Chola Securities
Shriram City Union (Outperformer)
Target: ₹1,821
CMP: ₹1,626.45
Shriram City Union Finance (SCUF), the retail finance arm of the Shriram Group, offers diversified loan products ranging from low-risk (loan against gold) to high-risk segments (small business loans and two-wheeler financing).
Strong group parentage (three decades expertise in the finance services space) is among the key positives. The company benefits from Shriram Chits’ branch infrastructure and existing customers, deriving more than 85 per cent of its business from Shriram Chits’ network. Shriram City operates through a wide distribution network of nearly 930 branches— 600 of them are owned by Shriram City and the rest are shared with group companies.
Steady disbursement across segments coupled with softening costs of borrowing will aid margins going forward. Management’s prudent lending and steady collection efficiencies to keep asset quality stable whilst softening credit costs outlook in the near term.
Given the stable outlook in the near term we assign a P/ABV of 1.2x on FY23 to arrive at a revised target of ₹1,821. We upgrade our rating on the stock to ‘Outperformer’ (Earlier: ‘Marketperformer’).
Risks: Competitive pressure in lower ticket size loans from regional peers, slower ramp up in loan book and any stress in the SME segment might further impact earnings.