Sundaram Finance

Industry to see a spike in NPA’s in Q3 – Sundaram Finance

Update on the Indian Equity Market:
On Monday Nifty closed 0.2% lower at 11,440. Among the sectoral indices Bank (-1.8%), PVT Bank (-1.5%), and FIN Services (-1.7%) closed lower. IT (+4.4%), Realty (+3.7%), and Media (+1.5%) closed higher. Bharti Airtel (-3.8%), Bajaj Finance (-3.2%), and BPCL (-3.2%) closed on a Negative note. HCL Tech (+10.6%), TCS (+4.9%), and Wipro (+4.5%) were among the top gainers.

Excerpts from an interview of Mr. TT Srinivasaraghavan, MD, Sundaram Finance with ET NOW dated 14th September 2020:

• Mr Srinivasaraghavan said the situation is better and the negativism has started to lift.
• The company continues to focus on prudence and in terms of protecting asset quality.
• The moratorium has ended 10 days ago and now the company is moving into real world.
• He says, the next 4 months ending December are going to be curtail from an asset quality portfolio preservation perspective.
• The growth is coming back is selected few segments, the disbursals in August 20 were 70% of August 19 and September20 is looking similar side or little more.
• The rural and infrastructure segments are showing signs of growth.
• For Commercial Vehicles the first 5 months was a no show and an estimate of the company says that some growth will be seen in Q4FY21E.
• Given current situation he said the current portfolio will be skewed away from Medium and Heavy commercial vehicles.
• The company is well capitalized and there is no need to raise capital.
• On the NPA front, he said that it’s too early to spot a trend but people have started to repay and collections have started to flow in.
• He says, In Q3 the industry will see a spike in NPA’s.
Consensus Estimate: (Source: market screener and websites)
• The closing price of Sundaram Finance was ₹ 1,335/- as of 14-September-2020. It traded at 28x/ 19x/ 21x the consensus Earnings per share estimate of ₹ 47.8/70.5/63.5 for FY21E/ FY22E/ FY23E respectively.

• The consensus average target price for Sundaram Finance is ₹ 1,423/- which implies a PE multiple of 22x on FY23E EPS of ₹63.5/-.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Disbursement growth is not a priority in current market conditions- MD, Sundaram Finance.

Update on the Indian Equity Market:

On Monday, NIFTY took a hit and declined 1.9% due to escalation in US-Iran tensions. India is highly dependent on crude oil imports and the market is worried about a rise in crude oil prices and the resultant rise in inflation. Among the sectoral indices, the worst hit were NIFTY PSU BANKS (-4.3%), NIFTY METAL (-2.9%) and NIFTY BANK (-2.6%). No sector closed in the green. Among NIFTY50 stocks, SBIN (-4.6%), BAJFINANCE (-4.5%) and VEDL (-4.5%) were the worst hit. TITAN (+1.5%), WIPRO (+0.3%) and DRREDDY (0.04%) were among the very few gainers.

Disbursement growth is not a priority in current market conditions- MD, Sundaram Finance.

Excerpts from an interview with Mr TT Srinivasaraghavan – MD, Sundaram Finance. The interview aired on CNBC TV18 on 2nd January 2020.

  • Being a vehicle finance lender, Sundaram Finance has been impacted due to the demand slowdown across the auto sector.
  • Mr Srinivasaraghavan says there is no underlying reason for the demand situation to change as far as CVs, especially MHCVs, are concerned. He does not see any green shoots as of now. Some green shoots might be visible 3QFY21 onwards.
  • There is little bit of replacement demand for buses by municipalities and state governments. Not so much improvement on the Infrastructure front.
  • Infrastructure was the engine that drove the economy for the last 5 years and everyone had hoped that would continue. Expected action on the infrastructure front by the government hasn’t happened. If the FM’s recent announcement of Rs 102 tn infrastructure projects kicks off, then there could be some serious projects coming up that would trigger buying.
  • Sundaram Finance’s disbursements in 1HFY20 were 1.5% lower YoY compared to 15.5% growth YoY in 1HFY19.  Mr Srinivasaraghavan says that disbursement growth is not in the top 3 priorities in current conditions. With PVs down 18% YoY, MHCVs down 52% YoY and overall CVs down 22% YoY, now is not the time to chase growth. Maintaining robust portfolio quality and maintaining healthy margins are the priorities. These are turbulent times and one must fasten their seatbelts and hang on.
  • Sundaram Finance has seen a significant lowering in the cost of funds compared to a year-ago period.  Their market share has also improved, partly due to liquidity issues faced by some players. But even though the market share has improved, the market size itself has shrunk.
  • Sundaram Finance’s asset quality has deteriorated from GNPAs of 1.3% at the end of 4QFY19 to 2.2% as of the end of 2QFY20. Mr Srinivasaraghavan does not think the asset quality will improve dramatically in the near term although it will go back to more reasonable levels eventually.
  • NPA is a fair reflection of the stress the customers are facing. Transport operators are facing enormous stress due to a combination of overall economic factors such as projects not happening, terrible freight rates, state government pulling the plug on already running or awarded projects.  The operators will need 6-9 months for them to get out of this pressure on cash flows. The best that the company can do is to nurse the customers through this difficult period even if the asset quality is what it is.
  • Sundaram Finance has seen a small element of pre-buying from some larger customers in the last weeks of December. Mr Srinivasaraghavan’s suspicion is that they are coming up for replacement in the next 3-6 months and that’s why they are buying now when they can better negotiate the BS-IV prices. Also perhaps there are specific sectors where customers are seeing some green shoot. But green shoots all around is not the case yet.

