Sundaram Finance – Grabbing little pockets of opportunities available

Update on the Indian Equity market:

On Monday, NIFTY closed +0.22% higher. Among sectoral indices NIFTY Realty (+1.64%), NIFTY Auto (+1.47%), NIFTY Pharma (+1.19%) closed higher while NIFTY PSU Bank (-0.53%), NIFTY IT (-0.32%) ended on a negative note. The biggest gainers were ONGC (+5.50%), TATA Motors (+5.03%), Bharti Airtel (+2.62%) whereas Infosys (-3.50), Bajaj Finance (-2.65%), Bajaj FinServ (-1.22%) closed with high losses.

Excerpts from an interview with T.T Srinivasaraghavan, managing director, Sundaram Finance with CNBC- tv18

• Talking about prevailing scenario in NBFC space Mr Srinivasaraghavan says NBFCs is probably the lousiest coinage that you could have for any industry, this is because it is as heterogeneous as anything could be.
• However, he says, that clubbing everything together and saying NBFC is stressed sector will probably will be overstatement
• Speaking about on ground situation he says, it is not looking much different and there are no signs on reviewal in short term.
• There is overcapacity and nothing has happened much on the manufacturing side to soak up this additional capacity. Plus, the uncertainty about BS VI continues.
• Right now, growth is not a priority from company’s point of view, because in a market which is tanking, it is not appropriate to swim against the tide and growing topline in an aggressive way is certainly not a part of the Sundaram Finance DNA.  
•  The focus is making asset quality robust and grabbing coming opportunities.
• Speaking about further quarters he says, higher delinquencies cannot rule that out, because in many states, there have been local issues where governments have either held back on payments to contractors or governments have rescinded contracts.
• So, these local issues will certainly affect the cash flows.
• Speaking about government purchases or the State Transport Undertaking (STU) purchases, he says, it is not really going to feed into business for banks and NBFCs but it will be a benefit for original equipment manufacturers’ (OEMs).
• Mr Srinivasaraghavan says, now that interest rates have come down, corporate tax Is reduced. Corporates should come up and take some responsibility and do something that will help in near future instead of cribbing.
• Mr srinivasaraghavan says the overcapacity is cyclical but this the longest one. He says, we should not worry about it in long term.
• Scrappage is a welcome thing but it wont act as a magical wand. It has to accompanied by several other things.
• He says, monsoon have been a great positive news in a gloomy horizon. At least we can hear about people enquiring, people may be looking at perhaps some buying, so post Diwali perhaps there could be some buying taking place.
• He adds, that this time we will have a ‘pa’ shaped recovery, which is a Tamil alphabet. It is a flat line at the bottom, it is neither a U nor a V. It is two vertical lines on the side and a horizontal line connects both of them.

Consensus Estimate (Source: market screener website)

• The closing price of Sundaram Finance was ₹ 1,610/- as of 14-October-19. It traded at 24.5x/ 21.5x/ 21.0x the consensus EPS for FY 20E/ FY 21E/ FY 22E of ₹ 65.6/ 74.7/ 76.5 respectively.
• It trades as P/B 3.1x/2.8x/2.6x the consensus Book value per share for FY20E/FY 21E/FY22 of 507/568/607.