielding SME loans (up by 300 bps q-o-q to 49%). Asset quality deteriorated marginally following a weak macro environment Gross NPAs grew marginally by 17 bps to 2.46% in Q2FY14 following a weak macro- economic environment. Hence, overall gross NPAs (150 days past due) grew 7% q-o-q to 3.8 bn. Credit costs declined by 9% q-o-q (down 20 bps to 2.4% of AUM), which led to PAT increasing 8% q-o-q to 1,272 mn. Net NPAs were flat at 0.7% 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%, taking the total capital adequacy ratio to 23.3%. 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% from 21.1%. On account of lower-than-expected provisions in H1FY14, we lower provision estimates by 7% 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.
ANALYTICAL CONTACT Mohit Modi (Director) mohit.modi@crisil.com Elizabeth John elizabeth.john@crisil.com Vishal Rampuria vishal.rampuria@crisil.com Client servicing desk +91 22 3342 3561 clientservicing@crisil.com 1 2 3 4 5 1 2 3 4 5 Valuation Grade F u n d a m e n t a l
G r a d e Poor Fundamentals Excellent Fundamentals S t r o n g D o w n s i d e S t r o n g U p s i d e 55.0% 57.3% 57.3% 37.6% 25.1% 25.2% 26.2% 25.9% 5.8% 4.3% 4.0% 3.0% 14.1% 13.1% 12.6% 33.5% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Dec-12 Mar-13 Jun-13 Sep-13 Promoter FII DII Others
Total operating income up 1.4% q-o-q and 13% y-o-y PAT increased 8% q-o-q and 18% y-o-y Source: Company, CRISIL Research Source: Company, CRISIL Research
2 , 6 0 2 2 , 7 2 8 3 , 4 4 7 3 , 7 2 1 4 , 0 4 3 4 , 2 5 0 4 , 7 1 2 4 , 4 9 8 4 , 5 5 9 58% 43% 59% 60% 55% 56% 37% 21% 13% 0% 10% 20% 30% 40% 50% 60% 70% 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 Q 2 F Y 1 2 Q 3 F Y 1 2 Q 4 F Y 1 2 Q 1 F Y 1 3 Q 2 F Y 1 3 Q 3 F Y 1 3 Q 4 F Y 1 3 Q 1 F Y 1 4 Q 2 F Y 1 4 ( mn) Total operating income y-o-y growth (RHS) 8 1 1 8 3 5 9 7 6 1 , 0 3 4 1 , 0 7 9 1 , 1 2 6 1 , 2 5 7 1 , 1 7 4 1 , 2 7 2 46% 42% 26% 29% 33% 35% 29% 14% 18% -10% 0% 10% 20% 30% 40% 50% 0 200 400 600 800 1,000 1,200 1,400 Q 2 F Y 1 2 Q 3 F Y 1 2 Q 4 F Y 1 2 Q 1 F Y 1 3 Q 2 F Y 1 3 Q 3 F Y 1 3 Q 4 F Y 1 3 Q 1 F Y 1 4 Q 2 F Y 1 4 ( mn) PAT y-o-y growth (RHS)
Shriram City Union Finance Ltd 3 Disbursements increased by 9% q-o-q... ... largely due to 82.8% q-o-q increase in gold loan disbursements Source: Company, CRISIL Research Source: Company, CRISIL Research
AUM declined by 1.8% q-o-q Small business loans a major contributor to AUM Source: Company, CRISIL Research Source: Company, CRISIL Research
Proportion of off-book to total AUM up 158 bps q-o-q Spreads increased by 31 bps q-o-q Source: Company, CRISIL Research Source: Company, CRISIL Research
