Sundaram Finance Q2 Results Review - Earnings Miss Due To Lower Other Income; Asset Quality Stable: Systematix

Systematix Research Report

Sundaram Finance Ltd. reported lower than expected operating profit/PAT of Rs 5.4 billion/Rs 3.4 billion (versus estimate of Rs 5.9/3.9 billion) due to lower other income, even as credit cost was steady at 0.7%. Other income came in lower at Rs 2.4 billion versus our estimate of Rs 2.9 billion on account of the lower dividend income.

However, net interest income was in-line with expectation at Rs 5.6 billion aided by 20% YoY growth in AUM and largely steady net interest margins QoQ at 4.8% (+7 bps QoQ). AUM growth softens (20% YoY) due contraction in disbursements (-1.2% YoY) due to muted economic activities.

Asset quality was stable with gross/ net stage 3 at 1.6%/0.9% (+6 bps / +5 bps QoQ). Credit cost was steady at 0.7% while PCR on stage III assets dropped marginally at 45% versus 46% in Q1 FY25.

The recent contraction in commercial vehicle sales at industry level (CV segment forms ~46% of total AUM for Sundaram Finance) can be attributed to factors like heavy rains, general election, flooding in mining areas, decline in government infra spending and heat waves which remains a key cause of concern. We remain watchful of the same.

The stock trades at a fair valuation of 3.9x FY26E core book value, with RoA/ RoE at ~2.8%/~19%, respectively. Hence, we maintain our Hold rating on the stock with a revised target price of Rs 4,300 (earlier Rs 4,000).

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