Centrum Broking
Sundaram Finance (Reduce)
Target: ₹2,400
CMP: ₹2446.05
Sundaram Finance earnings were mixed with PAT beating estimates driven by NII but asset quality was a miss. NIM was a beat led by better yields and lower interest cost.
Sundaram Finance may continue to enjoy lower funding cost in FY22, providing NIM cushion, as leverage reduced over FY19-21. Though AUM growth was muted, credit flow in FY22 may be better in FY22 compared to FY21.
Utilisation levels may revert back to Feb’21 levels in Sep’21 and hence demand could pick-up strongly only in H2-FY22. Commercial vehicles related to the construction sector and cars/ICV/LCV/tractors could see traction sooner. Management guidance of uptick in CV volumes in H1CY22 is intact.
The company was more focused on safety of its employees/customers which resulted in protracted recoveries and GNPA surge. Collection efficiency (CE) is yet to reach pre-Covid levels though in July’21 it rose to April’21 levels, which is expected to gradually increase. PCR dipped q-o-q but company interaction suggests that with provisioning level maintained and a reduction absolute GNPA due to better recoveries, PCR would improve. The restructured pool rose q-o-q from 4.4 per cent to 4.7 per cent. Maintain FY23 core ABV multiple at 4.0x and target price at ₹2,400. Risks: Higher stress.