1

SYNOPSIS

Shriram City is India's premier

financial services Company

specializing in the retail finance and

the only deposit- accepting non-

banking financial company (NBFC)

to offer a comprehensive range of

loans.

During the quarter ended, the

robust growth of Net Profit is

increased by 42.25% to Rs.834.60

million.

Net Sales and PAT of the company

are expected to grow at a CAGR of

33% and 31% over 2010 to 2013E

respectively.

Shriram City Union Finance Ltd

has allotted 32,000 equity shares to

19 employees at the Allotment

Committee on May 04, 2012.

Shriram City Union Finance Ltd is

certified ISO/IEC 27001:2005.

Years Net sales EBITDA Net Profit EPS P/E

FY 11 13180.00 9565.60 2405.90 48.56 12.87

FY 12E 20182.64 15293.74 3450.69 69.18 9.03

FY 13E 25026.47 18738.10 4337.17 86.95 7.19

Stock Data:

Sector: Financial Services

Face Value Rs. 10.00

52 wk. High/Low (Rs.) 679.95/461.15

Volume (2 wk. Avg.) 259.00

BSE Code 532498

Market Cap (Rs in mn) 31175.00

Share Holding Pattern

1 Year Comparative Graph

BSE SENSEX SHRIRAM CITY UNION FINANCE

C.M.P: Rs. 625.00 Target Price: Rs. 706.00 Date: May 12th 2012 BUY

SHRIRAM CITY UNION FINANCE LTD

Result Update: Q3 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

Finance Ltd 625.00 31175.00 48.56 12.87 2.55 60.00 Power Finance

Corporation 145.40 191918.10 21.37 6.80 1.21 50.00

Bajaj Finance 860.20 35542.70 89.35 9.63 2.61 100.00 Mahindra & Mahindra

Financial Services 659.00 68537.80 59.62 11.05 2.20 100.00

Investment Highlights

Q3 FY12 Results Update

Shriram City Union Finance Ltd has reported net profit of Rs 834.60 million for the

quarter ended on December.31, 2011 as against Rs.586.70 million in the same

quarter last year, an increase of 42.25%. It has reported net sales of Rs 5365.40

million for the quarter ended on December.31, 2011 as against Rs 3419.50 million

in the same quarter last year, a rise of 56.91%. Total income grew by 57.27% to Rs

5379.20 million from Rs.3420.40 million in the same quarter last year. During the

quarter, it reported earnings of Rs 16.73 a share.

Quarterly Results - Standalone (Rs in mn)

As At Dec-11 Dec-10 %change

Net sales 5365.40 3419.50 56.91

PAT 834.60 586.70 42.25

Basic EPS 16.73 11.86 41.06

3

� Break up of Expenditure

Company Profile

Shriram City Union Finance Ltd was incorporated in the year March 27, 1986 as a

private limited company with the name Shriram Hire Purchase Finance Pvt Ltd. The

company started their operations with truck financing. In October 29, 1988, the

company became a public limited company and the name was changed to Shriram

Hire Purchase Finance Ltd. Consequently, the name of the company was changed to

Shriram City Union Finance Ltd. The company is registered as a deposit taking asset

financing NBFC with RBI and went public in the year 1994.

The company became the subsidiary of Shriram Enterprise Holdings Pvt Ltd in the

year April 24, 2007, the company promoted a subsidiary company, namely Shriram

Non Conventional Energy Ltd. The company decided to set up a wholly owned

subsidiary company for doing housing finance, mortgage finance, other related

finances and such other activities as may be decided from time to time.

It is India's premier financial services company, specializing in the retail finance. The

company is a part of three decade-old Chennai-based Shriram Group, India's premier

financial services chain. The range of services offered by the company is financing for

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consumer durables, two wheelers, three wheelers, four wheeler finance, both new and

pre-owned, passenger and commercial, personal loans, small business loans and loan

against gold. They have over 650 business outlets across the country. The company

has tie-ups with major dealers and top manufacturers across the country, giving them

the advantage of quick pay-offs and sanction of loans. They focus on semi urban and

rural areas with products routed through either chit fund network of Shriram Chits or

non chit fund network including dealers

Shriram City Union Finance Ltd is ISO/IEC 27001:2005 certified.

