Partner With Us NRI
Sundaram Finance Ltd>
  • CMP : 4,548.7 Chg : 1.95 (0.04%)
  • Target : 2,200.0 (4.22%)
  • Target Period : 12-18 Month

17 Aug 2022

Mixed performance; growth, yields to be watched

About The Stock

Sundaram Finance (SFL) is a Chennai-based financial group with a presence in auto finance, home finance, asset management and general insurance.

  • Major value is derived from its vehicle financing business with AUM of ₹ 30,552 crore as of June 2022
  • SFL has 632 branches with a substantial presence (~51%) in southern India

Sundaram Finance reported a mixed performance.

  • Disbursements grew ~2.3x YoY and 31% QoQ at ₹ 4895 crore
  • Core NII up 2.9% YoY but down 0.4% QoQ, NIMs down 21 bps QoQ at 5.3%, C/I higher at 35%
  • Decline in provision led to 17.8% YoY PAT growth at ₹ 225 crore (-24.5% QoQ)
  • Stage-3 assets increased 32 bps QoQ to 2.51%
What should Investors do?

Sundaram Finance’s share price has grown ~1.4x in the past five years. With improving outlook of vehicle finance segment, we believe Sundaram Finance is a play on the vehicle finance theme but would wait for a clear picture on competitive intensity and earnings trajectory.

  • We maintain our HOLD rating on the stock
Target Price and Valuation

We value the core business (vehicle finance) at ~2.3x FY24E ABV and revise our SOTP based target price at ₹ 2200 per share from ₹ 2450.


Key Triggers for future price performance
  • Improving industry outlook coupled with management confidence on gaining market share to aid business growth and earnings trajectory
  • Pedalling growth on disbursement remains a positive trend
  • Await clarity on sustained performance amid intense competition and performance of subsidiaries (Home Finance, AMC & insurance)
Alternate Stock Ideas

Apart from Sundaram Finance, in our coverage we also like Bajaj Finance.

  • Bajaj Finance, with its digital transformation, is quickly moving from just consumer finance to multiple segments and harnessing it large franchise base digitally. Housing has grown to a significant size
  • BUY with a target price of ₹ 8500

Key Financial Summary

Particulars FY19 FY20 FY21 FY22 3 Year CAGR_(FY19-FY22) FY23E FY24E 2 Year CAGR (FY22-24E)
NII 1,555.0 1,770.1 1,923.0 2,169.9 11.7 2,206.7 2,400.0 5.2
PPP 1,002.6 1,231.5 1,372.4 1,495.4 14.3 1,473.5 1,602.9 3.5
PAT 1,126.3 723.9 809.1 903.4 -7.1 943.5 1,063.1 8.5
ABV (Rs) 433.4 457.0 511.0 569.8 - 671.4 764.7 -
P/E 20.8 32.4 29.0 26.0 - 24.9 22.1 -
P/ABV 4.9 4.6 4.1 3.7 - 3.1 2.8 -
RoE (%) 22.3 13.1 13.1 13.1 - 12.0 11.9 -
RoA (%) 3.8 2.2 2.4 2.6 - 2.5 2.4 -
Source: Company, ICICI Direct Research

Variance Table

  Q1FY23 Q1FY22 YoY (%) Q4FY22 QoQ (%) Comments
NII 409 397 2.9 410 -0.4 Moderate business growth led to muted operational performance
NIM (%) 5.35 5.33 2 bps 5.55 -21 bps Yields declined QoQ and YoY
Other Income 129 100 29.3 127 1.4  
Net Total Income 538 497 8.2 538 0.0  
Staff cost 114 103 10.3 102 11.5  
Other Operating Expenses 188 159 18.4 188 0.0  
PPP 350 338 3.4 350 0.1  
Provision 53 85 -37.8 -28 -286.8 Credit cost declined QoQ to 0.7%
PBT 297 253 17.3 378 -21.5  
Tax Outgo 71 62 15.4 79 -10.2  
PAT 226 192 17.9 299 -24.4 Weak topline resulted in PAT de-growth QoQ
Key Metrics            
Stage III assets (%) 2.51 4.25 -40.9 2.19 14.6  
AUM 30,552 29,823 2.4 29,532 3.5  





I/We, Kajal Gandhi, CA, Vishal Narnolia, MBA and Pravin Mule, MBA, M.com, Research Analysts Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.     


Terms & conditions and other disclosures:


ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products.

ICICI Securities is Sebi registered stock broker, merchant banker, investment adviser, portfolio manager and Research Analyst. ICICI Securities is registered with Insurance Regulatory Development Authority of India Limited (IRDAI) as a composite corporate agent and with PFRDA as a Point of Presence. ICICI Securities Limited Research Analyst SEBI Registration Number – INH000000990. ICICI Securities Limited SEBI Registration is INZ000183631 for stock broker. ICICI Securities is a subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.


ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities and its analysts, persons reporting to analysts and their relatives are generally prohibited from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.


Recommendation in reports based on technical and derivative analysis centre on studying charts of a stocks price movement, outstanding positions, trading volume etc as opposed to focusing on a companys fundamentals and, as such, may not match with the recommendation in fundamental reports. Investors may visit icicidirect.com to view the Fundamental and Technical Research Reports.


Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein.


ICICI Securities Limited has two independent equity research groups: Institutional Research and Retail Research. This report has been prepared by the Retail Research. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, and target price of the Institutional Research.


The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances.


This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.


ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months.


ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.


ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months.


ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report.


Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.


ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report.


Since associates of ICICI Securities and ICICI Securities as a entity are engaged in various financial service businesses, they might have financial interests or actual/beneficial ownership of one percent or more or other material conflict of interest various companies including the subject company/companies mentioned in this report.


ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.


Read More