Shriram City Union Finance - India's leading SME Financier

Shriram City Union Finance Ltd
- A Structurally high growth business run by a great Management

Content Index
• SCUF Limited – Investment Snapshot :- Slide #3
• Industry Overview :- Slide #8
• SCUF Limited - Company Overview :- Slide #14
• SCUF Limited – Investment rationale :- Slide #25
• Financials :- Slide #39
• Conclusion :- Slide #43
“ Specialists in discovering Multibagger stocks “

SCUF– Investment Snapshot
(as on Mar 17, 2014)
Recommendation :- BUY
Maximum Portfolio Allocation :- 2%
Investment Phases & Buying Strategy
1st Phase (Now) of Accumulation :- 80%
Current Accumulation Range :- 950 to 1100 Rs
Investors can start accumulating the stock at the current
prices. Any correction in the stock should be used to buy
more shares. We believe that an investor with a time frame
of 5+ years is certain to make strong returns in this stock.
Core Investment Thesis :
We believe that there is a huge opportunity in MSME lending
space. SCUF with its parentage and business model is
extremely well suited to capture this opportunity profitably.
Earnings growth over the next 3-5 years would ensure that
the stock delivers strong returns to Investors.
Current Market Price – Rs. 992.05
Current Dividend Yield – 0.86%
Bloomberg / Reuters Code –SCUF. IN/
SHCU.BO
BSE / NSE Code – 532498/ SHRIRAMCIT
Market Cap (INR BN / USD Mn) – 82.30
/1346.5 [1 USD – Rs. 61.12]
Total Equity Shares [Mn]– 55.42
Face Value – Rs. 10
52 Week High / Low – Rs.1230 / 850.5
Promoter’s Holding – 37.57%
FII - 25.71%
DII - 28.71%
Other Holdings - 8.01%

Dear Members,
Before we present the Multibagger Idea for this month, let me give a broad overview of the current market
situation. While the SENSEX & NIFTY are up by just around 5%, there has been a massive rally in quality Mid-Caps
and Small-Caps over the last few months. Most of the quality businesses with strong growth prospects have been
re-rated strongly over the last 12 months, with several stocks witnessing 50%-100% returns. We are pleased with
the fact that majority of our recommendations have continued to deliver exceptional returns through both the good
and bad market phases of the last several years.
We believe that generating such exceptional returns would take far more hard-work going forward. While
improving economic scenario can boost earnings growth, scope for valuation re-rating has considerably decreased.
This is especially true of stocks in sectors such as Consumers, IT, Pharma, Building Products etc. The exceptions are
present, but we need to dig extensively to uncover them. We are looking at several Ideas across the spectrum that
can provide strong risk-adjusted returns for Investors. Even though the job of a stock picker would become difficult
going forward, we would love to prove ourselves under all economic conditions.
We have been continuously and forcefully writing over the last 2 years about the huge undervaluation in good
Mid-Cap and Small-Cap stocks. We had highlighted about the healthy consolidation in these stocks and the transfer
of shareholding from weak hands to strong hands. If you look at the pattern of our recommendations over the last
few years, we have concentrated heavily on stocks that are leaders in niche sub-sectors witnessing huge growth.
Most of these stocks have strong structural factors (Shift from un-organized to organized, Rural boom, Export
opportunity, Consumer brands, Discretionary spends etc) driving their growth. We continue to HOLD on to these
stocks as we believe that their growth rates would improve and the their owner earnings will grow as their
competitive positioning gets strengthened. The high ROIC nature of these businesses would ensure that these
stocks would continue to deliver strong returns over a long horizon (more than 3 years). We would keep you
updated on our positioning in these stocks through our Special Investment report to be released next month.
At the same time, we also understand that two broad trends that worked well for the last 5 years can get
disturbed going forward and hence there is a need to re-align ourselves to the new paradigm. There is enough
Our Research Desk’s views on the Stock Idea

