We recommended Shriram City Union in Mar’14 at the price of Rs. 1,020. At the current market price of Rs. 1,650, it has delivered 62% returns since our first recommendation.  At this stage, we recommend long term investors to add more stock to their portfolios.

Our investment premise was based on the company’s presence in under-served markets, well-entrenched position in the SME segment, declining stress in its gold loan portfolio, healthy capital position and strong profitability. The company is steadily increasing its branch network and the product portfolio offering at these branches. The company has 45% of its portfolio in the undivided state of Andhra Pradesh and the recent political developments point to a steady recovery in this state. Shriram City is very well positioned to benefit from this as well as the overall recovery in the Indian SME segment.

Considering the long term earnings visibility, an attractive capital position with Tier 1 at 23% and best-in-class RoE profile, valuations at 2.1x FY16 book value are reasonable. Its leadership position in 2-wheeler financing, as well as SME financing, augurs well for future growth and earnings. In this light, we recommend long term investors to further accumulate the stock with a three-year horizon.

We recommend ADDING Shriram City Union at Rs. 1,650 despite the gains of 62% in 6 months.

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