Sundaram Finance Q3 Results Review: Inline; Market Share Gain Drive Growth  — Systematix Maintains 'Hold'

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Systematix Research Report

Sundaram Finance Ltd. reported better than expected net interest income at Rs 6.4 billion (versus estimate of Rs 5.9 billion) registering a growth of 28% YoY (14% QoQ) led by healthy business growth and NIM (calc) expansion (43 bps QoQ). However, due to lower other income, operating profit was in line with estimates.

Credit cost for the quarter inched up by 8bps QoQ at 74bps. AUM growth remained strong at 19% YoY (5% QoQ) aided by strong growth in disbursements (19% YoY / 13% QoQ) which is led by market share gain across products.

Asset quality deteriorated marginally with gross/ net stage 3 at 1.7%/1.0% (+8bps QoQ). Provision coverage ratio on stage 3 assets also dropped to 43% vs 45% in Q2 FY25. Sundaram Finance has reported exceptionally strong disbursements growth during Q3 while its peers have witnessed a weak disbursements trend.

At the industry level commercial vehicle segment (CV segment forms ~45% of total AUM for Sundaram Finance) continue to report a weak sales growth despite festive season, which is concerning. The stock trades at a fair valuation of 3.5x FY27E core book value, with RoA/ RoE at ~3%/~19%, respectively. Hence, we maintain our Hold rating on the stock with a revised target price of Rs 4,450 (earlier Rs 4,300).

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