40.3 45.9 44.8 45.1 43.5 40.7 32.7 35.6 40.7% 13.9% -2.3% 0.7% -3.7% -6.3% -19.8% 9.0% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% - 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0 Q 3 F Y 1 2 Q 4 F Y 1 2 Q 1 F Y 1 3 Q 2 F Y 1 3 Q 3 F Y 1 3 Q 4 F Y 1 3 Q 1 F Y 1 4 Q 2 F Y 1 4 ( bn) Disbursements q-o-q growth (RHS) 22.5 26.0 25.6 24.8 24.1 15.3 6.1 11.1 57% 16% -2% -3% -3% -37% -60% 83% -100% -75% -50% -25% 0% 25% 50% 75% 100% - 5.0 10.0 15.0 20.0 25.0 30.0 Q 3 F Y 1 2 Q 4 F Y 1 2 Q 1 F Y 1 3 Q 2 F Y 1 3 Q 3 F Y 1 3 Q 4 F Y 1 3 Q 1 F Y 1 4 Q 2 F Y 1 4 ( bn) Gold loan disbursements q-o-q growth (RHS) 100 116 134 149 159 164 158 154 151 13% 16% 16% 11% 7% 3% -3% -3% -2% -10% -5% 0% 5% 10% 15% 20% 0 20 40 60 80 100 120 140 160 180 Q 2 F Y 1 2 Q 3 F Y 1 2 Q 4 F Y 1 2 Q 1 F Y 1 3 Q 2 F Y 1 3 Q 3 F Y 1 3 Q 4 F Y 1 3 Q 1 F Y 1 4 Q 2 F Y 1 4 ( bn) AUM q-o-q growth (RHS) 39.9% 36.9% 30.0% 24.0% 22.0% 11.9% 11.6% 12.1% 11.0% 10.0% 32.5% 35.8% 40.0% 46.0% 49.0% 11.0% 11.3% 13.2% 14.0% 15.0% 4.2% 3.8% 4.0% 4.0% 4.0% 0.6% 0.6% 0.7% 1.0% 0.0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Gold loans Auto loans Small business loans Two-wheelers Personal loans Consumer durable loans 17% 20% 14% 11% 12% 15% 12% 14% 83% 80% 86% 89% 88% 85% 88% 86% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Q 3 F Y 1 2 Q 4 F Y 1 2 Q 1 F Y 1 3 Q 2 F Y 1 3 Q 3 F Y 1 3 Q 4 F Y 1 3 Q 1 F Y 1 4 Q 2 F Y 1 4 Off book AUM On book AUM 19.0% 19.7% 20.1% 20.5% 20.2% 20.6% 10.4% 12.1% 12.0% 11.3% 11.8% 11.9% 8.6% 7.6% 8.1% 9.2% 8.4% 8.7% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Yield on AUM Cost of borrowings Spread
CRISIL IERIndependentEquityResearch 4 Cost to income ratio remains flat q-o-q Gross NPAs rose by 17 bps sequentially Source: Company, CRISIL Research Source: Company, CRISIL Research
Tier I capital rose by 278 bps q-o-q on warrant conversion Trend in return ratios Source: Company, CRISIL Research Source: Company, CRISIL Research
Share price movement Fair value movement since initiation
-Indexed to 100
Source: NSE, CRISIL Research Source: NSE, BSE, CRISIL Research
35.2% 38.3% 35.9% 35.2% 37.6% 39.6% 36.4% 38.4% 38.6% 20% 25% 30% 35% 40% 45% Q 2 F Y 1 2 Q 3 F Y 1 2 Q 4 F Y 1 2 Q 1 F Y 1 3 Q 2 F Y 1 3 Q 3 F Y 1 3 Q 4 F Y 1 3 Q 1 F Y 1 4 Q 2 F Y 1 4 1.72% 1.64% 1.55% 1.46% 1.37% 1.57% 2.19% 2.29% 2.46% 0.41% 0.37% 0.38% 0.34% 0.32% 0.47% 0.80% 0.67% 0.65% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% Q 2 F Y 1 2 Q 3 F Y 1 2 Q 4 F Y 1 2 Q 1 F Y 1 3 Q 2 F Y 1 3 Q 3 F Y 1 3 Q 4 F Y 1 3 Q 1 F Y 1 4 Q 2 F Y 1 4 Gross NPA Net NPA 13.7% 13.5% 12.6% 12.2% 12.5% 14.9% 15.6% 18.3% 2.8% 3.5% 3.2% 3.3% 3.7% 3.7% 4.3% 4.9% 16.4% 16.9% 15.9% 15.5% 16.2% 18.6% 19.9% 23.3% 0% 4% 8% 12% 16% 20% 24% 28% 0% 4% 8% 12% 16% 20% 24% 28% Q 3 F Y 1 2 Q 4 F Y 1 2 Q 1 F Y 1 3 Q 2 F Y 1 3 Q 3 F Y 1 3 Q 4 F Y 1 3 Q 1 F Y 1 4 Q 2 F Y 1 4 Tier I ratio Tier II ratio Capital adequacy ratio (RHS) 3.4% 3.2% 