After growing its AUM at a 36% CAGR over FY07-13, SCUF went into consolidation mode, given the challenging macro environment.
After growing its AUM at a 36% CAGR over FY07-13, SCUF went into consolidation mode, given the challenging macro environment. The management scaled down growth and re-aligned its gold loan portfolio in light of the tightening regulations for gold loan companies and the sharp volatility in gold prices.
With the portfolio realignment done with; and strong CAR of ~26%, we expect SCUF to get back into growth mode and deliver 21% CAGR in AUM over FY16-18E.
The total gap in MSME funding is estimated to be around R8.2 lakh crore of which the debt gap is R5.5 lac crore and equity gap is R2.7 lakh crore.
We expect small enterprise loans to grow at a CAGR of 23% over FY16-18E. We believe that SCUF’s current valuation of 2.4x/2.2x FY18 P/BV (standalone/consolidated) is attractive in the context of niche franchise; high entry barriers for new players, highly profitable business underpinned by strong pricing power; RoA to average 3.0% during FY17-18 and expectation of acceleration in earnings growth.
On relative basis too, we believe the company deserves to trade at premium valuations over asset financiers owing to higher structural loan growth offering better visibility, lower cyclicality and superior asset quality. However we assign a P/B multiple of 3x Sep 2018 for the standalone business; at par with asset financiers to be conservative. We initiate coverage on SCUF with a price target of R3,000 .