Sundaram Finance Q3 Review - Earnings Inline; Lower Credit Cost Offsets Higher Cost Of Funds: Systematix

Systematix Report

Sundaram Finance Ltd.'s reported net interest income/operating profit of Rs 5 billion / Rs 4 billion, lower than estimates (Rs 5.3 billion/ Rs 4.4 billion) mainly due to contraction in net interest margin.

NIMs declined by ~14 basis points QoQ on account of higher increase in cost of funds (up 40 bps QoQ) versus increase in yields (up 26 bps QoQ).

However, aided by lower credit cost (21 bps versus 53 bps in Q2), profit after tax came in largely in-line at Rs 3 billion registering a growth of 24% YoY (-18% QoQ).

Assets under management growth continues to remain healthy at 26% YoY (5% QoQ), while disbursement growth moderated to 15% YoY (-6% QoQ). Disbursement growth was led by retail commercial vehicle and construction equipment. Asset quality improved with gross / net stage III at 1.8%/1.0%.

The stock trades at 3.3 times FY26E core book value, with return of asserts/return of equity at ~2.9%/~22%, respectively.

While we remain positive on the overall growth outlook for the company, we maintain our 'Hold' rating as the upside is limited, with a revised target price of Rs 4,050 (Rs 3,525 earlier).

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