3.3% 3.1% 2.9% 2.8% 3.1% 3.0% 3.3% 24.4% 23.9% 24.6% 23.1% 23.0% 22.7% 23.4% 20.4% 20.2% 0% 5% 10% 15% 20% 25% 30% Q 2 F Y 1 2 Q 3 F Y 1 2 Q 4 F Y 1 2 Q 1 F Y 1 3 Q 2 F Y 1 3 Q 3 F Y 1 3 Q 4 F Y 1 3 Q 1 F Y 1 4 Q 2 F Y 1 4 ROA ROE 0 50 100 150 200 250 300 350 J a n - 0 8 M a y - 0 8 S e p - 0 8 J a n - 0 9 M a y - 0 9 S e p - 0 9 J a n - 1 0 M a y - 1 0 S e p - 1 0 J a n - 1 1 M a y - 1 1 S e p - 1 1 J a n - 1 2 M a y - 1 2 O c t - 1 2 F e b - 1 3 J u n - 1 3 O c t - 1 3 Shriram City CNX 500 0 500 1,000 1,500 2,000 2,500 0 200 400 600 800 1,000 1,200 1,400 J u l - 1 1 A u g - 1 1 O c t - 1 1 D e c - 1 1 J a n - 1 2 M a r - 1 2 M a y - 1 2 J u n - 1 2 A u g - 1 2 O c t - 1 2 N o v - 1 2 J a n - 1 3 F e b - 1 3 A p r - 1 3 M a y - 1 3 J u l - 1 3 A u g - 1 3 O c t - 1 3 ('000) () Total Traded Quantity (RHS) CRISIL Fair Value Shriram City
Key takeaways from Q2FY14 conference call AUM outlook Excluding gold loans, AUM growth is expected to be 20% in FY14. Overall AUM growth including gold loans can be around 20%.
Asset quality The entire book remains under 150 days past due (dpd) NPA recognition norms. Write-off during Q2FY14 was 761 mn compared to 825 mn in Q1FY14
Borrowings Almost 49% of the liability is at a fixed rate of interest. The weighted average tenure of liability is over 26 months. In Q2FY14, the company securitised 6 bn at a weighted average rate of 8.38%.
CRISIL IERIndependentEquityResearch 6 Earnings Estimates Largely Maintained FY14E FY15E Particulars Unit Old New % change Old New % change AUM ( bn) 192 181 -5.5 256 242 -5.3 Net Interest Income ( mn) 18,821 18,318 -2.7 24,872 23,561 -5.3 Non Interest income ( mn) 217 217 NM 250 250 NM Total Operating Income ( mn) 19,039 18,536 -2.6 24,872 23,811 -4.3 Operating Expenses ( mn) 7,177 6,989 -2.6 9,366 8,933 -4.6 Pre-provision profit ( mn) 11,862 11,546 -2.7 15,505 14,878 -4.0 Provisions ( mn) 4,185 3,885 -7.2 5,499 4,969 -9.6 PAT ( mn) 5,005 4,995 -0.2 6,491 6,425 -1.0 EPS 86 85 -0.7 111 110 -1.1 Adjusted book value 474 475 0.1 581 580 -0.2 Source: CRISIL Research estimates
Reasons for changes in estimates Line item FY14 FY15 AUM Following lower-than-expected AUM growth in H1FY14, we lower our FY14 AUM growth estimates to 14.6% from 21.1%. 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. AUM growth estimated at 33% in FY15 Net interest income Lowered on account of lower AUM growth estimates. Provision and contingencies On account of lower-than-expected provisions in H1FY14, we reduce our FY14 provision estimates by 7%. Net profit Largely maintained
Shriram City Union Finance Ltd 7 Valuation Grade: 3/5 Our fair value is 1,059 (1.8x FY15E adjusted book value and valuing the housing subsidiary at book value). At the current market price of 1,097 per share, our valuation grade is 3/5.
