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Axis Securities
Sundaram Fin (Buy)
Target: ₹1,818
CMP: ₹1,719.15
Sundaram Finance has reported better-than-expected earnings performance (PAT at ₹192 crore vs est. ₹171 crore) on account of better NIMs, lower-than-estimated provisions . NII was up 2 per cent and 12 per cent y-o-y and q-o-q respectively to ₹478 crore on improved NIMs.
Disbursements picked up at ₹3,174 crore, up from ₹929 crore q-o-q. C-I ratio improved to 30.8 per cent from 34.7 per cent q-o-q.
Provisions remained elevated, up 51/32 per cent y-o-y/q-o-q. G/NNPA stood at 2.14/1.17 per cent. Without standstill, GNPAs would have been 2.51/1.47 per cent.
The company has been conservative in its building its loan book during uncertain times and we expect that, while this approach will help in controlling asset quality stress, overall growth will be tepid especially in FY21. Despite the ups and downs in CV cycle, management’s prudence in lending has led to an otherwise consistent performance in the past resulting in strong return ratios (ROA +2 per cent).
We believe Sundaram Finance’s well diversified secured loan mix with strong underwriting practices and comfortable capital position will support SUF performance. Sharp pick-up in disbursements in Q2 is encouraging.
We upgrade our rating from Hold to Buy
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