Consensus Estimate (Source: market screener and website)

  • The closing price of SUNDARMFIN was ₹ 1,611/- as of 06-January-2020. It traded at 3.1x / 2.8x / 2.6x the consensus Book Value for FY20E / 21E / 22E of ₹ 514/ 582/ 623 respectively.
  • Consensus target price of ₹ 1,826/- implies a Price to Book multiple of 2.9x on FY22E Book Value of ₹ 623/-.

Sundaram Finance – Grabbing little pockets of opportunities available

Update on the Indian Equity market:

On Monday, NIFTY closed +0.22% higher. Among sectoral indices NIFTY Realty (+1.64%), NIFTY Auto (+1.47%), NIFTY Pharma (+1.19%) closed higher while NIFTY PSU Bank (-0.53%), NIFTY IT (-0.32%) ended on a negative note. The biggest gainers were ONGC (+5.50%), TATA Motors (+5.03%), Bharti Airtel (+2.62%) whereas Infosys (-3.50), Bajaj Finance (-2.65%), Bajaj FinServ (-1.22%) closed with high losses.

Excerpts from an interview with T.T Srinivasaraghavan, managing director, Sundaram Finance with CNBC- tv18

  • Talking about prevailing scenario in NBFC space Mr Srinivasaraghavan says NBFCs is probably the lousiest coinage that you could have for any industry, this is because it is as heterogeneous as anything could be.
  • However, he says, that clubbing everything together and saying NBFC is stressed sector will probably will be overstatement
  • Speaking about on ground situation he says, it is not looking much different and there are no signs on reviewal in short term.
  • There is overcapacity and nothing has happened much on the manufacturing side to soak up this additional capacity. Plus, the uncertainty about BS VI continues.
  • Right now, growth is not a priority from company’s point of view, because in a market which is tanking, it is not appropriate to swim against the tide and growing topline in an aggressive way is certainly not a part of the Sundaram Finance DNA.  
  •  The focus is making asset quality robust and grabbing coming opportunities.
  • Speaking about further quarters he says, higher delinquencies cannot rule that out, because in many states, there have been local issues where governments have either held back on payments to contractors or governments have rescinded contracts.
  • So, these local issues will certainly affect the cash flows.
  • Speaking about government purchases or the State Transport Undertaking (STU) purchases, he says, it is not really going to feed into business for banks and NBFCs but it will be a benefit for original equipment manufacturers’ (OEMs).
  • Mr Srinivasaraghavan says, now that interest rates have come down, corporate tax Is reduced. Corporates should come up and take some responsibility and do something that will help in near future instead of cribbing.
  • Mr srinivasaraghavan says the overcapacity is cyclical but this the longest one. He says, we should not worry about it in long term.
  • Scrappage is a welcome thing but it wont act as a magical wand. It has to accompanied by several other things.
  • He says, monsoon have been a great positive news in a gloomy horizon. At least we can hear about people enquiring, people may be looking at perhaps some buying, so post Diwali perhaps there could be some buying taking place.
  • He adds, that this time we will have a ‘pa’ shaped recovery, which is a Tamil alphabet. It is a flat line at the bottom, it is neither a U nor a V. It is two vertical lines on the side and a horizontal line connects both of them.

Consensus Estimate (Source: market screener website)

  • The closing price of Sundaram Finance was ₹ 1,610/- as of 14-October-19. It traded at 24.5x/ 21.5x/ 21.0x the consensus EPS for FY 20E/ FY 21E/ FY 22E of ₹ 65.6/ 74.7/ 76.5 respectively.
  • It trades as P/B 3.1x/2.8x/2.6x the consensus Book value per share for FY20E/FY 21E/FY22 of 507/568/607.