evidence to indicate that the trends of “Strong consumption growth at the cost of Investments” and “Rural
outperformance over Urban peers” would weaken going forward. While these trends have structural elements in
the form of Pent-Up demand and increasing aspirations of consumers, their immediate prospects over the next 3
years can be shaky with the Macro adjustments (Fiscal consolidation, subdued Inflation, Lower Rural hand-outs,
Interest rate reversal etc) that we expect the next Government to undertake. This achieves even more significance
in the light of the huge disparity in valuations of the stocks (Consumers Vs Industrials, Rural Vs Urban themes). You
need to know, “Where the Puck is going and not where the Puck is”.
For long term investors the problem with this shift is the lack of credible stocks in the bucket of “industrial Stocks”
that can deliver consistently high returns on capital employed. Majority of them continue to have bad balance
sheets and poor corporate governance practices. This makes the call of a Long term investor difficult. While we
continue to look for the good outliers in this bucket (we have identified one stock), the easier way of going around
this issue is by investing in High Quality cyclical stocks that can deliver strong returns through this phase. Our
insistence on Investing in stocks such as VA Tech Wabag and Godrej Properties is a part of this broad theme.
We would like to focus more on cyclicals that have an inherently strong business model but are affected by the
performance of the broader economy. Our Idea for this month, “Shriram City Union Finance (SCUF)” fits this bill.
The company’s primary lending segment of MSME’s are highly sensitive to the broader economic growth and thus
the stock would be a good way to play the cyclical improvement in the overall economy going forward. More
importantly, the company has a good business model coupled with a disciplined management. We believe that the
growth drivers of SCUF are structural in nature and the opportunity size is huge. When you combined all these
strengths with a reasonable valuation, the probability of the stock delivering Multibagger returns is strong.
Size of the Opportunity (easily 10X growth opportunity in less than 10 years) :-
SCUF’s primary segment of small ticket MSME loans (around 10 Lakhs) is a huge opportunity (Slide – 27) waiting to
be tapped. This segment hardly has any access to formal credit and is served by unorganized players. SCUF’s
understanding of this customer segment would help it to scale the business multi-fold going forward. If you really

need to understand the dynamics of this business, just check out with a few MSME’s. Our ground work has
consistently showed that even the quality MSME’s are credit starved and a lender who can assess MSME’s well and
collect dues on time can build a highly profitable business. We believe that a company which builds scale in this
business can derive a huge competitive advantage over its peers. We believe that SCUF with the parentage of
Shriram group is extremely well positioned to build a robust lending franchisee focused on MSME’s.
The group is already India’s largest finance provider for the un-banked population. Shriram group from its Chits
business to its CV business is focused on developing expertise to lend to the un-banked segment. The group’s DNA
and culture allows it to scale up in an un-organized segment by empowering employees and making them
accountable. Information on the company’s collection policy (Slide-16) would give a strong understanding of the
same. Just look at the way the company has been able to scale up its second hand CV lending business (Shriram
Transport Finance) over the last decade. While Banks have started focusing on the un-banked to shore up their
deposit base, the lending to these people is still rare. Lending to un-organized segment requires far more
nimbleness and we believe that this is difficult under a banking structure and NBFC’s will continue to dominate this
space going forward too.
Why Shriram City Union Finance and not Shriram Transport Finance ?
Shriram Transport Finance (STFC) is undoubtedly a fantastic franchisee. STFC’s competitive strengths, robustness of
lending book and valuations are definitely better than SCUF. The reason for favoring SCUF is purely based on the
opportunity size and long term growth prospects. Since STFC is a monoliner, its growth would continue to be
affected by the segment volatility. While the focus of a Monoliner would enable it to perform better than peers,
these companies prospects would still be closely co-related with the Industry. STFC’s strong franchisee would help it
to consistently improve market share and grow in the second hand CV business. Additionally, the cyclical bottom of
the CV industry would also boost the short term performance significantly. However, a 10 year view on the company
shows limited growth prospects compared with SCUF. We believe that STFC would do well going forward, but the a
long term investor would be attracted more to SCUF.

