Shriram City Union Finance: Buy

Backed by a strong network of customers of the group’s chit fund (Shriram Chits), Shriram City has emerged a key player in financing the MSME (micro, small and medium enterprise) and retail segments in the last 10 years. Currently, about 90 per cent of its clients in the MSME segment are chit fund customers. The long (10-15 years) period of engagement with these customers has helped Shriram City assess their credit risk well.

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On the back of healthy loan growth and margins, Shriram City is expected to increase its earnings by 20-25 per cent over the next two years. It was able to increase its margins in 2013-14 by about 80 basis points to 12 per cent, on the back of lower cost of funds and a shift in the loan mix to high-yielding loans. The company’s well diversified funding base, as well as a balanced mix between fixed (47 per cent) and floating rate (53 per cent) borrowings, should help sustain margins.

http://www.thehindubusinessline.com/markets/shriram-city-union-finance-buy/article6139209.ece