One-year forward P/B band P/B movement
Source: NSE, CRISIL Research Source: NSE, CRISIL Research
CRISIL IER reports released on Shriram City Union Finance Ltd Date Nature of report Fundamental grade Fair value Valuation grade CMP (on the date of report) 28-Jun-11 Initiating coverage 3/5 673 4/5 541 12-Aug-11 Q1FY12 result update 3/5 673 5/5 570 15-Nov-11 Q2FY12 result update 3/5 673 5/5 520 06-Mar-12 Q3FY12 result update 3/5 733 4/5 588 10-July-12 Detailed report 3/5 746 4/5 640 01-Aug-12 Q1FY13 result update 3/5 746 3/5 708 07-Nov-12 Q2FY13 result update 3/5 803 3/5 819 01-Mar-13 Q3FY13 result update 3/5 1,116 3/5 1,079 22-Apr-13 Detailed report 4/5 1,116 4/5 1,008 06-June-13 Q4FY13 result update 4/5 1,116 3/5 1,090 13-Aug-13 Q1FY14 result update 4/5 1,059 4/5 881 06-Nov-13 Q2FY14 result update 4/5 1,059 3/5 1,097
0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 J u l - 0 7 N o v - 0 7 M a r - 0 8 A u g - 0 8 D e c - 0 8 M a y - 0 9 S e p - 0 9 F e b - 1 0 J u n - 1 0 N o v - 1 0 M a r - 1 1 J u l - 1 1 D e c - 1 1 A p r - 1 2 S e p - 1 2 J a n - 1 3 J u n - 1 3 O c t - 1 3 () Shriram City 1.5x 2.0x 2.5x 3.0x 0.0 0.5 1.0 1.5 2.0 2.5 3.0 J u l - 0 7 N o v - 0 7 M a r - 0 8 A u g - 0 8 D e c - 0 8 M a y - 0 9 S e p - 0 9 F e b - 1 0 J u n - 1 0 O c t - 1 0 M a r - 1 1 J u l - 1 1 D e c - 1 1 A p r - 1 2 S e p - 1 2 J a n - 1 3 J u n - 1 3 O c t - 1 3 (Times) 1yr Fwd PB (x) Median PB +1 std dev -1 std dev
Source: CRISIL Research Income Statement Ratios ( mn) FY11 FY12 FY13 FY14E FY15E ( mn) FY11 FY12 FY13 FY14E FY15E Net Interest Income 8,054 11,108 16,326 18,318 23,561 Spread Analysis Non Interest Income 28 129 114 217 250 Yield on AUM 21.1% 19.0% 20.8% 20.6% 20.6% Total Operating Income 8,082 11,238 16,441 18,536 23,811 Cost of borrowings 8.5% 10.8% 12.5% 12.4% 12.4% Operating Expenses 3,241 4,100 5,946 6,989 8,933 Net Interest Margin (NIM) 12.2% 10.4% 11.2% 10.8% 11.1% Staff Costs 437 924 2,240 1,869 2,755 Return Ratios Other Operating Expenses 2,804 3,176 3,706 5,121 6,178 ROA (%) 3.0% 3.0% 3.1% 2.9% 3.1% Pre- provision profit (PPP) 4,841 7,138 10,495 11,546 14,878 ROE (%) 21.8% 24.0% 22.7% 19.7% 20.5% Provision & Contingency 1,160 1,760 3,594 3,885 4,969 Growth ratios Profit before depreciation and tax 3,681 5,379 6,901 7,662 9,909 Assets under Management (AUM) 53.4% 67.9% 17.8% 14.6% 33.6% Depreciation On Fixed Assets 75 137 244 266 319 Disbursements 58.9% 75.4% 25.3% 14.1% 25.7% PBT 3,606 5,242 6,657 7,396 9,590 Net Interest Income 31.3% 37.9% 47.0% 12.2% 28.6% Provision for tax 1,200 1,717 2,160 