SUNDARAM FINANCE LTD. Result Update (PARENT BASIS): Q4 FY14 SYNOPSIS. Recommendation BUY CMP Target Price

Transcription

1 SUNDARAM FINANCE LIMITED Result Update (PARENT BASIS): Q4 FY14 ISIN: INE660A01013 MAY 30 th, 2014 STOCK DETAILS Sector Financial Services BSE Code Face Value wk. High / Low (Rs.) / Volume (2wk. Avg ) Market Cap ( Rs in mn ) Annual Estimated Results (A*: Actual / E*: Estimated) Years FY14A FY15E FY16E Net Sales EBITDA Net Profit EPS P/E Shareholding Pattern (%) 1 Year Comparative Graph SUNDARAM FINANCE LTD S&P BSE SENSEX Recommendation BUY CMP Target Price SYNOPSIS Sundaram Finance Ltd incorporated in 1954 has grown today into one of the most trusted financial services groups in India. During Q4 FY14, net profit jumps to Rs mn against Rs mn in Q4 FY13, an increase of 11.19%. Revenue for the quarter just rose by 0.93% to Rs mn from Rs mn, when compared with the prior year period. EBITDA is Rs mn as against Rs mn in the corresponding period of the previous year. The Company has registered 8% growth in Net profit for the year ended 31 st March, 2014 at Rs mn as compared to Rs mn in FY13. Gross NPA and Net NPA as on 31 March, 2014 stood at 1.23% and 0.45% respectively. Gross receivables managed by the company stood at Rs mn as on 31 March, 2014 as against Rs mn as on 31 March, Net worth increased to Rs mn as on 31 March, 2014 from Rs mn as on 31 March, The deposit base of the Company has crossed Rs million and stood at Rs million as on 31 March, Disbursements for the year ended 31 March, 2014 stood at Rs mn as against Rs mn registered in the same period the previous year. Sundaram Finance Ltd recommended a dividend of Rs. 10/- per share for the FY2014. Net Sales and PAT of the company are expected to grow at a CAGR of 8% & 9% over 2013 to 2016E respectively. PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND COMPANY NAME (Rs.) Rs. in Mn. (Rs.) Ratio Ratio (%) Sundaram Finance Ltd Shriram Transport Finance Co. Ltd Bajaj Finance Ltd Reliance Capital Ltd

2 Recommendation & Analysis - BUY Sundaram Finance Limited has registered 8% growth in Net profit for the year ended 31 st March, 2014 at Rs mn as compared to Rs mn in the previous year. Revenue for the for the year ended 31 st March, 2014, risen by 7% to Rs mn from Rs mn in previous year. During Q4 FY14, net profit jumps to Rs mn against Rs mn in Q4 FY13, an increase of 11.19%. Revenue for the quarter just rose by 0.93% to Rs mn from Rs mn, when compared with the prior year period. Profit before interest, depreciation and tax is Rs mn as against Rs mn in the corresponding period of the previous year. Gross NPA and Net NPA as on 31 March, 2014 stood at 1.23% and 0.45% respectively. Gross receivables managed by the company stood at Rs mn as on 31 March, 2014 as against Rs mn as on 31 March, Net worth increased to Rs mn as on 31 March, 2014 from Rs mn as on 31 March, The deposit base of the Company has crossed Rs million and stood at Rs million as on 31 March, Disbursements for the year ended 31 March, 2014 stood at Rs mn as against Rs mn registered in the same period the previous year. Sundaram Finance has a Nation-wide presence with 572 branches, over 2 lakh depositors and nearly 100,000 commercial vehicle and car finance customers. The Company continues to focus on the M&HCV segments and it will plan to expand its presence in newer segments such as LCV s and tractors. Over FY E, we expect the company to post a CAGR of 8% and 9% in its top-line and bottom-line respectively. Hence, we recommend BUY for Sundaram Finance Ltd with a target price of Rs for medium to long term investment.

