Big growth from small businesses

Moneylife Digital Team

Shriram City Union Finance Ltd, a deposit-accepting NBFC (non-banking financial company) registered with the Reserve Bank of India (RBI), is among the largest NBFC that finances small enterprises in India. It was founded in 1986 and has a track record of 25 years. It is a major lender in the retail, micro and small enterprises space with a high market share in the southern region. Its retail loan products include auto loans, two-wheeler loans, gold loans and personal loans.

Chennai-based Shriram City has a pan-India presence through a network of over 1,000 branches (including 350 offering only loan against gold), although 80% of the branch network focuses on rural and semi-urban areas. It has over 10,000 employees and, for the field force, 50% of the compensation is linked to performance.

Its lending to MSME (micro, small and medium enterprises) follows well-developed techniques to assess and evaluate the creditworthiness of its customers. With its network of branches, it is located close to its customers. The field force has the advantage of domain knowledge and local language. The company has a judicious mix of borrowings from retail and institutional sources with a ratio of 28:72. This controls the asset-liability risk, along with the interest-rate risk.

Most of the business offices are connected through a centralised server with real-time information access. It has introduced handheld devices to do away with the usage of manual receipt books and bring online receipting. Image scanning has also been introduced to capture loan documents and use them without handling physical documents. The company follows the ‘hub-and-spoke model’; loan origination to recovery is the responsibility of each business outlet. The management monitors the entire chain of activities through the technology platform.

The customer base of the company touched 6.25 million on the lending side alone in 2010-11. It has nine million depositors. Its share price on the Bombay Stock Exchange is around Rs517. In the past one year, the share hit an intraday high of Rs720 (on 15 October 2010) and at a low of Rs490 (on 9 February 2011). The price-earnings ratio is 10. Shriram’s track record has attracted money from top private equity investors such as ICICI Venture, Bessemer, ChrysCapital and TPG Capital.



For the year ended 31 March 2011, Shriram generated operational revenue of Rs1,320.91 crore, up 19.77% over the previous year’s. The net profit was Rs240.59 crore, up by 24%. The company declared an interim dividend of Rs2.50 and a final dividend of Rs3.50, aggregating to Rs6 per share (of Rs10) for the full year. For the September 2011 quarter, the income of the company was Rs476.4 crore—a rise of 61%—and the net profit was Rs81.06 crore, up 46%. The company has declared an interim dividend of Rs2.50 per share. Its operating margin is 26% and return on net worth is a decent 20%. Its market-cap to revenues is 1.35, while its market-cap to operating profit is 5.23 times. The stock is currently trading at Rs490 and would be an attractive buy at around Rs450.