Quality of the business and Future prospects :-
Considering the past, we believe that the company would continue to deliver 20%+ ROE’s with ROA’s of over 3%.
SCUF’s track record over the last 5 years has been superb (Slide – 26). Company’s strong support base amongst
investors would ensure equity capital availability for growth. Long term returns cannot mimic the last decadal
returns of STFC as the Securitization norms are not as favorable now as in the last decade. Nevertheless, continuous
securitization of seasoned assets (Slide – 20) would ensure lower cost of funds and better ROE’s.
While a lot of the current loan book is driven by the customers of the Shriram ecosystem (primarily Shriram Chits),
we believe that the company’s franchisee has certainly grown enough to attract other quality MSME’s to it. More
importantly, the company has built a strong organizational culture and the company’s imbibed learning's would
allow it to replicate its success story across geographies and segments.
Over the next 3 years, we believe that loan book mix would shift towards higher % of MSME loans. This would
ensure the company to sustain current Yield on its loan book. We also believe that NPA’s would improve over the
next 4-6 quarters leading to profit growth higher than NII growth. Earnings over the last year had been hit by one-
off elements such as Telengana Issue (Andhra contributes about 48% of its overall business) and change in gold loan
regulations. We believe that the growth would return to 25% levels over the next year. Hence, we believe that the
stock can be a good buy in a market in which quality stocks are not cheap. The stock is currently trading at about
2.3X (F) Book Value and 10X (F) earnings. We would advice Investors to BUY the stock aggressively in case of any
price decline.
Regards,
[ Gokul Raj . P, Head – Investment Research ]

Industry Overview

MSME Loan Market
• MSME’s are significant growth drivers of the Indian economy and contribute 45% of the manufacturing
output and 40% of exports. MSME have a demand of about Rs.32.5 trillion out of which a third of it is only
addressed currently.
• The growth drivers for NBFC’s in the MSME finance sector include - financing niche segments such as
second hand machinery, under penetration of bank credit, better collection mechanisms and strong
relationships build over the last decade.

Commercial Vehicle Loan Disbursements
• During the past five years till FY13 the disbursements grew by about 8% in line with CV sales. However, LCV
disbursements grew faster on account of faster growth in LCV sales. LCV disbursements grew by about 26%
over the past five years due to improved player focus and higher finance penetration.
• Crisil Research expects the CV finance industry to grow by about 16-18% to about Rs.900 Bn in FY18 led by
growth in domestic CV sales, increase in finance penetration and improvement in LTV ratio’s.
• Over the next five years with the pick up in the economy the LTV ratio’s are also likely to inch marginally
higher from about 70% in FY13 to about 75% in FY18.

Gold Loan Lending
segment wise share of Gold Loan Market
• The Organized gold loan market in India in FY12 is estimated to be about Rs.1250 Bn with the market
recording robust growth of 78% during the years 2010-12.
• The overall gold loans for both the organized and unorganized market is expected to grow at an average
rate of about 18-20% till 2016.
• The share of NBFC’s in the gold loan market has increased from about 18.4% in FY07 to about 45.6% due
to high LTV, Low documentation and quicker approval and disposal of loans.

Two Wheeler Finance Market
• The two wheeler financing market is expected to steadily increase from about Rs.77 Bn in FY11 to about
Rs.243 Bn in FY18.
• Finance penetration dropped sharply in 2008-09 due to rising delinquencies which forced many players to
exit the business. However stringent credit norms and availability of credit information through CIBIL have
helped players expand their customer base.
• Crisil expects the finance penetration to improve gradually to about 26% in FY14 and to about 30% in FY18
aided by credit bureaus. Further, Crisil also expects financiers to expand their reach to tier-3 and tier-4 cities
to tap the latent demand for two wheeler loans.

