Sundaram Finance Posts Strong Q2 FY26 Performance, Analysts Maintain Neutral Rating with Revised Target Price

Sundaram Finance has announced its financial results for the second quarter of fiscal year 2026, showcasing strong operational performance.

**Key Financial Highlights:** * **Disbursement Growth:** The company achieved its highest-ever quarterly disbursement growth, rising 18% year-on-year and 11% quarter-on-quarter. This positions Sundaram Finance for stronger Assets Under Management (AUM) growth in the second half of FY26. * **Net Interest Margins (NIMs):** NIMs saw an expansion of 46 basis points year-on-year and 7 basis points quarter-on-quarter. This improvement was supported by a 19 basis points reduction in the cost of funds. * **Pre-Provision Operating Profit (PPOP):** PPOP declined by 12% quarter-on-quarter, primarily due to a decrease in non-core income. * **Credit Costs:** Credit costs increased by 50% year-on-year to ₹117 crore, though they decreased by 26% quarter-on-quarter. This reflects some pressure on asset quality. * **Asset Quality:** Gross Non-Performing Assets (GNPA) rose to 2.80% from 2.66% in Q1 FY26, and Net Non-Performing Assets (NNPA) increased to 1.79% from 1.71% in Q1 FY26. * **Profit After Tax (PAT):** PAT stood at ₹394 crore, marking a 15% increase year-on-year, although it decreased by 8% quarter-on-quarter. This was supported by healthy core income growth.

**Management Outlook and Future Projections:** Management expressed optimism, citing improved rural sentiment due to good monsoons and expectations of higher consumption post-GST reductions. Based on this positive outlook, projections include a Compound Annual Growth Rate (CAGR) of 15.5% for AUM, 16.5% for PPOP, and 14.3% for PAT over FY25–28E. Return on Assets (RoA) and Return on Equity (RoE) are expected to reach 2.7% and 15.3% respectively by FY28E.

**Analyst View:** Analysts maintain a 'Neutral' rating on Sundaram Finance stock. However, they have revised the valuation multiple upward to 4.0x from 3.5x on 1HFY28E Adjusted Book Value (ABV), factoring in sectoral tailwinds and strong disbursement figures. Including subsidiaries and applying a 20% holding company discount, the revised Target Price (TP) is ₹5,113, up from the previous TP of ₹4,546.

**Impact:** This news directly impacts Sundaram Finance's stock performance and provides insights into the non-banking financial sector in India. The positive outlook and revised target price could influence investor sentiment. Overall impact on Indian stock market: 6/10.

**Difficult Terms Explained:** * **NIMs (Net Interest Margins):** The difference between the interest earned on assets (like loans) and the interest paid on liabilities (like deposits), expressed as a percentage of assets. It's a key measure of a bank's profitability. * **PPOP (Pre-Provision Operating Profit):** Profit generated from a company's core business operations before accounting for loan loss provisions and taxes. It indicates operational efficiency. * **Credit Costs:** Expenses recognized for potential losses from loans that may not be repaid. It includes provisions for bad debts. * **GNPA (Gross Non-Performing Assets):** The total amount of loans on which the borrower has not made interest or principal payments for a specified period (e.g., 90 days). * **NNPA (Net Non-Performing Assets):** GNPA minus the provisions set aside for these bad loans. It represents the actual exposure to bad loans after accounting for potential losses. * **PAT (Profit After Tax):** The net profit of a company after all expenses, interest, and taxes have been deducted. * **AUM (Assets Under Management):** The total market value of all the financial assets that a financial institution manages on behalf of its clients. * **CAGR (Compound Annual Growth Rate):** The average annual growth rate of an investment over a specified period, assuming that profits were reinvested at the end of each year. * **RoA (Return on Assets):** A financial ratio that shows how profitable a company is relative to its total assets. It measures how efficiently a company uses its assets to generate earnings. * **RoE (Return on Equity):** A measure of how much profit a company generates with the money shareholders have invested. It shows how effectively a company uses shareholder investments to generate profits. * **ABV (Adjusted Book Value):** A valuation metric for financial institutions that adjusts the book value to reflect the current market value of assets and liabilities, often excluding intangible assets. * **Holdco Discount:** A valuation discount applied to the value of a holding company's stock compared to the sum of the market values of its underlying subsidiaries. This reflects potential inefficiencies, control premiums, and layers of taxation.