Buy Sundaram Finance, target price Rs 2490: Axis Securities

Axis Securities has buy call on Sundaram Finance with a target price of Rs 2490. The current market price of Sundaram Finance is Rs 2259.05. Time period given by analyst is six months when its price can reach defined target.
Sundaram Finance, incorporated in the year 1954, is a Large Cap company (having a market cap of Rs 25143.36 Crore) operating in NBFC sector.

Its key products/revenue segments include interest, fees & commission income, dividend, income from sale of share & securities, lease rentals, other services and bad debts recovery for the year ended March 31, 2022.

Financials
For the quarter ended June 30, 2022, the company has reported a consolidated total income of Rs 1252.67 crore, down 3.24 per cent from last quarter total income of Rs 1294.57 crore and down 0.76 per cent from last year same quarter total income of Rs 1262.32 crore. Company has reported net profit after tax of Rs 257.47 crore in latest quarter.

The company’s top management includes Mr.S Viji, Mr.T T Srinivasaraghavan, Mr.L Ganesh, Mr.R Raghuttama Rao, Ms.Shobhana Ramachandhran, Mr.S Prasad, Mr.S Mahalingam, Mr.S Ram, Mr.A N Raju, Mr.Rajiv C Lochan, Mr.Harsha Viji, Mr.P N Venkatachalam. Company has B K Khare & Co. as its auditors. As on March 31, 2022, the company has a total of 11 crore shares outstanding.

Investment Rationale
Sundaram Finance’s (SUF) management referred to an overall muted performance in the economic activity for Q1FY23 was largely driven by geopolitical pressures resulting in rising oil prices and high inflationary environment coupled with rising interest rates.

The company’s Q1FY23 performance remained below the brokerage's expectations with NII growing 8%YoY to Rs 531 Cr and 0.4% QoQ. PPOP registered a marginal growth of 3.4%/0.1%YoY/QoQ largely. The company reported an healthy growth rate in PAT 17.8% YoY owing to lower base of Q1FY22, however was down 24.5% QoQ due to overall subdued QoQ performance for NII and PPOP.

SUF reported highest ever first quarter disbursements at Rs 4,895 Cr (up 138 % YoY)leading to AUM growth of 2.4% YoY. G/NNPA post the impact of RBI circular stood at5.22% and 3.83%, respectively. Barring the impact of the RBI circular on the NPA recognition, G/NNPA for Q1FY23 moderated QoQ from 2.2%/1.1% to 2.51%/1.3%.

The brokerage believes SUF’s well-diversified secured loan mix with strong underwriting practices and comfortable capital position will support operating performance.

They maintain buy rating with a revised target price of Rs 2,490/share (based on SOTP valuation), implying an upside of 11% from the CMP.

Promoter/FII Holdings
Promoters held 38.49 per cent stake in the company as of March 31, 2022, while FIIs owned 9.91 per cent, DIIs 14.27 per cent.