Sundaram Finance Ltd Result Update: Q4 FY 12 C.M.P: Rs. 667.30 Target Price: Rs. 761.00 Date: Jun 11 th 2012 BUY Stock Data: Sector: Financial Services Face Value Rs. 10.00 52 wk. High/Low (Rs.) 769.00/420.00 Volume (2 wk. Avg.) 2410.00 BSE Code 590071 Market Cap (Rs in mn) 37069.85 Share Holding Pattern 1 Year Comparative Graph SYNOPSIS Sundaram Finance Ltd incorporated in 1954 has grown today into one of the most trusted financial services groups in India. During the quarter, the robust growth of Net Sales is increased by 16.88% to Rs. 4677.15 million. The company provides Deposits & Mutual Funds, Car & Commercial Vehicle Finance, Insurance, Home Loans, Software Solutions, BPO, Tyre Finance, Fleet Cards, Tractor Finance and Mutual Funds R&T. The company has recommended a dividend of Rs. 8/- per share (80%). This, together with the interim dividend of Rs. 7.50 per share (75%) paid on February 10, 2012 will make a total dividend of Rs. 15.50 per share (155%). SUNDARAM FINANCE BSE SENSEX Net Sales and PAT of the company are expected to grow at a CAGR of 17% and 17% over 2011 to 2014E respectively. Years Net sales (Rs.mn) EBITDA (Rs.mn) Net Profit (Rs.mn) EPS P/E FY 12 17014.32 14566.62 3554.54 63.99 10.43 FY 13E 19566.47 16763.68 4161.36 74.91 8.91 FY 14E 21914.44 18752.07 4738.24 85.29 7.82 1
Peer Group Comparison Name of the company CMP(Rs.) Market Cap. (Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%) Sundaram Finance 667.30 37069.85 63.99 10.43 2.07 140.00 Shiram Transport Finance Co Ltd 513.50 116092.20 55.57 9.23 1.89 65.00 Bajaj Finance Ltd 860.05 35575.70 98.37 8.75 2.01 100.00 Mahindra & Mahindra Financial Services 635.00 65937.70 59.62 10.63 2.12 100.00 Investment Highlights Q4 FY12 Results Update Sundaram Finance Ltd has reported net profit of Rs 982.15 million for the quarter ended on March 31, 2012 as against Rs 982.01 million in the same quarter last year, an increase of 0.01%. It has reported net sales of Rs 4677.15 million for the quarter ended on March 31, 2012 as against Rs 4001.71 million in the same quarter last year, a rise of 16.88%. Total income grew by 6.91% to Rs 4829.05 million from Rs.4517.06 million in the same quarter last year. During the quarter, it reported earnings of Rs 17.68 a share. Quarterly Results - Standalone (Rs in mn) As At Mar-12 Mar-11 %change Net sales 4677.15 4001.71 16.88 PAT 982.15 982.01 0.01 Basic EPS 17.68 17.68 0.01 2
Break up of Expenditure Recommended Dividend Sundaram Finance Ltd has recommended a final dividend of Rs. 8/- per share (80%) for the financial year ended March 31, 2012 on the paid-up capital of Rs. 55.55 Cr. This, together with the interim dividend of Rs. 7.50 per share (75%) paid on February 10, 2012 will make a total dividend of Rs. 15.50 per share (155%) for the financial year ended March 31, 2012. The final dividend will be paid on July 17, 2012 to those shareholders whose names stand on the Register of Members of the Company. 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 542 branches. 3
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 28 th November 2007. Retail Business Car Finance Sundaram Finance is one of the largest and a leading player in the area of car finance. The company extends finance on all makes and models of cars. Finance for NEW and USED vehicles Personalized and prompt service Quick processing Simple documentation Sundaram Credit Protect - Credit Life Home Finance Home Loans Home Extension Loans Home Improvement Loans Land Loans LAMP 4
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 5
Financial Results 12 Months Ended Profit & Loss Account (Standalone) Value(Rs.in.mn) FY11 FY12 FY13E FY14E Description 12m 12m 12m 12m Net Sales 13707.81 17014.32 19566.47 21914.44 Other Income 796.32 604.47 646.78 672.65 Total Income 14504.13 17618.79 20213.25 22587.10 Expenditure -2575.35-3052.17-3449.57-3835.03 Operating Profit 11928.78 14566.62 16763.68 18752.07 Interest -7078.20-8774.33-10002.74-11103.04 Gross profit 4850.58 5792.29 6760.95 7649.03 Depreciation -546.88-670.83-764.75-841.22 Profit Before Tax 4303.70 5121.46 5996.20 6807.81 Tax -1351.39-1566.92-1834.84-2069.58 Profit After Tax 2952.31 3554.54 4161.36 4738.24 Equity capital 555.52 555.52 555.52 555.52 Reserves 14737.90 17329.65 21491.01 26229.25 Face value 10.00 10.00 10.00 10.00 EPS 53.14 63.99 74.91 85.29 6
Quarterly Ended Profit & Loss Account (Standalone) Value(Rs.in.mn) 30-Sep-11 31-Dec-11 31-Mar-12 30-Jun-12E Description 3m 3m 3m 3m Net sales 4009.94 4441.06 4677.15 4536.84 Other income 194.27 120.22 151.90 119.02 Total Income 4204.21 4561.28 4829.05 4655.85 Expenditure -746.07-733.25-877.81-807.56 Operating profit 3458.14 3828.03 3951.24 3848.30 Interest -1982.29-2336.59-2353.65-2471.33 Gross profit 1475.85 1491.44 1597.59 1376.96 Depreciation -169.97-179.63-172.86-178.05 Profit Before Tax 1305.88 1311.81 1424.73 1198.92 Tax -398.55-400.36-442.58-365.67 Profit After Tax 907.33 911.45 982.15 833.25 Equity capital 555.52 555.52 555.52 555.52 Face value 10.00 10.00 10.00 10.00 EPS 16.33 16.41 17.68 15.00 7