Groups

Shriram group had its humble beginning in the chit fund business over the three

decades ago R. Thyagarajan, AVS Raja and T Jayaraman were the three musketeers

ventured in the three business and also in the financial servies industry at that time

this small chit funds business in chennai would indeed the foundation for the

financial conglomerate.

• Commerical Vehicle Financing

• Consumer & Enterprise Finance

• Retail stock broking

• Life Insurance

• General Insurance

• Chit Funds

• Distribution of Invesment & Insurance Products

Products

The company offers the following products:

• Auto Finance

• Two Wheelers Finance

• Personal Finance

• Loan against Gold

• Small Enterprise finance

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� Business Outlets

• Punjab

• Haryana

• Rajasthan

• Gujarat

• Maharastra

• Goa

• Karnataka

• Kerala

• Jammu & Kashmir

• Himachal Pradesh

• Uttar Pradesh

• Delhi

• Jharkhand

• Chattisgarh

• Madhya Pradesh

• Andhra Pradesh

• Tamil Nadu

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Financial 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 20182.64 25026.47

Other Income 307.90 29.10 185.18 218.51

Total Income 11028.40 13209.10 20367.82 25244.99

Expenditure -2847.20 -3643.50 -5074.09 -6506.88

Operating Profit 8181.20 9565.60 15293.74 18738.10

Interest -5272.20 -5884.80 -10038.42 -12146.49

Gross profit 2909.00 3680.80 5255.32 6591.61

Depreciation -46.50 -74.70 -131.63 -156.64

Profit Before Tax 2862.50 3606.10 5123.69 6434.98

Tax -920.00 -1200.20 -1673.00 -2097.80

Profit After Tax 1942.50 2405.90 3450.69 4337.17

Equity capital 491.50 495.40 498.80 498.80

Reserves 9280.30 11638.20 15088.89 19426.07

Face value 10.00 10.00 10.00 10.00

EPS 39.52 48.56 69.18 86.95

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 30-Jun-11 30-Sep-11 31-Dec-11 31-Mar-12E

Description 3m 3m 3m 3m

Net sales 4151.30 4764.00 5365.40 5901.94

Other income 131.40 24.80 13.80 15.18

Total Income 4282.70 4788.80 5379.20 5917.12

Expenditure -972.00 -1171.60 -1455.00 -1475.49

Operating profit 3310.70 3617.20 3924.20 4441.64

Interest -2106.30 -2364.60 -2651.20 -2916.32

Gross profit 1204.40 1252.60 1273.00 1525.32

Depreciation -26.30 -27.10 -36.90 -41.33

Profit Before Tax 1178.10 1225.50 1236.10 1483.99

Tax -374.30 -414.90 -401.50 -482.30

Profit After Tax 803.80 810.60 834.60 1001.69

Equity capital 497.30 497.60 498.80 498.80

Face value 10.00 10.00 10.00 10.00

EPS 16.16 16.29 16.73 20.08

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Key Ratios

Particulars FY10 FY11 FY12E FY13E

No. of Shares(in mn) 49.15 49.54 49.88 49.88

EBITDA Margin (%) 76.31% 72.58% 75.78% 74.87%

PBT Margin (%) 26.70% 27.36% 25.39% 25.71%

PAT Margin (%) 18.12% 18.25% 17.10% 17.33%

P/E Ratio (x) 15.81 12.87 9.03 7.19

ROE (%) 19.88% 19.83% 22.14% 21.77%

ROCE (%) 14.58% 11.29% 16.67% 18.76%

Debt Equity Ratio 4.78 6.04 4.94 4.05

EV/EBITDA (x) 3.75 3.24 2.04 1.66

Book Value (Rs.) 198.82 244.93 312.50 399.46

P/BV 3.14 2.55 2.00 1.56

Charts

Net Sales & PAT

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P/E Ratio

Debt Equity Ratio

10

EV/EBITDA Ratio

P/BV Ratio

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Outlook and Conclusion

At the current market price of Rs.625.00, the stock is trading at 9.03 x FY12E

and 7.19 x FY13E respectively.