3 FINANCIAL HIGHLIGHTS (PARENT BASIS) Results updates- Q4 FY14, Sundaram Finance Ltd. incorporated in 1954 has grown today into one of the most trusted financial services groups in India, reported its financial results for the quarter ended 31 st March, Months Mar-14 Mar-13 % Change Net Sales PAT EPS EBITDA The company s net profit jumps to Rs million against Rs million in the corresponding quarter ending of previous year, an increase of 11.19%. Revenue for the quarter just rose by 0.93% to Rs million from Rs million, when compared with the prior year period. Reported earnings per share of the company stood at Rs a share during the quarter, registering 11.19% increase over previous year period. Profit before interest, depreciation and tax is Rs million as against Rs million in the corresponding period of the previous year. Expenditure: Break up of Expenditure (Rs. in million) Q4 FY14 Q4 FY13 CHNG % Employee Benefit Expenses Administrative & Other Expenditure Depreciation & Amortization Expense Provisions and written off % % % %

4 Latest Updates Sundaram Finance Ltd recommended a dividend of Rs. 10/- per share (100%) for the financial year ended March 31, Gross NPA and Net NPA as on 31 March, 2014 stood at 1.23% and 0.45% respectively. Gross receivables managed by the company stood at Rs mn as on 31 March, 2014 as against Rs mn as on 31 March, Net worth increased to Rs mn as on 31 March, 2014from Rs mn as on 31 March, The deposit base of the Company has crossed Rs million and stood at Rs million as on 31 March, Disbursements for the year ended 31 March, 2014 stood at Rs mn as against Rs mn registered in the same period the previous year. Company Profile Sundaram Finance Ltd. incorporated in 1954 has grown today into one of the most trusted financial services groups in India. Today, the activities of the group span savings products like Deposits and Mutual Funds, Car and Commercial Vehicle Finance, Insurance, Home Loans, Software Solutions, Business Process Outsourcing, Tyre Finance, Fleet Cards, Tractor Finance and Mutual Funds R&T. Sundaram Finance has a Nation-wide presence with 572 branches, over 2 lakh depositors and nearly 100,000 commercial vehicle and car finance customers. Sundaram Home Finance Limited was incorporated on July 2, 1999, under the Companies Act 1956 and Union de Credit pour le Batiment (UCB) a wholly-owned subsidiary of BNP Paribas, France, had entered into an agreement on 9th May 2007, regarding a strategic partnership in housing finance in India whereby UCB will acquire a 49.9% stake in Sundaram Home Finance Limited, a subsidiary of Sundaram Finance Limited. Consequent to the completion of the regulatory approvals, the name of the Company has been changed to Sundaram BNP Paribas Home Finance Limited effective 28th November Sundaram Business Services provides back office services for administrators of Self Managed Superannuation Funds (SMSF) as well as book keeping and portfolio management back office services.

5 Business Areas Retail Business Car Finance Sundaram Finance is one of the largest and a leading player in the area of car finance. We extend finance on all makes and models of cars. Home Finance Home Loans Home Extension Loans Land Loans LAMP Home Improvement Loans Finance Business Commercial vehicles Finance Sundaram Finance is one of the oldest and largest providers of finance for the acquisition of commercial vehicles of all makes. Construction equipments Finance Sundaram Finance Limited provides finance for excavators, loaders, dumpers, tippers, compacters, compressors etc. Tractor Finance Finance tractors, sugarcane harvesters, grain harvesters, and implements. Fleet Card Tyre Finance Mortgage Loans Services InfoTech Solutions Business Process Outsourcing Insurance Mutual Funds R & T

6 Financial Highlight (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions) Balance sheet as at March31 st, E FY13A FY14A FY15E FY16E SOURCES OF FUNDS Shareholder's Funds Share Capital Reserves and Surplus Sub Total - Net worth Non Current Liabilities Long term borrowings Other Long term Liabilities Long Term Provisions Sub Total - Non Current Liabilities Current Liabilities Short term borrowings Trade Payables Other Current Liabilities Short Term Provisions Sub Total - Current Liabilities Total Liabilities (1+2+3) APPLICATION OF FUNDS Non-Current Assets a) Fixed Assets b) Non-current investments c) Long Term loans and advances d) Deferred Tax Asset e) Other non-current assets Sub Total - Non Current Assets Current Assets Current Investment Trade receivables Cash and Bank Balances Short-terms loans & advances Other current assets Sub Total - Current Assets Total Assets (1+2)

