visimoney
TLDR:
- Sundaram Finance reported a 6% decline in disbursements in Q3 due to muted growth in the automotive sector.
- Credit costs remained benign and asset quality parameters improved.
- PAT was up 24% YoY, despite lower-than-anticipated credit costs.
- The company’s Tier 1 Capital and CAR remain strong at 16% and 20%, respectively.
- The stock is currently trading at 4.4x FY25E P/ABV, and the target price is set at ₹3,720.
- The stock is downgraded to “add” post a 55% run-up since May 2023.
Sundaram Finance reported a 6% quarter-on-quarter decline in disbursements in Q3 due to muted growth in the automotive sector and lower-than-expected economic activity. Margins were impacted by the rise in CoF, while interest yields increased both YoY and QoQ. Credit costs remained benign, and asset quality parameters improved with collections and recovery activity.
Despite a miss on NII and operating profits due to lower-than-anticipated credit costs, the PAT for Q3 was ₹300 crore, up 24% YoY and 4% ahead of estimates. RoA/RoE for Q3-FY24 stood at 2.5%/14.3% compared to 2.6%/13.1% in Q3-FY23. The Tier 1 Capital and CAR remained strong at 16% and 20%, respectively. The company expects an AUM/PPOP/PAT CAGR of 21%/20%/20% over FY24-26, with a RoA/RoE of 2.9%/17.5% for FY26.
Sundaram Finance is currently trading at 4.4x FY25E P/ABV (core net worth), which fairly prices in growth and profitability. As a result, the stock is downgraded to “add” post a 55% run-up since May 2023. The standalone business is valued at 4x H1-FY26 P/ABV (₹2,886), and the subsidiaries are valued at ₹834 after applying a 20% holdco discount. The target price for the stock is set at ₹3,720.
