Target: ₹4,620
CMP: ₹4,442
Sundaram Finance (SUF) has implemented a revised strategy focusing on product diversification in retail commercial vehicles and commercial lending, along with geographic expansion beyond South India. Under the leadership of the current managing director, this approach has resulted in an impressive compound annual growth rate (CAGR) of 20% in assets under management (AUM) from FY23 to FY25, compared to a mere 9% CAGR between FY16 and FY22. This growth trajectory has persisted despite a sluggish commercial vehicle (CV) industry forecast for FY24-FY25, which is projected to grow at only around 2% CAGR.
A robust festive season, particularly notable in passenger vehicles (PVs) and tractors, is anticipated to stimulate loan growth, aided by recent reductions in Goods and Services Tax (GST) rates. The company’s core profitability remains strong, with a return on equity (RoE) estimated at 17-18%. This stability is supported by consistent net interest margins (NIMs) stemming from effective pricing strategies and optimization of liabilities. Although credit costs were elevated in Q1FY26, a normalization is expected moving forward, with credit costs for FY26 anticipated to remain slightly elevated.
The diversification strategy has been crucial in allowing SUF to achieve superior loan growth. Given the muted shareholder returns observed in recent quarters, the current valuations, estimated at 3.3 times the March 2027 adjusted book value per share (ABVPS), present a favorable risk-reward scenario. Consequently, the company has been upgraded from “Reduce” to “Add,” with a revised sum-of-the-parts (SOTP) target price set at ₹4,620, based on an implied valuation of 3.3 times the September 2027 ABVPS.
Published on October 14, 2025
