Sundaram Finance, part of the Sundaram Group, is a stalwart in the Non-Banking Financial Company (NBFC) sector in India. Established in 1954, its initial objective was to finance the purchase of commercial vehicles and passenger cars. From its humble beginnings with a paid-up capital of just ₹2 lakhs, Sundaram Finance has grown into a significant player in the financial services sector. The company went public in 1972, opening its doors to a broader investor base.
Today, Sundaram Finance is synonymous with trust and reliability in financial services, offering a wide range of products, including vehicle loans, home loans, mutual fund distribution, insurance, and other financial products. Over the decades, it has evolved into a mid-cap company with a robust market capitalization of ₹49,579 crore.
Business Overview
Sector: Finance
Industry: Finance – NBFC
Category: Mid Cap
Enterprise Value (EV): ₹49,579 crore
Sundaram Finance operates primarily in the financing sector, catering to the needs of individual and corporate clients. It has a diversified portfolio, covering loans for commercial and personal vehicles, home financing, leasing, deposits, and asset management services. The company’s commitment to delivering quality services has enabled it to maintain a strong foothold in India’s competitive financial landscape.
Key Financial Metrics
Sundaram Finance’s financial metrics paint a picture of stability and growth. Let’s delve into the key figures:
- Book Value per Share: ₹1,126.06
- Price-Earnings (PE) Ratio: 31.65
- PEG Ratio: 2.47
- Dividend Yield: 0.67%
These metrics indicate that while the stock is relatively expensive compared to its peers (as reflected in its high PE ratio), it offers moderate dividend returns. The high book value per share signals robust shareholder equity.
Stock Performance
Sundaram Finance has been a strong performer in the stock market, delivering consistent returns over the years. Below is a detailed analysis of its performance across different time frames:
- 1-Day Performance: ▲ 0.7%
- 1-Month Performance: ▲ 7.0%
- 1-Year Performance: ▲ 21.7%
- 2-Year Performance: ▲ 93.0%
- 5-Year Performance: ▲ 166.2%
- 10-Year Performance: ▲ 258.5%
The data showcases the company’s ability to generate long-term wealth for its investors. Despite occasional short-term corrections, its consistent upward trajectory makes it an attractive option for long-term investors.
Fundamental Analysis
Fundamentals play a critical role in evaluating Sundaram Finance’s investment potential. Below is a breakdown of its profitability, growth, and other critical metrics:
Profitability Ratios
- Return on Equity (ROE): 13.55%
- Return on Capital Employed (ROCE): 9.27%
- Return on Assets (ROA): 2.37%
These ratios indicate efficient capital usage, though ROA is relatively low, suggesting limited efficiency in utilizing total assets.
Income Statement Highlights
- Net Sales: ₹8,013.52 crore
- EBITDA: ₹6,328.76 crore
- Net Profit: ₹1,566.36 crore
- Adjusted EPS: ₹141.50
The company’s strong EBITDA and net sales growth underscore its operational efficiency and market demand. However, high interest costs remain a concern.
Technical Analysis
Sundaram Finance’s technical indicators provide insights into its current momentum and potential price movements:
Momentum Indicators
- Relative Strength Index (RSI):
- Daily: 56.00 (Neutral)
- Weekly: 49.80 (Neutral)
- Commodity Channel Index (CCI): 135.30 (Overbought)
- Stochastic %K: 88.94 (Bullish)
- William %R: -15.04 (Overbought)
The bullish momentum suggests strong investor interest in the short term. However, overbought indicators signal a possible correction in the near future.
Trend Analysis
- Average Directional Index (ADX): 17.48 (Range-bound).
- Moving Average Convergence/Divergence (MACD): -20.71 (Negative).
The MACD’s negative reading and range-bound ADX indicate that the stock might lack strong upward momentum in the immediate term.
Volatility Indicators
- Average True Range (ATR): 172.80 (Moderate volatility).
- Bollinger Band %B: 0.93 (Close to upper band).
The stock is trading near its upper Bollinger Band, reflecting overbought conditions.
Strengths
- Established Reputation: Over six decades of operations make Sundaram Finance a trusted name in the NBFC sector.
- Diversified Portfolio: Offers a wide range of financial products and services.
- Consistent Dividend History: While modest, its dividend yield appeals to conservative investors.
- Steady Growth: Demonstrates strong performance over long-term horizons, with a 10-year price increase of 258.5%.
Weaknesses
- High Valuation: A PE ratio of 31.65 indicates that the stock is expensive compared to its peers.
- Low ROA: The return on assets is below the industry average, signaling inefficiency in utilizing resources.
- Interest Expenses: High interest costs impact profitability significantly.
- Moderate Dividend Yield: At 0.67%, the dividend yield may not satisfy income-focused investors.
Opportunities
- Rural Expansion: With increasing penetration into rural and semi-urban areas, Sundaram Finance can tap into a vast underserved market.
- Digital Transformation: Adopting AI and digital platforms can enhance customer experience and operational efficiency.
- Partnerships and Alliances: Collaborations with automobile manufacturers and real estate developers can drive loan growth.
- Economic Growth: India’s expanding economy and rising disposable income levels support demand for vehicle and housing loans.
Threats
- Regulatory Challenges: Stringent RBI regulations on NBFCs could limit operational flexibility.
- Macroeconomic Risks: Any downturn in the automotive or real estate sectors can directly impact loan disbursements.
- Competitive Pressure: Intense competition from banks and fintech companies poses a threat.
- Rising Interest Rates: Higher rates may discourage borrowing and increase the cost of funds.
Comparative Analysis
When compared to its peers like Bajaj Finance and Mahindra Finance, Sundaram Finance has a more conservative growth profile but boasts stability and reliability. Its diversified portfolio and long-standing reputation differentiate it from competitors, making it an attractive choice for risk-averse investors.
Investment Potential
For investors looking for long-term wealth creation, Sundaram Finance offers a compelling case. Its consistent performance, diversified offerings, and strong fundamentals make it a valuable addition to a balanced portfolio. However, short-term investors should tread carefully due to its high valuation and overbought technical indicators.
Conclusion
Sundaram Finance stands as a beacon of stability and reliability in India’s NBFC sector. Its strong fundamentals, robust market performance, and consistent dividend history make it a compelling choice for long-term investors. While challenges like high valuations and regulatory risks persist, the company’s ability to adapt to market changes and leverage growth opportunities positions it well for sustained success. Investors should monitor technical indicators closely and consider entry points carefully to maximize returns.
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