Axis Securities, a leading brokerage firm in India has recommended investors buy the stocks of Sundaram Finance Ltd, one of India's leading NBFC (Non-Banking Financial Company). The brokerage has estimated a target price of Rs 2,195/share.
Sundaram Finance Ltd - Stock Overview
Friday, June 03, 2022, Sundaram Finance's share price closed at the Current Market Price (CMP) of Rs 702.85. It was opened at Rs 686, while the previous close was Rs 687.60. According to the CMP and the target price, it has the potential to gain 13%. It touched the level 52 week low of Rs 1,555 last month on 20, while it hit the 52 week high level of Rs 2,729 on 13 July 2021.
Demand Pick-up Encouraging, Asset Quality Improves
Sundaram Finance's (SUF) management indicated an overall improvement in the economic activity with demand regaining strength across segments and geographies in the first 2 months of FY23. However, rising oil prices and high inflationary pressure coupled with rising interest rates may lead to some downward pressure on demand in the near term. Overall, the management remained positive about the growth prospects of the commercial vehicle market going into FY23 and beyond. It expects broad-based recovery across all segments in the upcoming quarters and recovery to normalcy which will enable a pick-up in credit-offtake.
Reported an impressive growth rate in PAT
The company's Q4FY22 performance remained below our expectations with NII growing 9.7% YoY to Rs 529 Cr but down 2.3% QoQ. PPOP registered a degrowth of 5.2%/3.9% YoY/QoQ largely due to some one-off expenses in the quarter. However, the company reported an impressive growth rate in PAT 42.8%/47.6%YoY/QoQ, largely aided provision write-back.
Disbursements at Rs 3,751 Cr (up 13.5% YoY) were lower than expected, leading to AUM degrowth of 4.4% YoY. However, better collections led to higher repayments. G/NNPA post the impact of RBI circular stood at 5.88% and 4.52%, respectively. Barring the impact of the RBI circular on the NPA recognition, G/NNPA for Q4FY22 improved QoQ from 3.4%/2.1% to 2.2%/1.1%.
The management is witnessing recovery in Covid-impacted segments of buses, tourist taxi operators, and small market-load CV operators leading to better collection efficiency. Restructured pool improved significantly QoQ at 4.85% from 7.2% and the collections in this book are holding up well. Thus, barring any unforeseen disruption, the management expects the restructured book to decline significantly as it exits FY23E. Sundaram Finance remains well capitalised with Capital Adequacy Ratio at 24.2% (Tier I at 17.3%).
Axis Securities Comments & Views on valuation, Target Price
"Sundaram Finance has been conservative in building its loan book during uncertain times and we believe while this approach will help in controlling asset quality stress, overall growth will be calibrated. Despite the ups and downs in the CV cycle, the management's prudence in lending has led to otherwise consistent performance in the past resulting in strong return ratios (ROA +2.2%)," the brokerage has said.
The brokerage added, "We believe Sundaram Finance's well-diversified secured loan mix with strong underwriting practices and comfortable capital position will support operating performance. We upgrade our rating from HOLD to BUY with a target price of Rs 2,195/share (based on SOTP valuation), implying an upside of 20% from the Current Market Price."
Sundaram Finance Limited
Established in 1954, Sundaram Finance Limited is an is a Non-Banking Financial Company based in Chennai that offers Indian financial and investment services.
The company is engaged in retail finance across multiple domains like Vehicle finance, Home Finance, Mutual Funds, General Insurance and Financial service distribution.
The company is registered with the Reserve Bank of India (RBI) as a Systematically Important Deposit Accepting Non-Banking Financial Company. The Company has a market capitalisation of Rs 20,800 crore.
The stock has been picked from the brokerage report of Axis Securities. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decisions.