Sundaram Finance Q1 Results Review - Seasonal Factors Impact Performance: Centrum

Centrum Broking Report

Sundaram Finance Ltd. reported a slow growth of 6.5%/11.3% YoY/QoQ in disbursements. Margins (calc.) were impacted (down 25 basis points YoY and 7 bps QoQ) due to rise in cost of fund while interest yields (calc.) increased 44 bps YoY and down 5 bps QoQ. Net interest income for Q1 FY25 stood at Rs 530 crore, up 19% YoY and 3% QoQ versus our estimates of Rs 523 crore. Pre-provision operating profit for Q1 FY25 stood at Rs 476 crore, up 11% YoY and -21% QoQ versus our estimates of Rs 533 crore primarily due to lower dividend income.

Credit costs decreased to 65 bps versus 128 bps in Q1 FY24. Resultantly, PAT at Rs 308 crore (up 9% YoY but down 17% QoQ), was 10% below our estimates. This performance was mainly due to muted growth in automotive sector and lesser than expected economic activity due to general elections and an unusually hot summer.

RoA/RoE for Q1 FY25 stood at 2.3%/12.6% as against 2.7%/14.3% in Q1 FY24. Tier 1 capital/CAR remains adequate at 16.2%/19.3%, respectively.

We build in assets under management/pre-provision operating profit/profit after tax compound annual growth rate at 18%/21%/24% over FY24-26E and expect RoA/RoE at 3.2%/17.4% for FY26E.

Sundaram is currently trading at 4.3x FY25E P/ABV (core net worth), fairly pricing in growth and profitability. We value the standalone business at four times FY26 P/ABV (Rs 3506) and value subsidiaries at Rs 1013, post 20% holdco discount, to arrive at our target price of Rs 4,317. We continue to maintain Reduce rating.

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