• OUTLOOK ARENA
  • VIEWS ON NEWS
  • JUNE 10, 2002

Sundaram Finance: Challenges ahead

Sundaram Finance (SFL) has reported a steep 12% decline in full year revenues and a 36% drop in fourth quarter topline. However, excluding the amount of Rs 863 m, which was included in the previous year's income on account of a change in method of income recognition, total income in FY02 was higher by 6%. Consequently, financial performance of the company in FY02 is not strictly comparable.

(Rs m)4QFY014QFY02ChangeFY01FY02Change
Income from Operations 1,904 1,212 -36.4% 5,271 4,617 -12.4%
Other Income 29 42 45.1% 54 111 103.2%
Interest & depreciation 921 797 -13.4% 3,246 3,241 -0.1%
Net interest income 984 414 -57.9% 2,025 1,376 -32.1%
Other Expenses 186 148 -20.7% 591 592 0.1%
Operating Profit 798 267 -66.6% 1,434 784 -45.3%
Operating Profit Margin (%)41.9%22.0% 27.2%17.0% 
Provisions and Contingencies 549 130-76.3% 693 298-57.0%
Profit before Tax 277 178 -35.7% 795 597 -25.0%
Tax (126)59- 90 193114.7%
Profit after Tax/(Loss) 403 119 -70.5% 705 404 -42.8%
Net Profit Margin (%)21.2%9.8% 13.4%8.7% 
No. of Shares (m) 24.0 24.0   24.0 24.0  
Diluted Earnings per share*67.219.9 29.416.8 
P/E Ratio 6.7  7.9 
*(annualised)      

SFL has achieved a growth of 18% in hire purchase and loan disbursements in FY02. Its gross disbursements grew at a CAGR of 20% in the last three years to Rs 12.2 bn. The company has consciously been reducing its exposure to the corporate sector, specifically to plant and machinery financing. Accordingly, leasing disbursements to this segment, which amounted to Rs 1 bn in the previous year declined to Rs 280 m in FY02. Improvement in quality of assets reduced its net NPA ratio to 2.4% of total loan assets from 4% in the previous year.

During the year, the company's cost to income ratio jumped to 40% from 28% in the previous year, due to higher establishment expenses and less than proportionate decline in interest cost. Its effective tax rate too increased to 32%, as the company provided Rs 181 m on account of deferred tax liability. Non-performing assets provisions, on the other hand, was lower as the company resorted to aggressive write-offs in the previous year, in the wake of the merger of its subsidiaries.

Among other new initiatives, SFL has entered into an agreement with SBI Life to distribute life insurance products. It has already started offering general insurance products in alliance with Royal and Sun Alliance. The company's home loan subsidiary has also booked advances worth Rs 2 bn. These new ventures are however, unlikely to contribute significantly to the company's profits in the near term.

At the current market price of Rs 133, Sundaram Finance is trading at a P/E of 8x and price to book value ratio of 0.7x. The company has traded in the average price to book value ratio of 1-1.5x in the last three years. With an aggressive entry of banks into retail financing, NBFC's are facing pressure on their business. SFL's peers including Kotak Mahindra has also reported decline in interest income. Although, NBFC's have expertise in hire purchase financing, their higher cost of funds compared to banks are trimming the growth in earnings. Consequently, it will be a tough task for SFL to improve business volumes in the coming years.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst)
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407