Wednesday, August 10, 2016

Sundaram Finance Annual Report 2016 Review

This post has been inspired by the fact that Non Banking Finance Companies have ruled the roost in the past few months. I wanted to understand what is cooking in the sector and hence chose to go through the annual report of one of the most respected NBFC in the Indian arena. If something is actually brewing up lets see what they have to say.
So, I picked up the annual report of Sundaram Finance and these are the key points I could notice in that:
  • Global oil prices are expected to remain in the band of $40-50 per barrel but unlikely to fall further(On eye on oil prices shows just how important oil is with respect to India) 
  • Government has accelerated efforts to boost public investments, with a particular focus on roads, railways and power sector, partially reflected in the 69% yoy increase in projects awarded by NHAI(So the efforts of the Government are showing on ground, Nice eh)
  • The Commercial Vehicle (CV) segment led the growth in automotive sector due to two reasons namely; replacement demand and pre buying ahead of mandatory changes in emission norms. Also stable diesel prices provided impetus to truck operators(Highlights that there have been some one off reasons for the recent uptick in the MHCV industry, makes it all the more important to track how the industry moves in FY17)
  • Competition for available business intensified during the year putting pressure on margins(Highlighting the competition is making life difficult, expect some pressure on NIM's)
  • Has already advanced NPA recognition to 90 days ahead of the last date as prescribed by RBI norms(Best in class, expect no negative surprises on asset quality front)
  • Gross & Net NPA stood at 2.08% and .92% making it the best performing portfolio among peers(The figures put even some private banks to shame considering NBFC's have higher cost of funds and effectively lend to the un banked. More so considering the size of the book)
  • The net accretion to fixed deposits this year was Rs 321.56 crores which is the highest in the history of the company(Trust in the management, also some of it could be the effect of rush for yields in a falling rate environment)
  • With most macroeconomic indicators remaining stable, the various measures initiated by Central Government are likely to have a salutary impact on the automotive sector. The continuing thrust on infrastructure and revival of mining activities, coupled with increase in budget allocation for rural sector and fast tracking of irrigation projects augurs well for growth of Medium & Heavy Commercial Vehicle as well as construction equipment. With diesel prices remaining stable, the outlook for automotive sector appears reasonably optimistic(The most important statement, guiding for a better year ahead, highlighting the measures taken. Management sounds optimistic
  • Increased budgetary allocation for rural sector, fast tracking of irrigation projects, increase in farm credit, targeted increase in construction of roads and bridges and implementation of pay commission is expected to augur well for the Indian economy(Confirming the earlier view)
  • Your company hopes to post reasonable growth in its chosen line of business and also continue to explore new, profitable business opportunities(Continuing on the optimistic tone)
  • Competitive pressures in the vehicle financing market are likely to remain high with banks increasing focus on retail lending(Highlighting competitive intensity again. Knowing this it would be a safer option to be conservative as lenders might compromise on asset quality front in a competitive environment to buttress growth rates)
  • Preservation of asset quality will always remain a key imperative. Growth with Quality & Profitability has been underlying philosophy that has guided your company over years and shall continue to do so in future as well(The mantra of Sundaram Finance)
We will keep bringing up more such posts covering the whole NBFC sector to know what are the views of different managements in such an environment. 

Karan Sharma

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