Events over the past two years have tested SCUF’s resilience, particularly given its reliance on the self-employed segment.
By Edelweiss Securities
Shriram City Union Finance reported below-consensus Q4FY20 PAT of Rs 150 crore due to a tepid core and higher provisions (Covid-19-related provisions of Rs 400 crore). As anticipated, business momentum decelerated with a >15% year-on-year dip in disbursements, translating into a 2% y-o-y dip in AUM. This, combined with lower NIM (down 46 bps quarter-on-quarter), led to a tepid core. Asset quality improved with stage-3 assets falling to 7.9% (from 8.5%) with improvement across all segments, except personal and gold loans.
Factoring in the current uncertainty, we prune our loan growth and asset quality estimates — 4.0% & 8.0% loan growth and 11.5% & 14.0% GNPA for FY21 and FY22. This leads to an EPS cut of 35%/40% for FY21/22E. We also trim target multiple to 1.0x (1.4x earlier) FY22E P/ABV, leading to a revised TP of Rs 1,080 (earlier Rs 1,790). The lower multiple is to account for higher uncertainty around its key operating segment (SME) and possibility of a less than favourable merger ratio in the three-way merger envisaged in the Shriram Group restructuring. Maintain ‘buy’.
Our segment-wise analysis indicates across-the-board steady performance (except personal loans, up 14 bps q-o-q, and gold loans, up 99 bps). Going forward, we remain cautious in one of its key operating segments (SME), which currently entails >70% moratorium and needs monitoring. This will shape the company’s asset quality outcomes.
Growth remains soft with disbursements at Rs 5,400 crore, which led to AUM falling 2% y-o-y to Rs 29,100 crore (broadly in line with estimate). Within segments, growth was largely supported by gold loans and used 2W segment as others remained relatively tepid. Given weak growth and limited levers for NIM improvement, we expect core momentum to remain weak in the near term.
Events over the past two years have tested SCUF’s resilience, particularly given its reliance on the self-employed segment. The company responded by going slow on growth and recalibrating collection strategies to navigate the challenging environment. While we do believe that the near-term outlook for the company is challenging, post significant correction the stock trades at 0.6x FY22E P/ABV, rendering comfort. We maintain ‘buy/SP’.