2,400 3,165 Non Interest Income -80.6% 366.7% -11.6% 90.0% 15.0% Adjusted Net Profit 2,406 3,425 4,496 4,995 6,425 Total Operating Income 28.7% 39.1% 46.3% 12.7% 28.5% Operating Expenses 39.5% 26.5% 45.0% 17.6% 27.8% Staff Costs 20.9% 111.5% 142.5% -16.6% 47.4% Pre- provision profit (PPP) 22.4% 47.5% 47.0% 10.0% 28.9% Provision & Contingency -0.5% 51.7% 104.3% 8.1% 27.9% Balancesheet Adjusted Net Profit 31.8% 46.5% 27.5% 11.1% 28.6% ( mn) FY11 FY12 FY13 FY14E FY15E EPS 30.7% 38.6% 20.5% 5.2% 28.6% Share Capital Book Value 20.4% 34.7% 22.7% 19.6% 21.3% Equity share capital 495 524 554 585 585 Asset Quality Equity Share warrants - 844 436 - - Gross NPA (%) 1.9% 1.6% 2.1% 2.1% 2.0% Reserves 11,605 15,859 21,382 27,675 33,689 Net NPA (%) 0.4% 0.4% 0.4% 0.3% 0.2% Shareholders Funds 12,100 17,226 22,372 28,260 34,274 Valuation Data P/e (x) 12.8 13.0 13.5 12.8 10.0 Borrowings 73,698 97,633 128,553 141,479 185,258 P/ABV (x) 2.6 2.7 2.9 2.3 1.9 Other Liabilities & Provisions 11,135 16,926 10,456 10,978 11,527 Key Parameters Deferred tax liability - 43 46 46 46 Total AUM ( bn) 80 134 158 181 242 Sources of funds 96,933 131,829 161,428 180,763 231,106 Disbursements ( bn) 79 139 174 199 250 Capitalisation ratios Cash & Bank Balances 21,654 13,277 22,705 24,322 28,300 Capital adequacy ratio (%) 20.8 17.0 18.6 21.3 19.6 Investments 53 176 1,174 1,760 2,128 Tier I capital ratio (%) 16.2 13.5 14.6 16.7 15.4 Net Loans and advances 70,437 111,582 135,850 146,610 190,988 Tier II capital ratio (%) 4.6 3.5 4.0 4.7 4.2 Net Fixed Assets and Capital WIP 274 512 872 993 1,219 Efficiency ratio Deferred tax asset 158 175 235 235 235 Cost to Income ratio (%) 41.0 37.7 37.6 39.1 38.9 Other Assets 4,357 6,106 592 6,844 8,237 Opex/ average assets (%) 4.1 3.7 4.2 4.2 4.5 Application of funds 96,933 131,829 161,428 180,763 231,106 Leverage (x) 6.1 5.7 5.7 5.0 5.4 Quarterly Financials Per share ( mn) Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 FY11 FY12 FY13 FY14E FY15E Total operating income 4,043 4,250 4,712 4,498 4,559 Adj EPS () 49 67 81 85 110 Change (q-o-q) 9% 5% 11% -5% 1% Adj Book Value () 238 321 384 475 580 PAT 1,079 1,126 1,257 1,174 1,272 Dividend per share () 3.5 4.0 6.0 6 6 Change (q-o-q) 4% 4% 12% -7% 8% Actual o/s shares 50 52 55 59 59 EPS 20.6 21.4 23.2 21.2 21.5
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CRISIL Ltd is a Standard & Poor's company CRISIL Limited CRISIL House, Central Avenue, Hiranandani Business Park, Powai, Mumbai 400076. India Phone: +91 22 3342 3000 | Fax: +91 22 3342 8088 www.crisil.com