Earning per share (EPS) of the company for the earnings for FY12E and FY13E

is seen at Rs.69.18 and Rs.86.95 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 33% and

31% over 2010 to 2013E respectively.

On the basis of EV/EBITDA, the stock trades at 2.04 x for FY12E and 1.66 x for

FY13E.

Price to Book Value of the stock is expected to be at 2.00 x and 1.56 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.706.00 for Medium to Long term investment.

Industry Overview

The Indian financial services industry has a lot of scope for further penetration, and

thus has immense scope and potential to grow exponentially. The online genre, mobile

explosion, emergence of social media platforms, technologies like cloud computing and

increasing pace of convergence and interconnectivity of devices are intensely driving

the growth of this industry. These are playing pivotal roles in transforming the way

financial services are delivered to the end-consumer. Further, financial institutions are

revamping their operational infrastructure and business delivery models.

Financial services industry mainly comprises the BFSI industry, that is, banking,

financial services (such as mutual funds) and insurance. Key developments and

performance pointers pertaining to each of these sub-segments are discussed in this

overview.

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Insurance Sector

There are 24 life insurers in India with about Rs 15 trillion (US$ 292.5 billion) in

assets.

According to data released by the Insurance Regulatory and Development Authority

(IRDA), the life insurance industry collected Rs 89,655.83 crore (US$ 17.5 billion)

during April 2011-February 2012 by writing new policies while the insurers sold about

35.12 million policies collectively. Private players sold seven million policies.

The general insurance industry continued with its growth trajectory as the gross

written premium grew 24.03 per cent during 2011-12 against the year-ago period.

Banking Services

According to the world's largest rating agency, Standard & Poor (S&P)'s Ratings

Services, India's banking system has a high level of stable, core customer deposits

supported by the system's good franchise, extensive branch networks, and large, yet

growing, domestic savings.

• According to the Reserve Bank of India (RBI)'s 'Quarterly Statistics on Deposits

and Credit of Scheduled Commercial Banks', September 2011, Nationalised

Banks, as a group, accounted for 52.2 per cent of the aggregate deposits, while

State Bank of India (SBI) and its associates accounted for 21.8 per cent. The

share of New private sector banks, Old private sector banks, Foreign banks and

Regional Rural banks in aggregate deposits was 13.7 per cent, 4.8 per cent, 4.6

per cent and 2.9 per cent, respectively.

• With respect to gross bank credit also, nationalised banks hold the highest

share of 51.6 per cent in the total bank credit, with SBI and its associates at

22.1 per cent and New Private sector banks at 13.8 per cent. Foreign banks,

Old private sector banks and Regional Rural banks held relatively lower shares

in the total bank credit with 5.2 per cent, 4.8 per cent and 2.5 per cent,

respectively.

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• Another statement released by the RBI stated that bank deposits grew 13.4 per

cent to Rs 60.72 trillion (US$ 1.18 trillion) in the fiscal 2011-12 (the year to

March 23, 2011) while loans and advances grew 17.08 percent to Rs 47.54

trillion (US$ 927.16 billion).

Mutual Funds Industry in India

The Rs 6.70 trillion (US$ 130.66 billion) Indian mutual funds (MF) industry has 44

asset management companies (AMCs). Recent data released by the Association of

Mutual Funds in India (AMFI) indicated that average assets under management (AUM)

reported by these fund houses amounted to Rs 6,68,824 crore (US$ 130.33 billion) in

2011-12.

HDFC Mutual Fund maintained its top position as the country's biggest MF with an

average AUM of Rs 89,879 crore (US$ 17.51 billion), followed by Reliance MF (Rs

78,112 crore [US$ 15.22 billion]), ICICI Prudential MF (Rs 68,718 crore [US$ 13.39

billion]), Birla Sun life MF (Rs 61,143 crore [US$ 11.92 billion]) and UTI MF (Rs 58,922

crore [US$ 11.48 billion]).

