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Centrum Broking
Sundaram Finance (Buy)
CMP: ₹1,204
Target: ₹1,450
Net interest income at ₹364 crore missed estimates by 1.6 per cent as AUM growth was lower at 3.3 per cent (est. 5.5 per cent). Net interest margin was mainly in line at 4.94 per cent. Other income was a bit lower but opex at ₹156 crore came in exactly as expected.
Equifax shares’ sale gains of ₹62.1 crore post tax, was included in other comprehensive income. Owing to lower net income, PPoP slightly missed est. by 2.5 per cent to ₹280 crore. Provisions too at ₹116 crore were as envisaged of which Covid-19 related were ₹27.2 crore.
GNPA/NNPA improved by 32 bps/44 bps q-o-q to 2.47 per cent/1.65 per cent. Lower tax led to an in-line PAT of ₹131 crore. For FY20, NII was lower that led to a PPoP miss though provisions were in-line. Normal PAT for FY20 was ₹660 crore (est. ₹680 crore).
Valuation and risks: Our FY21E loan growth/ provisions estimates are lower/higher which could see our FY21/22E PAT estimates decline by 10.4 per cent/2.3 per cent. We like Sundaram Finance for its credit practices and best-in-class asset quality. Valuation at about 2.2x core FY22 ABV is attractive.
Risks: Higher slippages and lower NIM.
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