7 Annual Profit & Loss Statement for the period of 2013 to 2016E Value(Rs.in.mn) FY13A FY14A FY15E FY16E Description 12m 12m 12m 12m Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross profit Depreciation Profit Before Tax Tax Net Profit Equity capital Reserves Face value EPS Quarterly Profit & Loss Statement for the period of 30 th Sep, 2013 to 30 th June, 2014E Value(Rs.in.mn) 30-Sep Dec Mar Jun-14E Description 3m 3m 3m 3m Net sales Other income Total Income Expenditure Operating profit Interest Gross profit Depreciation Profit Before Tax Tax Net Profit Equity capital Face value EPS

8 Ratio Analysis Particulars FY13A FY14A FY15E FY16E EPS (Rs.) EBITDA Margin (%) 85.13% 85.88% 85.72% 85.74% PBT Margin (%) 28.73% 29.19% 29.72% 30.15% PAT Margin (%) 19.88% 19.97% 20.40% 20.71% P/E Ratio (x) ROE (%) 19.65% 18.40% 17.00% 15.59% ROCE (%) 19.46% 20.26% 18.64% 18.50% Debt Equity Ratio EV/EBITDA (x) Book Value (Rs.) P/BV Charts

9 Outlook and Conclusion At the current market price of Rs , the stock P/E ratio is at x FY15E and x FY16E respectively. Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs and Rs respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 8% and 9% over 2013 to 2016E respectively. On the basis of EV/EBITDA, the stock trades at 8.71 x for FY15E and 8.32 x for FY16E. Price to Book Value of the stock is expected to be at 3.41 x and 2.88 x respectively for FY15E and FY16E. We recommend BUY in this particular scrip with a target price of Rs for Medium to Long term investment. Industry Overview The services sector has been a great stimulus to the Indian economy accounting for 56.9 per cent of the gross domestic product (GDP), wherein the financial services segment has been a major contributor. The growth of the financial sector in India at present is nearly 8.5 per cent per year. Dominated by commercial banks which have over 60 per cent share of the total assets, India s financial sector comprises commercial banks, insurance firms, non-banking institutions, mutual funds, cooperatives and pension funds, among other financial entities.

10 The last two decades have seen the sector developing a more contemporary outlook. The Government of India has helped in this development, introducing reforms to liberalise, regulate and enhance the country s financial services. Today, India is recognised as one of the world s most vibrant capital markets. Notwithstanding challenges, the sector s future seems to be in good hands. Insurance Sector Digital channels will influence nearly 75 per cent of the insurance policies sold by 2020 during the pre-purchase, purchase or renewal stages, according to a report titled Digital@Insurance-20X By 2020 by Boston Consulting Group (BCG) and Google India. According to the report, insurance sales from online channels will be 20 times what it is today by 2020, with overall internet influenced sales expected to be around Rs 300, ,000 crore (US$ billion). Indian insurance companies will spend Rs 12,100 crore (US$ 2.01 billion) on information technology (IT) products and services in the current year, a 12 per cent increase over 2013, according to Gartner Inc. This forecast takes into account spending by insurers on internal and external IT services, software, hardware and telecommunications. The software segment is predicted to be the fastest developing external segment, which is increasing at 18 per cent in 2014 overall, driven by the growth of insurance-specific software. Mutual Funds Industry in India More than 80 per cent of Indian investors are satisfied with their mutual fund schemes, according to a survey by Financial Intermediaries Association of India (FIAI). The survey also stated that 60 per cent of the mutual fund investors were satisfied with services of advisers and distributors of investment schemes. Private Equity, Mergers & Acquisitions in India Mergers and acquisitions (M&A) activity between India and the European Union is poised to grow in FY , according to Mumbai-based investment bank Avendus Capital. The IT and business process outsourcing (BPO) industry are expected to lead the way in scouting for acquisitions in Europe. Private equity (PE) firms invested US$ 2.27 billion in the period of January March 2014, a 93 per cent increase from the investments (US$ 1.18 million) made during the same quarter of There were five investments of US$ 100 million or more in the quarter against one in the corresponding period of Foreign Institutional Investors (FIIs) in India Non-resident Indians (NRIs) and FIIs will now be allowed to invest in the insurance sector, within the overall 26 per cent cap on foreign direct investment (FDI). The department of industrial policy and promotion (DIPP) in a