Key Lending Parameters

Company Overview

SCUF - A Snapshot
• SCUF is a deposit accepting NBFC is a major player in the small ticket finance retail space. SCUF offers a
comprehensive range of loan products including loans for purchase of consumer durables,2,3 and 4 wheeler
finance ,Personal Loans, Retail Loans and retail gold loans.

Lending Process

Growing Branch Network
• SCUF has a total of 1021 branch network as on Sep,30,2013 with about 297 branch network being on a
shared basis and the remaining 724 are owned branches. Own branches have risen from about 339 branches
in FY08 to about 724 branches currently.
• SUCF’s shared branch network increases its cross selling opportunities apart from significantly reducing
their operational expenses. SCUF has strong presence in south India with Andhra Pradesh contributing about
48% of the business followed by Tamilnadu which contributes about 32% of its business.
• SCUF has traditionally been strong in the south due to a strong branch network and better service quality
which has enabled the company to dominate the southern market.

Diversified Product Portfolio
• SCUF has successfully diversified their product portfolio which consists of loans to the small enterprise
finance segment, loans against gold, Product Finance loans, pre-owned and new vehicle loans and personal
loans. Each of the products differs in terms of the average tenure, average yield, average interest rate and
average size of loan.
• As of March 31,2013 about 40.33% of the assets under management comprised loans to small
entrepreneurs, 30.24% of assets under management comprised of loans against gold, 13.24% of assets
under management comprised of product finance loans ,12.34% of assets under management comprised
pre-owned and new vehicle loans and 3.84% of assets under management comprised personal loans.
• SCUF’s diverse revenue streams reduce their dependence on any particular product thereby enabling it to
spread its risk exposure across segments.

Strong AUM Growth
• SCUF has leveraged its four decade experience in financing business which has enabled the company’s
AUM to grow at a CAGR of 36% from FY08 to FY13. A large chunk of the growth in the recent past is
attributable to the small business loans (40% of AUM) and loan against gold (30% of AUM).
• SCUF’s small business loan clients are largely Shriram Chits’ customers / Chit customer referrals which
augurs well for competitive lower loan origination costs in the SME segment, besides aiding a healthy asset
quality profile.
• Leveraging the group’s infrastructure and clientele SCUF’s small business loans have grown at a rapid pace
of more than7X fold rise from INR 8.2bn in FY09 to INR 63bn in FY13.
AUM growth over the past 5 Years
AUM growth in line with Peers

Securitization Process
• SCUF currently sells part of their assets under financing activities through securitization. In FY2013 the total
book value of loans securitized was about Rs.1420.68 Cr
• Gains arising out of securitization and assignment vary according due to a number of factors such as tenure
of the securitized or the assigned portfolio, the yield on the portfolio securitized and the discount applied.
Gains out of securitization are treated as income over the tenure of the agreements as per RBI guidelines on
securitization of standard assets. Any loss incurred is recognized upfront.
• SCUF is required to provide credit enhancement for the securitization transactions by way of either fixed
deposits or bank guarantees and the aggregate credit enhancement amount outstanding was Rs.227.31 Cr in
September,2013. The aggregate credit enhancement amount outstanding for legacy based transactions is
Rs.269.38 Cr.

Strong Capital Adequacy
• NBFC’s are expected to maintain a capital adequacy ratio consisting of Tier-I and Tier-II capital of not less
than 15% of average risk weighted assets on balance sheet and risk adjusted value of Off-balance sheet
items. SCUF had during the years 2011,2012 and 2013 had a CAR of about 20.53%,17.40% and 18.61%
respectively during those three years which is above the RBI stipulated limit of 15%.
• SCUF is adequately capitalized and hence grow its loan book without much issues. Equity capital is also
open to the company consistently given the group’s track record. The company’s accounting policies are
conservative and the provisioning is done on 120 day dues.