Key Ratios Particulars FY11 FY12 FY13E FY14E No. of Shares(in mn) 55.55 55.55 55.55 55.55 EBITDA Margin (%) 87.02% 85.61% 85.68% 85.57% PBT Margin (%) 31.40% 30.10% 30.65% 31.07% PAT Margin (%) 21.54% 20.89% 21.27% 21.62% P/E Ratio (x) 12.56 10.43 8.91 7.82 ROE (%) 19.30% 19.87% 18.88% 17.69% ROCE (%) 10.87% 12.45% 13.31% 13.80% Debt Equity Ratio 6.51 5.84 4.98 4.30 EV/EBITDA (x) 3.11 2.54 2.21 1.98 Book Value (Rs.) 275.30 321.95 396.86 482.16 P/BV 2.42 2.07 1.68 1.38 Charts: Net sales & PAT Ratio 8
P/E Ratio Debt Equity Ratio 9
EV/EBITDA Ratio P/BV Ratio 10
Outlook and Conclusion At the current market price of Rs.667.30, the stock is trading at 8.91 x FY13E and 7.82 x FY14E respectively. Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.74.91 and Rs.85.29 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 17% and 17% over 2011 to 2014E respectively. On the basis of EV/EBITDA, the stock trades at 2.21 x for FY13E and 1.98 x for FY14E. Price to Book Value of the stock is expected to be at 1.68 x and 1.38 x respectively for FY13E and FY14E. We expect that the company will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs.761.00 for Medium to Long term investment. Industry Overview The Indian financial services industry has a lot of scope for further penetration, and thus has immense scope and potential to grow exponentially. The online genre, mobile explosion, emergence of social media platforms, technologies like cloud computing and increasing pace of convergence and interconnectivity of devices are intensely driving the growth of this industry. These are playing pivotal roles in transforming the way financial services are delivered to the end-consumer. Further, financial institutions are revamping their operational infrastructure and business delivery models. Financial services industry mainly comprises the BFSI industry, that is, banking, financial services (such as mutual funds) and insurance. Key developments and performance pointers pertaining to each of these sub-segments are discussed in this overview. 11
Insurance Sector There are 24 life insurers in India with about Rs 15 trillion (US$ 292.5 billion) in assets. According to data released by the Insurance Regulatory and Development Authority (IRDA), the life insurance industry collected Rs 89,655.83 crore (US$ 17.5 billion) during April 2011-February 2012 by writing new policies while the insurers sold about 35.12 million policies collectively. Private players sold seven million policies. The general insurance industry continued with its growth trajectory as the gross written premium grew 24.03 per cent during 2011-12 against the year-ago period. Banking Services According to the world's largest rating agency, Standard & Poor (S&P)'s Ratings Services, India's banking system has a high level of stable, core customer deposits supported by the system's good franchise, extensive branch networks, and large, yet growing, domestic savings. According to the Reserve Bank of India (RBI)'s 'Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks', September 2011, Nationalised Banks, as a group, accounted for 52.2 per cent of the aggregate deposits, while State Bank of India (SBI) and its associates accounted for 21.8 per cent. The share of New private sector banks, Old private sector banks, Foreign banks and Regional Rural banks in aggregate deposits was 13.7 per cent, 4.8 per cent, 4.6 per cent and 2.9 per cent, respectively. With respect to gross bank credit also, nationalised banks hold the highest share of 51.6 per cent in the total bank credit, with SBI and its associates at 22.1 per cent and New Private sector banks at 13.8 per cent. Foreign banks, Old private sector banks and Regional Rural banks held relatively lower shares in the total bank credit with 5.2 per cent, 4.8 per cent and 2.5 per cent, respectively. Another statement released by the RBI stated that bank deposits grew 13.4 per cent to Rs 60.72 trillion (US$ 1.18 trillion) in the fiscal 2011-12 (the year to March 12
