Research House: CRISIL Research
Fair value: Rs 1,116
Valuation Grade: 4/5
Shriram City Union Finance Ltd’s consistent business outperformance and healthy asset quality – and CRISIL Research’s expectation that the company will continue to perform well due to group support and strong brand recall – have led to the revision in the fundamental grade.
Loan book grew to Rs 13,400 crore in FY12 (Rs 16,400 crore as of December 2012), at a four-year CAGR of 41 per cent. Healthy asset quality and the ability to sustain return ratios above 20 per cent (higher than industry average) support the revision. However, Shriram City faces concentration risk (South India constitutes 90 per cent of AUM). CRISIL Research will monitor the change in group structure if Shriram group gets a banking licence. Only 4 per cent of the gold loan book, which has loan-to-value above 90 per cent at current market price and is not supported by collaterals other than primary underlying gold, is exposed to risk if gold price falls further. CRISIL Research expects total income to clock 39 per cent CAGR during FY12-15 driven by loan book growth (CAGR of 33 per cent to Rs 31,800 crore). Applying 1.9x multiple on FY15E adjusted book value and valuing the housing finance subsidiary at book value, the fair value is maintained at Rs 1,116 per share.