NIM – On par with Peers
• SCUF operates on segments that carry a higher risk their yields are higher compared to banks and peers.
Yields on SME loans range between 18-24%, Yields on personal loans between 24-27%, Yields on Auto and
Two wheeler loans around 22%.
• SCUF is backed by competitive cost of funds which has resulted in margins being healthy. NIM’s has
consistently hovered around 11%.
• SCUF ‘s ability to pass on rise in cost of funds as a major chunk of its customers have very few alternative
capital sources. This has resulted in relatively stable margins for the company.
NIM Comparison NIM of SCUF

AUM’s, Net NPA’s & Segment wise yields

Healthy Balance Sheet
• SCUF has been able to achieve an optimum liability mix by diversifying its funding sources through a right
mix of fixed/floating rate loans to match the asset profile.
• SCUF has successfully mitigated interest rate risk and ALM risk through retail liabilities which are at fixed
rates with average maturity of 23 months and Institutional liability through a mix of floating and fixed with
higher focus on floating rates. SCUF has a positive cumulative ALM mismatch across all buckets.

Investment Rationale

Strong Historical Performance

MSME Lending – A unique opportunity
• SCUF’s strategy of focusing on the retail segment has paid off because of its fore sight into the potential of
the business. The ticket size is about Rs 1 to 10 Lakhs and SUCF has a dominant market share of about 42%
in the segment.
• SCUF has strong presence in semi urban and rural areas of South India which augurs well for its small loans
business. Company’s stated focus on growing this segment of the lending book would generate significant
returns going forward. The company can significantly scale up its MSME lending business and it has just
scratched the surface of this huge opportunity.

MSME Loan Book
• SCUF’s loan book had historically been driven by MSME segment which has grown at a three year CAGR of
80% which is much higher than other segments.
• SCUF’s SME loan is expected to grow at a CAGR of 30-35% in the next three years i.e from 2014-16.

Loan Book outlook

Geographic Presence in Unbanked Areas
• SCUF currently has about 979 branches out of which about 591
are owned branches and the remaining 388 are shared locations.
• SCUF currently has presence in about 8 states such as UP,
Bihar, MP, Chhattisgarh, Orissa, West Bengal, Tripura and
Manipur which are heavily under banked thereby providing huge
opportunities.
projects.
• SCUF currently has presence in about 6 states such as
Maharashtra, Andra Pradesh, Assam, Arunachal Pradesh,
Jharkhand, Nagaland and Rajasthan which are moderately under
banked in 50-60% districts.
• SCUF currently has presence in about 11 states such as TN,
Kerala, Sikkim , Gujarat , Punjab Karnataka, Pondicherry,
Haryana, ,J&K, Mizoram and Meghalaya which are adequately
banked but offer enormous potential due to the growth
opportunities in these states.
• SCUF has significant scope to leverage current network by
improving disbursements and revenue per branch by introducing
the entire financial solutions range while keeping costs under
check. Further, the shriram network provides the ability to have
pilot launches across existing networks without increasing
branch setup cost.

Cost of Funds
• SCUF’s cost of funds increased by 12.6% which is up by about 160 bps in FY13 due to higher interest rates
and reliance on higher retail and public borrowing.
• Despite the base rate of scheduled commercial banks coming down by 50 bps in FY13, higher deposit and
money market rates have put pressure on SUCF’s borrowing cost. SCUF’s borrowing mix consist of 58% share
from banks, 24% from retail, 9% from market and 9% from public issue of NCD’s.
• SCUF ‘s cost of funds is likely to moderate going forward as improved scale would lead to higher rating and
thus lower cost of funds. The company is likely to benefit from a lower interest rate regime due to cooling
off in inflation in recent months.
Cost of Funds of SCUF & Peers

Cost to Income Ratio
• SCUF’s cost to income ratio increased from about 31.9% in FY10 to about 37% in FY13 due to higher
employee expanses.
• SCUF had added employees from Shriram Chit funds to its own rolls taking the headcount to about 19,000
resulting in employee expanse/income ratio rising from 6% in FY11 to about 13.4% in FY13. Shriram chit fund
employee incentives have now come down to about 1.8% of income in FY13 as against 4.8% in FY12.
• However with SCUF management plans of adding about 100 branches in a given year, the cost to Income
ratio is likely to stabilize around 37% in the medium term .
Cost to Income ratio of SCUF & Peers

