Sundaram Finance - It’s A Marathon, Not A Sprint; Downgrade To Reduce: HDFC Securities

HDFC Securities Institutional Equities

Sundaram Finance Ltd. earnings beat estimates benefitting from higher other income, partly offset by higher provisioning. Assets under management growth was strong (+27% YoY), driven by non-medium ahd heavy commercial vehicles segments, particularly retail commercial vehicle (+55% YoY).

Sundaram Finance’s product and geographic diversification approach to sustain its growth momentum and lift its margins has augured well in the past couple of years, driving superior operating performance. However, the softening CV and PV industry outlook, evident in the moderation of disbursements during H2 FY24 (+17% YoY versus 34% in H1 FY24) is likely to moderate AUM growth, going ahead.

While Sundaram Finance remains a pristine franchise with steady growth and profitability metrics (core return on equity of ~17-18%), the sharp run-up in the stock (43% during the past 6 months) robs us of material upside from current levels.

We downgrade to Reduce (from Add) with a revised SoTP-based target price of Rs 4,050 (standalone entity at 3.8 times Mar-26 adjusted book per share; 15% discount to Cholamandalam Finance).

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