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Sundaram Fin: Looking for growth

Aug 23, 2002

Sundaram Finance (SFL) has reported a marginal improvement in financial performance for the quarter ended June 2002. The company's net interest income was flat for the first quarter compared to a 32% dip for the full year ended March 2002. SFL's net profits for the quarter grew by 3% due to lower tax provisions.

(Rs m)1QFY021QFY03Change
Income from Operations 1,170 1,121 -4.2%
Other Income 18 19 5.0%
Interest & depreciation 836 789 -5.6%
Net interest income 334 332 -0.7%
Other Expenses 138 143 3.6%
Operating Profit 197 189 -3.8%
Operating Profit Margin (%)16.8%16.9% 
Provisions and Contingencies 35 6996.4%
Profit before Tax 180 139 -22.4%
Tax 88 46-48.2%
Profit after Tax/(Loss) 91 94 2.6%
Net Profit Margin (%)7.8%8.4% 
No. of Shares (m) 24.0 24.0  
Diluted Earnings per share*15.215.6 
P/E Ratio 7.4 

Despite the difficult economic conditions and competitive retail finance market, SFL achieved a growth of 18% in hire purchase and loan disbursements in FY02. Gross disbursements of the company recorded a CAGR of 20% over the last three years. With lower interest rates, the company could achieve better growth rates in the current year for its loan disbursements. In the retail finance market, SFL focuses on vehicle financing, deposit acceptance and distribution of various financial products. Its subsidiaries and associate companies on the other hand, offer a range of financial products including mutual funds, home loans and insurance products.

During the quarter, the company's cost to income ratio increased marginally to 41% from 39% in 1QFY02. It has maintained its operating margins as 17% due to a significant reduction in depreciation charge (lower by 9%). Non-performing assets provisions meanwhile soared by 96%, which resulted in a 22% drop in pre tax profits.

At the current market price of Rs 116, Sundaram Finance is trading at a P/E of 7x and price to book value ratio of 0.6x. The company has traded in the average price to book value ratio of 1-1.5x in the last three years. Aggressive entry of banks into retail financing, is pressurizing the company's business. Although, SFL has expertise in hire purchase financing, its higher cost of funds compared to banks is trimming its earnings growth.

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