Moderating Gold loan Portfolio
• SCUF’s loan growth had been growing at a rapid 92% since FY09 which is way ahead of any other
comparable peer. SCUF had begun to see moderation in gold loan portfolio after the regulatory changes.
SCUF has about 22% of AUM from the gold loan portfolio currently.
• SCUF’s gold loan typically has a tenure of about 3-6 months and provides average yield of about 18-20%.
• SCUF’s gold loan is least exposed to risk as the tenure is only 3-6 months which reduces the risk to three
months of price volatility. While other players in the segment are facing asset quality issues, SCUF had the
least asset quality issues from the segment due to its strong lending practices
SCUF Loan growth compared with Peers Moderating gold loan of SUCS & Peers

Good Asset Quality
• Despite a strong 36% growth in AUM SUCS has maintained a good asset quality with GNPA of 5% and 4% in
Q1 and Q2 of FY 14 down from 16/30% in 3Q/4Q FY13. The sharp increase in NPA’s in FY13 is due to change
in recognition norms in NPAS which has been reduced to 120 days as against 150 days earlier.
• SCUF’s asset quality is in line with peers such as M& M Finance, though Sundaram and Bajaj Finance have
relatively better asset quality which can be attributed to their highly conservative lending practices.
• SCUF’s GNPA’s asset quality is unlikely to deteriorate much and is likely to remain at 2.2% of its assets size.

Better credit rating to lower credit cost
• SCUF funds its capital requirement through a combination of sources - with term and working capital loans
being sourced from banks, NCD, commercial paper and fixed deposit from retail customers .
• SCUF has been able to achieve its funding at a competitive cost from a range of sources despite a
challenging domestic and global economy. SCUF is likely to strengthen its balance sheet which would further
improve its credit rating, thereby enabling the company to source its funds from various sources at more
competitive rates and enabling the company to further improve their margins and profitability.

Asset Liability Management
• SCUF monitors liquidity risk through their Asset Liability Management function with the help of liquidity
gap reports. SCUF categorizes all assets and liabilities into different maturity profiles and evaluates these
items for any mismatches especially in the short term.
• SCUF’s AUM policy caps the maximum mismatch in various maturities in line with RBI guidelines. SCUF to
address liquidity risk mobilize long and short term funds at competitive interest rates according to the
requirements of the situation.

Asset Liability Match

Stake by reputed Institutional & PE players

Financials

Earnings Projection – P&L Account
• SCUF’s revenues are expected to grow by 15%
in FY14 & FY15 driven by strong loan book growth
due to recovery in the GDP growth.
• SCUF reported Profit before Depreciation and
Tax of about Rs.690.68 Cr in FY13 and is expected
to be about Rs.766.70 Cr and Rs.881.66 Cr in FY14
and FY15 respectively.
• SCUF is likely to report PAT of Rs.497.07Cr in
FY14 and Rs.571.60Cr in FY15 with an EPS of
Rs.89.69 and Rs.103.14 in FY14 and FY15
respectively.
• SCUF interest and financial charges in FY 13 was
at Rs.1410.48 Cr and is expected to be about
Rs.1621.87 Cr and Rs.1865.15 Cr in FY14 and FY15
respectively.
• SCUF’s depreciation in FY13 was at Rs.24.94Cr
and is likely to be at Rs.30.30 Cr and Rs.34.84 Cr in
FY14 and FY15 respectively.
Specialists in discovering Multibagger stocks “
Particulars(Rs. Cr) 2012 20132014E 2015E
INCOME :
Operating Income 2056.683099.613564.55 4099.23
Other Income 0.17 0.32 0.32 0.32
Total Income 2056.853099.933564.87 4099.55
EXPENDITURE :
Interest & Financial Charges 928.581410.481621.87 1865.15
Operating & Administrative
Expenses 595.22 998.771176.30 1352.75
Profit before Depreciation &
Tax 533.05 690.68 766.70 881.66
Depreciation 13.78 24.94 30.30 34.84
Profit Before Tax 519.27 665.74 736.40 846.81
Tax 181.19 216.35 239.33 275.21
Profit After Tax 338.08 449.39 497.07 571.60
EPS 63.52 79.69 89.69 103.14

