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SYNOPSIS
Shriram City is a major organized
lender in the Retail and Micro &
small enterprises credit space with
leading market share in the
southern region.
During the quarter ended, the
robust growth of revenue is
increased by 61.28% Rs.4764.00
million.
Net Sales and PAT of the company
are expected to grow at a CAGR of
28% and 29% over 2010 to 2013E
respectively.
Shriram City Union Finance Ltd has
declared an Interim Dividend of Re.
2.5 (i.e. 25%) per equity share.
Large customer base of 3.55 million
and growing everyday.
Years Net sales EBITDA Net Profit EPS P/E
FY 11 13180.00 9565.60 2405.90 48.56 9.77
FY 12E 18847.40 14410.14 3657.05 73.54 6.45
FY 13E 22239.93 16967.29 4126.24 82.97 5.72
Stock Data:
Sector: Financial Institution
Face Value Rs. 10.00
52 wk. High/Low (Rs.) 648.00/468.00
Volume (2 wk. Avg.) 295
BSE Code 532498
Market Cap (Rs.In mn) 23596.88
Share Holding Pattern
1 Year Comparative Graph
Shriram city BSE SENSEX
C.M.P: Rs. 474.50 Target Price: Rs. 536.00 Date: Dec 22nd 2011 BUY
Shriram City Union Finance Ltd Result Update: Q2 FY 12
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Peer Group Comparison
Name of the company CMP(Rs.) Market
Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)
Shriram City Union 474.50 23596.88 59.75 7.94 1.98 60.00
Reliance Capital 246.60 61232.30 10.76 22.92 0.86 65.00
Sundaram Finance 513.00 28495.40 60.30 8.51 1.86 140.00
Bajaj Finance 638.50 23387.70 88.89 7.18 1.72 100.00
Investment Highlights
� Q2 FY12 Results Update
Shriram city union finance ltd reported a rise of 61.28% sales in the net sales for
the quarter ended Sept 2011. During the quarter, the company disclosed a net
profit of Rs. 810.60 million from Rs.555.80 million same quarter last year. Net
sales are increased by 61.28% to Rs. 4764.00 million. In the same period, total
income of the company was at Rs. 4788.80 million, a rise of 62.05% over the prior
year period. Company EPS is stood at Rs.16.30 for the quarter ended Sept 2011.
Quarterly Results - Standalone (Rs in mn)
As At Sep-11 Sep -10 %change
Net sales 4764.00 2953.80 61.28
PAT 810.60 555.80 45.84
Basic EPS 16.30 11.27 44.67
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� Break up of expenditure
� Declaration of dividend
Shriram City Union Finance Ltd has declared an Interim Dividend of Re. 2.5 (i.e.
25%) per equity share.
Company Profile
Shriram City Union Finance (SHRIRAM CITY) was established in 1986, and is part of
the three decade-old Chennai-based Shriram Group. The company started as a
deposit-accepting non-banking financial company (NBFC) and is India’s premier
financial services company today, specializing in small-ticket retail finance.
The Chennai-based Shriram group has an enviable business heritage spanning over
three decades. It has emerged as the largest player in its class on the Indian sub-
continent. Specifically focusing on commercial vehicle loans, consumer durables
financing and chit funds, the group's annual turnover crosses Rs. 18,000 crore. The
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Shriram group’s business presence also expands to Insurance Consultancy, Life
Insurance, Re-insurance, Stock Broking, Information Technology, Pharmaceuticals,
Property Development, Project Engineering, Packaging and manufacturing of Auto
Components.
Shriram City has a comprehensive range of offerings comprising financing for
Consumer Durables, 2, 3 & 4-wheeler finance (both new & pre-owned, passenger &
commercial), Personal Loans, Small Business Loans and Retail Gold Loans. This has
made SHRIRAM CITY a dominant player in the field and the only NBFC offering a
wide product range under one roof.
The company has over 1000 Business Outlets across the country; Shriram City
enjoys a high credit rating, as well as listing on the BSE, NSE & Madras Stock
Exchanges. The company lends around Rs 300 crore a month in small-tickets of
between Rs 8000 to Rs 1 lakh each, with tenors ranging from 12 to 36 months.
Shriram City has serviced over 15 Lac customers till date and adds on an average
85,000 new customers every month.
