Broker’s call: Sundaram Finance

Target: ₹5,570

CMP: ₹4,652.95

Sundaram Finance reported strong AUM growth at 19 per cent y-o-y vs 20 per cent y-o-y (Q2-FY25) led by strong disbursements growth. Disbursements grew by 19 per cent led by market share gains across assets. Asset quality deteriorated slightly; however, it continues to remain best-in-class asset quality; collections stood at 91 per cent.

NIMs (calculated) have improved by 40bps q-o-q due to increase in yield on assets which resulted in strong NII growth (up 28 per cent y-o-y). We expect rate cut should boost the NIMs going ahead. PPoP grew by 36 per cent y-o-y led by lower operating expenses (up 9 per cent y-o-y). PAT grew by 16 per cent y-o-y led by higher provisions (up 3x). Thus, RoA remained stable at 2.5 per cent q-o-q. We have rolled over to FY27 Estimates.

The budgetary allocations towards infrastructure by the government should support CV cycle. We believe Sundaram Finance will continue to benefit from the same. Further, the diversification towards non-CV as well as strong performances by its subsidiaries is expected to continue to support premium valuation.

We upgrade to “Buy” rating with revised TP of ₹5,570 (earlier ₹5,160) valuing the parent business at 4x FY27E Core ABV.