Private Equity (PE) and Mergers & Acquisitions (M&A) in India

India Inc witnessed 202 merger and acquisition (M&A) deals worth US$ 9.4 billion

during the first quarter of 2012. According to Ernst & Young (E&Y)'s latest

transactions quarterly report, deals in January-March 2012 were 22 per cent higher

than those of October-December 2011 quarter in terms of volume and 4.5 times higher

in terms of value. Domestic deals dominated the M&A space as they accounted for 63

per cent of the total number of deals and contributed 88.4 per cent of the total

disclosed deal value for the quarter.

According to experts, M&A landscape is likely to experience intense activity in the

coming months, owing to improving stock markets and better availability of finance

options.

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Private equity (PE) and venture capital (VC) investors infused a capital of US$ 1.88

billion across 90 deals during the reported period.

Foreign Institutional Investors in India

According to the data released by Securities and Exchange Board of India (SEBI), net

investment in equities made by foreign institutional investors (FIIs) stood at Rs 47,935

crore (US$ 9.34 billion) during the financial year ended March 31, 2012. During the

reported fiscal, foreign fund houses injected Rs 49,053 crore (US$ 9.56 billion) in the

debt market taking the collective net investments by FIIs in stocks and bonds to Rs

93,725 crore (US$ 18.26 billion).

Recent Developments

• India has launched the country's first domestic payment card network, RuPay,

to compete with multinational Visa Inc. and MasterCard Inc. The new

development will not only help banks reduce cost of issuing a debit card but

will also lead to expansion of payment network in rural areas. National

Payments Corp of India Ltd (NPCI), the nodal agency to manage and promote

RuPay, has stated that 200,000 RuPay cards have already been issued and the

target is to have 10 million debit cards under the brand by March 2013.

• Stating India as 'extraordinarily attractive investment destination', PE firm Bain

Capital LLC has announced that it will infuse about US$ 800 million in

appropriate proposals across four investment deals during 2012-16.

• L&T Finance has decided to buy Fidelity Worldwide Investment's Indian mutual

fund business. The deal would boost L&T's assets to Rs 13,500 crore (US$ 2.63

billion), making it the 13th biggest fund house and the 10th largest on the basis

of equity.

• In a recent announcement, the RBI has granted FIIs to invest in primary

issuances of companies' non-convertible debentures (NCDs), provided these

papers are scheduled to be listed on the stock exchanges within 15 days of

being issued. If the instrument, that is the NCD, does not get listed within 15

15

days, the foreign investor concerned would have to sell the securities to a domestic

investor.

Government Initiatives

In its Budget for 2012-13, the Government has earmarked a capital of Rs 15,888 crore

(US$ 3.11 billion) to be infused in public sector banks, regional rural banks and other

financial institutions. Apart from this, the Government is also planning to set up a

financial holding company that will raise funds for public sector banks.

Furthermore, the RBI has liberalised regulations pertaining to FCAs to provide

operational flexibility to Indian entities making overseas direct investments. After

satisfying stipulated requirements and conditions, Indian entities can open, hold and

maintain FCAs abroad that would simplify the process of making overseas direct

investments.

Road Ahead

According to a report by the Boston Consulting Group (BCG) India, prepared in

association with a leading industry organisation and Indian Banks Associations (IBA),

Indian banking industry would be the world's third largest in asset size by 2025 and

mobile banking would become the second largest banking mode after ATMs.

Furthermore, owing to the positive eco-system of the industry and regulatory and

Government initiatives, mobile banking is anticipated to enhance from 0.1 per cent of

transactions in a 45 per cent financial inclusion base in 2010 to 34 per cent of the

transactions with 80 per cent rural inclusion base by 2020, as per the report.

While the Indian Government projects that qualified foreign investors (QFIs) would

invest US$ 50-75 billion in India's equity and bond markets, G Chokkalingam,

Executive director and CIO, Centrum Wealth Management, believes that Indian

markets would witness record inflows, probably to the extent of US$ 30 billion, by FIIs

in 2012.

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Such positive forecasts are being made owing to monetary expansions in the West and

considering that India would remain the second-fastest growing economy in the world.

______________ ____ _________________________ 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.

17

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