Q1 Beat + Strong NIMs = Analyst Sees 24% Upside For Sundaram Finance; BUY Call With Rs 5,530 Target

IDBI Capital Markets & Securities Ltd.'s equity research team has become optimistic on Sundaram Finance (SUF), predicting a possible 22.75% rise compared to the company's current market price of Rs 4,505. With the confidence stemming from good Q1FY26 performance, the stock has been brought up to a BUY with a target price of Rs 5,530, supported by stable AUM growth, better net interest margins, and robust asset quality despite a minor decline.

For the quarter that ended in June 2025 (Q1FY26), Non-banking finance company Sundaram Finance recorded a consolidated net profit of Rs 475 crore, up from Rs 435 crore in Q1FY25. At Rs 2349 crore, consolidated revenue from operations increased by 20%. As of June 30, 2025, the assets under management (AUM) of the loan and general insurance businesses were Rs. 80,939 crores, up 17% from Rs. 69,234 crores in the same period in 2024. As of June 30, 2025, the assets under administration of the asset management firm were worth Rs. 80,501 crores, compared to Rs. 80,565 crores in the same period in 2024.

In comparison to the Rs. 6,908 crores recorded in Q1FY25, the company's disbursements for Q1FY26 increased by 6% to Rs. 7,310 crores on a standalone basis, while the assets under management increased by 17% to Rs. 53,278 crores as of June 30, 2025, from Rs. 45,671 crores as of June 30, 2024.

From Rs. 623 crores in Q1FY25 to Rs. 781 crores in Q1FY26, the company's standalone net interest income (NII) increased by 25%. According to RBI's asset categorization guidelines for NBFCs, the gross and net non-performing assets (NPAs) are 2.66% and 1.71%, respectively, compared to 2.21% and 1.41% as of June 30, 2024 of Sundaram Finance.

"Q1FY26 has seen continued macroeconomic sluggishness of the past few quarters and economic activity has been slower compared to Q1FY25. Under these circumstances, Team Sundaram has delivered 17% growth in AUM to Rs. 53,278 crores, asset quality with net stage 3 at 1.08% vs 0.84% last year and profits after tax growing 39% year-on-year. Our Group companies in asset management, general insurance and home finance have continued their trajectory from FY25 and recorded strong results. We continue to rely on our time-tested approach of steady and sustainable growth with best-in-class asset quality and consistent profitability," said Harsha Viji, Executive Vice Chairman.

"SUF AUM growth remains stable at 17% YoY vs 17% YoY (FY25) led by lower disbursements. Disbursements grew by 6% YoY (up 6% QoQ) during Q1FY26. Asset quality deteriorated however, continues to remain best-in-class; collections stood at 91%. NIMs (calculated) have improved (up 46bps YoY) led by increase in yields which resulted in strong NII growth (up 28% YoY). PPoP grew by 51% YoY led by higher non-interest income (up 65% YoY). PAT grew by 39% YoY led by higher provisions (up 114% YoY). Thus, RoA improved to 2.9% vs 2.85% QoQ. We have largely retained the estimates and upgraded the stock to "BUY" rating with TP of Rs.5,530 valuing the parent business at 4x FY27E Core ABV as stock has come down by ~13% in last few months," said the research analysts of IDBI Capital.

"The budgetary allocations towards infrastructure by the government should support CV cycle. We believe SUF will continue to benefit from the same. Further, the diversification towards non-CV as well as strong performances by its subsidiaries is expected to continue to support premium valuation," the analyst further added.

Since its founding in 1954, Sundaram Finance has developed into one of India's most reputable and varied financial services groups, offering financing for working capital for SMEs, commercial vehicles, cars and utility vehicles, tractors and farm equipment, construction equipment, and a variety of working capital products for financing tyres, diesel, and insurance.

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