Concerns & Reasoning
1.) competition from Banks :
SCUF along with other NBFCs faces competition from banks. With slowdown in large corporate segment
drying, banks have been focusing on the SME segment and retail loan products. Banks have also started
focusing on home loans given the huge untapped potential and healthy asset quality profile in this segment.
Banks with access to low-cost CASA deposits are better placed to price loans at competitive rates.
2.) Geographic al Concentration:
SCUF’s portfolio is largely concentrated in Andhra Pradesh, Tamil Nadu and Maharashtra. Even as the
company plans to expand into new regions, the company’s operations would be concentrated in southern
India over the foreseeable future. Regulatory changes in state laws could adversely impact the company’s
financials
3.) Focus on high risk segments:
Relatively under-banked segments, i.e higher risk segments are the target audience of SCUF. Asset-quality
challenges arising from its focus on relatively riskier segments are amongst the key risks that the company
faces. The company, however, has maintained a healthy asset quality, supported by origination and
monitoring practices that have been imbibed from the group’s experience. Asset quality would be a key
monitor able given that company is exposed to the SME and personal loan segments.
4)Liquidity Risk:
Liquidity risk arises due to non-availability of adequate funds or non-availability of adequate funds at an
appropriate cost, or of appropriate tenure, to meet the business requirements. This risk is minimized
through a mix of strategies, including asset securitization/assignment and temporary asset liability gap.

Price Chart
• SCUF had corrected sharply during the past year from
Rs.1230 to Rs.1015.5.
• The Stock has exhibited volatility during the year and
provides value to investors with medium to long term
perspective.
• Technically the stock has strong support at Rs. 950
levels thereby providing limited downside risk.
Share Holding % Dec Sep Jun Mar
2013 2013 2013 2012
Promoters 37.57 37.57 57.31 57.31
FII 25.71 25.87 26.19 25.21
DII 3.00 3.04 3.95 4.34
Others 33.72 33.52 12.55 13.14

Conclusion
While investing in a Finance business, the most important component to analyze is the quality of Management. In a
leverage business, a disciplined and rational management is a pre-requisite for investing. Growth for Finance
companies is always there but how profitable is the growth needs to be monitored. An aggressive
management’s poor decision making would come to light only after several years. Hence, we believe that
Management plays a key role while investing in Finance stocks.
We have very little doubt in saying that Shriram group is certainly only of the best lenders in the country.
Their understanding of the un-banked segment is un paralleled. They have built strong moats in lending to
such segments and the opportunity size for lending to this segment is huge. The company has been
aggressive on growth, yet conservative on lending practices. We certainly believe that Investors can have a
peaceful sleep by investing with such Managements.
The group is compared to Wells Fargo by several value investors. The value creation at Wells Fargo is a well
known legend. The company’s bid to banking license, if approved, would certainly make the company a hot
favorite among several investors. With cheaper cost of funds and a strong lending franchisee, the value
creation could simply be stunning. We believe that a banking license would be a huge bonus for Investors.
SCUF is currently a 6000 Cr company and the opportunity size would enable that the company’s market
capitalization to grow several fold over the next 5 years. At the current price, the stock is valued at 11X
earnings and 2.5X book value. For Investors who buy at current reasonable valuations, the company can
certainly compound its value consistently over the next decade and thus deliver Multibagger returns.

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Shriram City Union Finance - India's leading SME Financier

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