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Centrum Broking
Sundaram Finance (Add)
Target: ₹2,100
CMP: ₹2,180
Sundaram Finance earnings were ahead of estimates, led by better NIM/fee income. Net interest income at ₹460 crore (estimate ₹400 crore) was a beat driven by lower interest cost and gain on FV changes. Even after adjusting the same, net interest margin (NIM) saw a y-o-y uptick from 4.7 per cent to 5.1 per cent. This NIM level may not be sustainable and NIM could contract as the economy revives MHCV disbursals (lower yielding) would rise.
Business was strong with disbursals seeing an 8.5 per cent y-o-y growth while repayments were ₹3,650 crore. Due to the Government’s focus on growth, Sundaram Finance could see better credit off-take over FY22/23 which may result in core multiple reverting to its mean of 4.0x.
Sundaram Finance could be a beneficiary of the Governments focus on economic growth and hence we raise FY22 AuM growth to 14 per cent (earlier 11 per cent).
Restructured pool is 2.5 per cent of loans and CE rose further to 85-90 per cent; hence overall stress could be lower ahead. See RoA/RoE scale up to 2.3 per cent/14 per cent in FY23. The senior management change may not affect the DNA of Sundaram Finance with prudence being the priority.
We roll forward to FY23 core ABV and raise multiple/SOTP based TP to 4.0x/₹2,100.
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