23, 2011) while loans and advances grew 17.08 percent to Rs 47.54 trillion (US$ 927.16 billion). Mutual Funds Industry in India The Rs 6.70 trillion (US$ 130.66 billion) Indian mutual funds (MF) industry has 44 asset management companies (AMCs). Recent data released by the Association of Mutual Funds in India (AMFI) indicated that average assets under management (AUM) reported by these fund houses amounted to Rs 6,68,824 crore (US$ 130.33 billion) in 2011-12. HDFC Mutual Fund maintained its top position as the country's biggest MF with an average AUM of Rs 89,879 crore (US$ 17.51 billion), followed by Reliance MF (Rs 78,112 crore [US$ 15.22 billion]), ICICI Prudential MF (Rs 68,718 crore [US$ 13.39 billion]), Birla Sunlife MF (Rs 61,143 crore [US$ 11.92 billion]) and UTI MF (Rs 58,922 crore [US$ 11.48 billion]). Private Equity (PE) and Mergers & Acquisitions (M&A) in India India Inc witnessed 202 merger and acquisition (M&A) deals worth US$ 9.4 billion during the first quarter of 2012. According to Ernst & Young (E&Y)'s latest transactions quarterly report, deals in January-March 2012 were 22 per cent higher than those of October-December 2011 quarter in terms of volume and 4.5 times higher in terms of value. Domestic deals dominated the M&A space as they accounted for 63 per cent of the total number of deals and contributed 88.4 per cent of the total disclosed deal value for the quarter. According to experts, M&A landscape is likely to experience intense activity in the coming months, owing to improving stock markets and better availability of finance options. Private equity (PE) and venture capital (VC) investors infused a capital of US$ 1.88 billion across 90 deals during the reported period. 13
Foreign Institutional Investors in India According to the data released by Securities and Exchange Board of India (SEBI), net investment in equities made by foreign institutional investors (FIIs) stood at Rs 47,935 crore (US$ 9.34 billion) during the financial year ended March 31, 2012. During the reported fiscal, foreign fund houses injected Rs 49,053 crore (US$ 9.56 billion) in the debt market taking the collective net investments by FIIs in stocks and bonds to Rs 93,725 crore (US$ 18.26 billion). Recent Developments India has launched the country's first domestic payment card network, RuPay, to compete with multinational Visa Inc. and Mastercard Inc. The new development will not only help banks reduce cost of issuing a debit card but will also lead to expansion of payment network in rural areas. National Payments Corp of India Ltd (NPCI), the nodal agency to manage and promote RuPay, has stated that 200,000 RuPay cards have already been issued and the target is to have 10 million debit cards under the brand by March 2013. Stating India as 'extraordinarily attractive investment destination', PE firm Bain Capital LLC has announced that it will infuse about US$ 800 million in appropriate proposals across four investment deals during 2012-16. L&T Finance has decided to buy Fidelity Worldwide Investment's Indian mutual fund business. The deal would boost L&T's assets to Rs 13,500 crore (US$ 2.63 billion), making it the 13th biggest fund house and the 10th largest on the basis of equity. In a recent announcement, the RBI has granted FIIs to invest in primary issuances of companies' non-convertible debentures (NCDs), provided these papers are scheduled to be listed on the stock exchanges within 15 days of being issued. If the instrument, that is the NCD, does not get listed within 15 days, the foreign investor concerned would have to sell the securities to a domestic investor. 14
Government Initiatives In its Budget for 2012-13, the Government has earmarked a capital of Rs 15,888 crore (US$ 3.11 billion) to be infused in public sector banks, regional rural banks and other financial institutions. Apart from this, the Government is also planning to set up a financial holding company that will raise funds for public sector banks. Furthermore, the RBI has liberalised regulations pertaining to FCAs to provide operational flexibility to Indian entities making overseas direct investments. After satisfying stipulated requirements and conditions, Indian entities can open, hold and maintain FCAs abroad that would simplify the process of making overseas direct investments. Road Ahead According to a report by the Boston Consulting Group (BCG) India, prepared in association with a leading industry organisation and Indian Banks Associations (IBA), Indian banking industry would be the world's third largest in asset size by 2025 and mobile banking would become the second largest banking mode after ATMs. Furthermore, owing to the positive eco-system of the industry and regulatory and Government initiatives, mobile banking is anticipated to enhance from 0.1 per cent of transactions in a 45 per cent financial inclusion base in 2010 to 34 per cent of the transactions with 80 per cent rural inclusion base by 2020, as per the report. While the Indian Government projects that qualified foreign investors (QFIs) would invest US$ 50-75 billion in India's equity and bond markets, G Chokkalingam, Executive director and CIO, Centrum Wealth Management, believes that Indian markets would witness record inflows, probably to the extent of US$ 30 billion, by FIIs in 2012. Such positive forecasts are being made owing to monetary expansions in the West and considering that India would remain the second-fastest growing economy in the world. 15
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. 16
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