Sundaram Finance - Momentum in loans sustains, upgrade to Hold - Avendus

The higher-than-expected growth in the NII was driven by an improvement in NIMs along with continued momentum in aggregate loans. Calculated NIMs improved c30-bp q-o-q to 7.4%, likely to have been led by a rising proportion of used vehicles in the overall loan mix. The proportion of used vehicles may not rise beyond current levels in the near term, as per the management; consequently, the rise in NIMs may not sustain.

We forecast stable NIMs at a three-year mean of 6.9% over FY13f-FY15f. The marginal uptick in GNPLs from 0.78% at Sep12-end to 0.88% at Dec12-end is unlikely to be alarming. We raise our earnings by 2%-5% over FY13f-FY15f, driven largely by higher disbursements and consequently loans.

We raise our Dec13 TP to INR452 and upgrade to Hold. Slowdown in loans & high NPLs are key risk factors.

Source : Equity Bulls

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