Analysis - Sundaram Finance

About
SF(sundaram finance) is an NBFC promoted by the same group which controls companies such sundaram clayton etc. The company is the business of hire purchase and leasing in the automotive sector. In addition the company has subsidiaries for housing finance, asset management, Infotech, insurance etc.

Financials
The company reported a consolidated revenue of 1100 crs with a growth of around 25%. The company has had decent topline and bottom line growth in double digits for the last 5-6 years. The ROE has improved around 10% to almost 15% now. The company also has extremely low NPA of around 0.5% and CAR ratio in excess of 12%.
The company has AAA ratings and has been able to get funding from banks and other institution at competitive rates.

Positives
The company is a well managed conservative company. It has show good growth in the last 5 years, with a decent ROE and low NPA. In addition the company has a strong brand name in its segment and a good distribution and marketing infrastructure which is important in the hire/purchase and lease business.
In addition the company is now expanding into new growth areas such as home finance, asset management and insurance. Several of these subsidiaries are now doing well and have turned profitable in the past few years

Risks
The core business of the company is still hire purchase and leasing in the auto sector. The auto sector has been in a growth phase in the last 5 years. As a result the company has been able to show good results and low NPA. However a downturn could slowdown the topline and bottom line and also increase the NPA’s.
The company is expanding into various financial services such as insurance, housing finance, infotech etc. These businesses are still new and have just turned profitable. However there are still risks in these businesses till they mature.

Valuation
It is important to do a sum of part valuation of the company as the company has several subsidiaries, JVs and associates. A conservative valuation would give the company a value of approximately 2000 Crs which is a 35% discount to the current mcap of 1275 Crs. An optimistic valuation would give a value of 2700 Crs which is more than double the current mcap.
To put it differently, the current mcap accounts for the parent company only and all the JV’s, subsidiary and associates are available for free.

The caveat however is that the investments in associates are mainly in group companies and it is unlikely that these holding would ever be sold. The company would be able to get good dividends from these holdings, but the full value is not likely to be realised.