Fundamental Result Update

Sundaram Finance Ltd Q2FY20 Result Update



Sundaram Finance (SUF) reported good operating performance during Q2FY20. The company has clocked steady AUM growth of 11% YoY/1% QoQ. NII for the quarter grew by 20% YoY to Rs 467 cr vs. our estimate of Rs 465 cr. Operating profit for the quarter grew by 48% YoY to Rs 375 cr vs. our estimate of Rs 287 cr, largely due to higher other income growth. PAT witnessed a robust growth of 74% YoY/71% QoQ to Rs 269 cr, which was far above our estimate of Rs 177 cr. The sharp growth in PAT was seen on account of lower tax rate and higher operating profit growth. Margins were improved by 5bps on QoQ basis to 6.2% largely due to improved yields. Asset quality was stable with GNPA/NNPA at 2.2%/1.6%. Due to the general slowdown in consumption cycle across the economy and weak CV demand, disbursements for the quarter fell by 13% QoQ/10% YoY. CVs disbursement has come down to 55.6% from 57.4% QoQ while car disbursement has gone up to 23.5% from 23%. We upgrade our rating to ‘Accumulate’ from ‘Hold’ with a revised TP of Rs 1884 (from 1712 earlier).

 

Valuation & Outlook: Despite subdued CV demand cycle, SUF has reported good operating performance. Though, AUM growth of the company has moderated as compared to previous quarter, it remains fairly stable during Q2FY20. Company’s conservative approach to achieve healthy growth in vehicle finance book while maintaining asset quality, resulted SUF being one of the consistent performer. Its subsidiaries have also reported decent numbers, thus aiding profitability. We maintain our positive stance on the stock due to its diversified product mix portfolio, better asset quality than its peers and healthy CAR ratio. We have revised our PAT estimates by +17% for FY20/21E to build the revised tax rate. We upgrade the stock rating to ‘Accumulate’ from ‘Hold’ with a revised target price of Rs 1884 (based on SOTP valuation), giving a potential upside of 16%.


Tags: FundamentalResult Update


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