11 press note confirmed that apart from insurance companies, the relaxation would also cover insurance brokers, third-party administrators (TPAs), surveyors and loss assessors. FIIs were gross buyers of debt securities valued at Rs 30,266 crore (US$ 5.07 billion) and sellers of bonds worth Rs 11,450 crore (US$ 1.91 billion) in the period January 1 24, 2014, which resulted in a net inflow of Rs 18,816 crore (US$ 3.15 billion), according to data released by the Securities and Exchange Board of India (SEBI). Also, during the same period, FIIs invested Rs 3,473 crore (US$ million) into the equity market, making their total investment in debt and stocks to be around Rs 22,289 crore (US$ 3.73 billion). Foreign investors invested about Rs 371,342 crore (US$ billion) into India s stock market in the four years ended December This figure surpasses the investments in the boom years of Investments by FIIs in the Indian stock market crossed the Rs 1 trillion (US$ billion) mark in December 2013 the third time this has been achieved since FIIs entry into the capital market in Financial Services in India: Recent Developments American Express Co. has bought a minority stake in Bengaluru-based payment device maker Ezetap Mobile Solutions. In February 2014, Ezetap had received venture funding of Rs 49.8 crore (US$ 8.34 million) from a group of investors headed by venture fund Helion Venture Partners. Non-banking financial company (NBFC) Manappuram Finance Ltd (MFL) has entered into an agreement to acquire Milestone Home Finance Company from Jaypee Hotels. The transaction is MFL's strategy to broaden its business by venturing into the profitable lucrative housing finance space, as per a press statement released by the company. Financial Services: Government Initiatives Given the growth of the Indian film industry, Third Eye Cinema Fund (TCEF), a SEBI-registered alternative investment fund, is set to enter the Indian market. Those not connected with the Hindi film segment will now soon be able to reap the benefits of the sector s growth. TCEF aims to generate about 25 per cent returns. In an effort to give impetus to bilateral ties, India and South Korea have decided to strengthen cooperation in many key sectors, including trade, investment and defence. Nine pacts in different fields, including one in cyber space cooperation, were inked following talks between the Indian prime minister and the South Korean president.

12 Road Ahead India is one of the top 10 economies in the world, helped in no small part by its strong banking and insurance sectors. It is expected to become the fifth largest banking sector in the world by 2020 and the third largest by 2025, according to a joint report by KPMG CII. The report expects bank credit to grow at a compound annual growth rate (CAGR) of 17 per cent in the medium term leading to better credit penetration. The insurance sector also has bright times ahead. Life Insurance Council, the industry body of life insurers in India, has estimated a CAGR of per cent over the next few years for the segment, with the country s insurable population projected to touch 750 million by FY Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.

13 Firstcall India Equity Research: C.V.S.L.Kameswari Pharma U. Janaki Rao Capital Goods B. Anil Kumar Auto, IT & FMCG Suhani Adilabadkar Pharma & Banking M. Vinayak Rao Diversified C. Bhagya Lakshmi Diversified Firstcall India also provides Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO s, QIP s, F.P.O s,takeover Offers, Offer for Sale and Buy Back Offerings. Corporate Finance Offerings include Foreign Currency Loan Syndications, Placement of Equity / Debt with multilateral organizations, Short Term Funds Management Debt & Equity, Working Capital Limits, Equity & Debt Syndications and Structured Deals. Corporate Advisory Offerings include Mergers & Acquisitions(domestic and cross-border), divestitures, spin-offs, valuation of business, corporate restructuring-capital and Debt, Turnkey Corporate Revival Planning & Execution, Project Financing, Venture capital, Private Equity and Financial Joint Ventures Firstcall India also provides Financial Advisory services with respect to raising of capital through FCCBs, GDRs, ADRs and listing of the same on International Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and other international stock exchanges. For Further Details Contact: 3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai Tel. : / / Telefax : info@firstcallindiaequity.com