Hold Shriram City Union Finance Ltd For Target Rs.1,165 - Emkay Global
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In-line performance with improving asset quality
* SCUF has reported in-line PAT of Rs2.8bn (+84.3% yoy, +0.5% qoq) in Q4FY21 on the back of an improving growth trajectory along with low provision charges.
* Disbursements witnessed steady growth at ~21.3% yoy (+6% qoq) to Rs65.7bn, mainly aided by SME loans (up ~74.2% qoq). The company recorded highest ever Personal loans disbursements of Rs8.1bn (+30% qoq). It has also introduced a news product in the quarter – LAP, registering disbursement of Rs1.9bn.
* AUM grew by 3.6% sequentially and 1.7% yoy to Rs295.7bn amid the normalization of repayments.
* Margins dipped to ~12.7% vs. ~13.1% in Q3FY21 on account of increased cost of funds (+30bps qoq) as the company carried larger liquidity. SCUF has witnessed a gradual improvement in the liability franchise.
* SCUF has witnessed a consistent improvement in liquidity position, with increasing ability to raise money from banks/retail as well as capital markets. Incremental borrowing in the quarter amounted to Rs51.19bn with weighted average tenure of 38 months.
* The company asset quality improved, with Gross Stage 3 down to 6.39% (-153bps yoy, - 9bps qoq) and Net Stage 3 down to 3.08% (-115bps yoy, -8bps qoq). The provision coverage ratio for the quarter further improved to 53.24% vs. 52.71% in the last quarter.
* The provisions for the quarter declined by ~643bps to Rs1.64bn. Credit costs improved to ~227bps vs. ~251bps last quarter. The company maintains Covid-19-related provisioning of Rs7.1bn as on Mar’21.
* These are decent numbers; however, we would await more clarity over the present scenario, considering a fresh round of lockdowns amid the second wave of Covid-19.
* Post results conference call is scheduled on 3rd May, 2021 at 11am at +91 22 6280 1144. We currently have a Hold rating on the stock with a TP of Rs1,165.
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