Services offered by the company
• Consumer Durable Finance- SHRIRAM CITY offers loans for a wide range of
white goods and lifestyle products, viz. air-conditioners, computer systems,
high-end TVs, audio & video systems, washing machines, refrigerators,
microwave ovens, furniture, gym products. The company has tie-ups with major
manufacturers/dealers and retail outlets at showrooms to enable easy access to
products under finance.
• Auto Finance- SHRIRAM CITY currently offers a variety of loans against new
and pre-owned two wheelers, 3-wheelers, 4 wheelers (both passenger &
commercial).
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• Personal Finance- SHRIRAM CITY offers quick finance at attractive interest
rates with service at the customer's doorstep. Shriram City offers hassle-free,
non-end use specific loans with minimum documentation.
• Retail Gold Loans- Retail Gold loans are the latest addition to SHRIRAM CITY's
product line. SHRIRAM CITY's Retail Gold loans offer on-the-spot finance at
attractive rates of interest.
• Small Business Loan- SHRIRAM CITY offers small business loans to self-
employed professionals, wholesale/retail dealers, general merchants, builders,
manufacturers, hotel/ catering services, tour operators, etc.
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Financials Results
12 Months Ended Profit & Loss Account (Standalone)
Value(Rs.in.mn) FY10 FY11 FY12E FY13E
Description 12m 12m 12m 12m
Net Sales 10720.50 13180.00 18847.40 22239.93
Other Income 307.90 29.10 180.35 198.39
Total Income 11028.40 13209.10 19027.75 22438.32
Expenditure -2847.20 -3643.50 -4617.61 -5471.02
Operating Profit 8181.20 9565.60 14410.14 16967.29
Interest -5272.20 -5884.80 -8827.20 -10680.91
Gross profit 2909.00 3680.80 5582.94 6286.38
Depreciation -46.50 -74.70 -108.32 -127.81
Profit Before Tax 2862.50 3606.10 5474.62 6158.57
Tax -920.00 -1200.20 -1817.57 -2032.33
Profit After Tax 1942.50 2405.90 3657.05 4126.24
Equity capital 491.50 495.40 497.30 497.30
Reserves 9280.30 11638.20 15295.25 19421.49
Face value 10.00 10.00 10.00 10.00
EPS 39.52 48.56 73.54 82.97
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Quarterly Ended Profit & Loss Account (Standalone)
Value(Rs.in.mn) 31-Mar-11 30-Jun-11 30-Sep-11 31-Dec-11E
Description 3m 3m 3m 3m
Net sales 3998.00 4151.30 4764.00 5335.68
Other income 13.90 131.40 24.80 15.85
Total Income 4011.90 4282.70 4788.80 5351.53
Expenditure -992.20 -972.00 -1171.60 -1312.58
Operating profit 3019.70 3310.70 3617.20 4038.95
Interest -1841.00 -2106.30 -2364.60 -2624.71
Gross profit 1178.70 1204.40 1252.60 1414.25
Depreciation -23.20 -26.30 -27.10 -29.81
Profit Before Tax 1155.50 1178.10 1225.50 1384.44
Tax -383.60 -374.30 -414.90 -456.86
Profit After Tax 771.90 803.80 810.60 927.57
Equity capital 495.40 497.30 497.30 497.30
Face value 10.00 10.00 10.00 10.00
EPS 15.58 16.16 16.30 18.65
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Key Ratios
Particulars FY10 FY11 FY12E FY13E
No. of Shares(In Million) 49.15 49.54 49.73 49.73
EBITDA Margin (%) 76.31% 72.58% 76.46% 76.29%
PBT Margin (%) 26.70% 27.36% 29.05% 27.69%
PAT Margin (%) 18.12% 18.25% 19.40% 18.55%
P/E Ratio (x) 12.01 9.77 6.45 5.72
ROE (%) 19.88% 19.83% 23.16% 20.72%
ROCE (%) 14.58% 11.29% 15.66% 16.97%
Debt Equity Ratio 4.78 6.04 4.87 4.06
EV/EBITDA (x) 2.85 2.46 1.64 1.39
Book Value (Rs.) 198.82 244.93 317.57 400.54
P/BV 2.39 1.94 1.49 1.18
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Charts:
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Outlook and Conclusion
At the current market price of Rs.474.50, the stock is trading at 6.45 x FY12E
and 5.72 x FY13E respectively.
