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Sundaram Finance: Outstanding results

Jun 26, 2001

Sundaram Finance (SFL) has beaten the industry trend by declaring a 37% jump in net profits for the year ended March '01. The company's topline too grew by about 16%. The company has recorded positive growth inprofits after an interval of two years. In FY99 and FY00, its earnings declined by 17% and 19% respectively.

(Rs m)FY00FY01Change
Income from operations 4,557 5,271 15.7%
Other Income 55 54 -0.5%
Financial expenses 3,042 3,246 6.7%
Operating Profit (EBDIT) 1,515 2,025 33.7%
Operating Profit Margin (%)33.2%38.4%
Operating expenses 526 591 12.3%
Profit before Tax1,0431,48842.6%
Provision & write off40669370.8%
Tax 122 90 -26.2%
Profit after Tax/(Loss) 516 705 36.8%
Net profit margin (%)11.3%13.4%
No. of Shares (eoy) (m) 24.0 24.0
Diluted Earnings per share 21.5 29.4
P/E (at current price) 3

SFL has merged its 65% subsidiary Sundaram Finance Services Ltd. (SFS) with effect from the first day of April '00. SFS incurred a loss of Rs 69 m in FY00. Its income from operations as on FY00 accounted for a marginal 4% of Sundaram Finance's topline. The operating margins of SFS are also significantly lower compared to SFL. In view of these facts, the merger has not added any value to SFL's financial performance.

Gross disbursement of SFL recorded an increase of 18% to Rs 11 bn. While disbursements in its core business of hire purchase jumped by 20% to Rs 10 bn, leasing business witnessed a decline of 4% to Rs 1 bn. Notwithstanding the fact of a 8% de-growth in the passenger car industry, SFL's unit volume financed increased by 20%. The company enjoys a 10% market share in the commercial vehicle industry and a 3% share in the passenger car segment.

Despite the tough market conditions SFL has reduced the ratio of gross non performing assets to advances to 6.2% as on March '01 (from 7% in FY00). The net NPA ratio at 4% is also one of the lowest in the finance sector. The ratio was just 1% for the retail business.

The company aims to focus on its core business of hire purchase in future and has targeted a growth of 20% in disbursements in the current year. It has also indicated that the higher growth will come from vehicle and retail financing.

At the current market price of Rs 91 SFL is trading at a P/E of 3x and Price/Book value ratio of 0.5x. The company maintained its dividend ratio to 60%. At current market price the dividend yield is 6.6% and the valuations of the company are also lower compared to its growth.

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