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    Hold Shriram City Union Finance, target price Rs 695: ICICI Securities

    Synopsis

    The potential exit of a large investor and the proposed mergers within the group would remain an overhang, according to the brokerage.

    Hold-1200
    ICICI Securities has given a hold rating to Shriram City Union Finance with a target price of Rs 695. The share price moved up by 1.17 per cent from its previous close of Rs 668.00. The last traded stock price is Rs 675.80.
    Barring lockdown impact in the last week of March, Q4FY20 was an operationally stable quarter for Shriram City Union Finance. The company reported Q4FY20 standalone disbursements of Rs 54.2 billion (down 7 per cent quarter on quarter). PAT for the quarter stood at Rs 1.53 billion, down 39 per cent year on year and 48 per cent quarter on quarter, primarily because of Covid-19 provisions of Rs 4.3 billion (145 bps of average AUM). Moratoriums in the MSME and two- wheeler books stood at ~75 per cent and ~50 per cent respectively.

    Key positives include: 1) collection across product segments improved with aggregate efficiency increasing from ~34 per cent in April to ~53 per cent in May; 2) liquidity at ~Rs 20 billion as at Mayend, arguably still tight, was helped by collections of ~Rs 15.7 billion in April/May; 3) new/used two-wheelers and gold loan segments offer considerable promise from the demand side, but outlook on SME behavior remains uncertain. The brokerage says economic and credit cycle disruption will make the space more vulnerable, thereby increasing the risk of asset quality deterioration.

    Investment Rationale


    The brokerage models an AUM CAGR of around 6 per cent over FY20- FY22E and build-in credit cost of around 4 per cent for FY21E with the economic dislocation leading to deterioration in asset quality. The brokerage values the standalone business at 0.5 times FY22E P/BV (unchanged). The SoTP-based valuation leads to a target price of Rs 695 (earlier: Rs708). The potential exit of a large investor and the proposed mergers within the group would remain an overhang, according to the brokerage.

    Key upside risks include a sharp recovery in the economy leading to better asset quality experience, and a well-executed stimulus package for MSMEs.

    Financials


    For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 1545.91 crore, down -1.53 per cent from last quarter sales of Rs 1570.00 crore and up 2.53 per cent from last year's same quarter sales of Rs 1507.72 crore. The company reported net profit after tax of Rs 150.92 crore in the latest quarter.

    Promoter/FII Holdings

    Promoters held 33.92 per cent stake in the company as of March 31, 2020, while FIIs held 5.92 per cent, DIIs 5.92 per cent and public and others 32.76 per cent.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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