Earning per share (EPS) of the company for the earnings for FY12E and FY13E
is seen at Rs.73.54 and Rs.82.97 respectively.
Net Sales and PAT of the company are expected to grow at a CAGR of 28% and
29% over 2010 to 2013E respectively.
On the basis of EV/EBITDA, the stock trades at 1.64 x for FY12E and 1.39 x for
FY13E.
Price to Book Value of the stock is expected to be at 1.49 x and 1.18 x
respectively for FY12E and FY13E.
We expect that the company will keep its growth story in the coming quarters
also. We recommend ‘BUY’ in this particular scrip with a target price of
Rs.536.00 for Medium to Long term investment.
Industry Overview
India’s strong financial fundamentals and so-called conventional financial approach
helped the country come strong through the world-wide crisis. Financial services,
being the back bone of any economy, entail various segments of the industry in its
purview. It includes banking, insurance, broking, mutual funds and stock markets to
be named as major sub-segments.
How India has fared in each of these sub-segments in the recent past has been
discussed hereafter.
Insurance Sector
Indian insurance sector is in top-gear growth wherein the number of life policies in
force has increased nearly 12-fold over 2000-2010 and those pertaining to health
insurance have increased nearly 25-fold.
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Data released by the Insurance Regulatory and Development Authority (IRDA)
indicates that 23 life insurers mopped US$ 4.1 billion by writing new policies during
April-June 2011. For non-life insurers, the gross premium underwritten during April-
August 2011 increased by 24 per cent at Rs 23,712 crore (US$ 4.82 billion) as against
Rs 19,114 crore (US$ 3.89 billion) in the year-ago period.
The total industry premium collection (of both life and non-life companies) for August
2011 grew 34 per cent at Rs 5,065 crore (US$ 1.03 billion) compared with Rs 3,752
crore (US$ 762.73 million) in August 2011, the IRDA said.
Banking Services
The Indian Banking sector has been successful in maintaining its growth trajectory
due to low defaulter ratio, least complicated financial products, regular intervention by
central bank and proactive adjustment of monetary policy.
According to the Reserve Bank of India (RBI)’s ‘Quarterly Statistics on Deposits and
Credit of Scheduled Commercial Banks’, March 2011, Nationalised Banks, as a group,
accounted for 53.0 per cent of the aggregate deposits, while State Bank of India (SBI)
and its associates accounted for 21.6 per cent. The share of New private sector banks,
Old private sector banks, Foreign banks and Regional Rural banks in aggregate
deposits was 13.4 per cent, 4.6 per cent, 4.4 per cent and 3 per cent respectively.
With respect to gross bank credit also, nationalised banks hold the highest share of
52.8 per cent in the total bank credit, with SBI and its associates at 22.1 per cent and
New Private sector banks at 13.2 per cent. Foreign banks, Old private sector banks
and Regional Rural banks held relatively lower shares in the total bank credit with 4.9
per cent, 4.6 per cent and 2.4 per cent respectively.
The report also found that scheduled commercial bank offices with deposits of INR 10
crore (US$ 2.03 million) or more accounted for 69.1 per cent of the bank offices, 97.3
per cent in terms of aggregate deposits and 95.6 per cent in total bank credit.
Due to an increase of US$ 763 million in the foreign currency assets to US$ 276.462
billion, India's foreign exchange reserves swelled by US$ 749 million to US$ 312.231
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billion in the week ended October 7, 2011, according to RBI’s Weekly Statistical
Supplement.
Mutual Funds Industry in India
The Rs 6.42 trillion (US$ 130.496 billion) Indian mutual funds (MF) industry has 44
asset management companies (AMCs), according to Association of Mutual Fund
Industry (AMFI). The industry is poised to grow leaps-n-bounds in the coming years
due to lower penetration coupled with soaring assets under management (AUM). Data
from AMFI has also revealed that between March and August 2011, the mutual fund
industry had introduced 377 new schemes and raised Rs 42,015 crore (US$ 8.54
billion) from investors.
For the quarter July-September 2011, average AUM for the industry was worth Rs
712,742 crore (US$ 145 billion).
Private Equity (PE), Mergers & Acquisitions (M&A) in India
Quenching its thirst for foreign assets, India Inc announced 177 M&A deals worth
US$ 26.8 billion in the first nine months of 2011. For the quarter July-September
2011, inbound deals worth US$ 7.32 billion were registered as against the deals worth
US$ 2.65 billion in the previous quarter.
PE investment in India touched US$ 1.91 billion in July-September 2011 quarter, 18
per cent higher than US$ 1.71 billion struck in the corresponding quarter last year,
according to Grant Thornton’s ‘Dealtracker’ report. In terms of number, Q3 2011
witnessed 94 PE deals getting closed as against 58 of them in Q3 2010.
Foreign Institutional Investors (FIIs) in India
Foreign Institutional Investors’ (FII) net investment in India for the month of
September 2011 stood at US$ 6.97 million and their injections from January – August
2011 stood at over US$ 2 billion. Moreover, 21 institutions registered as FIIs with
Securities and Exchange Board of India (SEBI) in 2011-12 (till September), enhancing
the presence of registered FIIs to 1,743.
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FIIs’ holdings through participatory notes or P-notes have also increased by 1.4 per
cent in equities and debt instruments, including the derivatives, in August 2011. FII
P-note position was noted at 15.4 per cent in August, as against 14 per cent in July
2011, according to the SEBI data.
Financial Services in India: Recent Developments
• India’s second largest public sector lender Punjab National Bank (PNB) is set to
form a strategic alliance with insurance firm Metlife for its proposed life
insurance business, wherein the bank would buy 30 per cent stake for an
undisclosed amount. PNB also agreed to enter into a 10-year distribution tie-up
with Metlife India. The deal is expected to close by the end-2011.
• Private sector general insurer HDFC ERGO, in collaboration with Ace Insurance
Brokers, will provide insurance cover worth US$ 15 million for the first ever
Formula 1 (F1) Grand Prix race to be held in India at the end of October 2011.
• In a bid to consolidate its presence in the gulf region, SBI is all set to launch a
range of banking services for non-resident Indians (NRIs) in the UAE, including
opening of NRI accounts.
• India’s second largest private lender HDFC Bank has formed a strategic alliance
with Diners Club International to offer the latter's premium credit cards in the
country. The move has come as a part of HDFC’s efforts to strengthen its
services for its premium uber rich clientele.
Financial Services: Government Initiatives
IRDA has recently hinted at mandatory listing of insurance companies. Though the
insurance Act doesn’t stipulate companies to go public, the regulator might make
amendments to it to facilitate capital raising by the players. Initial Public Offer (IPO)
guidelines for the insurance sector are also being worked upon. According to the draft
guidelines released, only those players that have 10 years of operational experience
and strong financial performance would be allowed access to the capital markets.
Meanwhile, the Indian government is contemplating on enabling public sector banks
to raise lots of additional capital without the central authority losing control over
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them. For the purpose, the government is considering to form a single holding
company to unite 21 state-run banks a it would provide room for innovation in capital
infusion.
The government is also considering allowing foreign individuals or Qualified Foreign
Investors (QFIs), to buy equities directly in stock markets, a senior Finance Ministry
official has revealed. In an initiative to highlight India as a major investment hub and
attract higher foreign equity, the government has already allowed QFIs to invest up to
US$ 13 billion in equity and debt schemes of mutual funds in the infrastructure
sector.
Road Ahead
Indian Financial Services industry is a promising one and holds potential for massive
growth in future. Be it in banking, insurance or foreign investments, the country is
making its mark in every sub-segment, nationally as well as internationally. For
instance, a report by Boston Consulting Group (BCG), an industrial body and Indian
Banks Associations (IBA), anticipates that Indian banking industry would stand as the
third largest in the world by 2025 wherein its assets size is poised to mark US$
28,500 billion by 2025 from the asset size of US$ 1,350 billion in 2010.
Another report by an industrial body and BCG suggests that India’s insurance
industry would reach US$ 350-400 billion in terms of premium income by 2020,
making it among the top three life insurance markets. Also, India is expected to be one
of the top 15 non-life insurance markets by 2020.
Hence, it is quite reasonable for the industry analysts to believe that strong domestic
consumption-driven growth in India would lure significant positive cash inflow in near
future from domestic and foreign players.
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________________ ____ _________________________ Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation
for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. The information contained herein is from publicly available data or other
sources believed to be reliable but do not represent that it is accurate or complete and it
should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s
affiliates shall not be in any way responsible for any loss or damage that may arise to any
person from any inadvertent error in the information contained in this report. This document
is provide for assistance only and is not intended to be and must not alone be taken as the
basis for an investment decision.
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