 "T T Srinivasaraghavan, Managing Director, Sundaram Finance Ltd You Tube")
Sundaram Finance Ltd, part of the Chennai-based TVS group, is issuing debentures to raise Rs 2,000 crore to finance business expansion.
Its asset quality improved despite tightening norms to treat asset as bad loan to 90 days plus outstanding from 120 days plus outstandings in Q4 of FY2016. Its non-performing asset (NPAs) fell to 2.1 per cent in June 2016 from 3.2 per cent in March 2015.
Rating agency ICRA has assigned “AA+” rating to non-convertible debentures (NCDs). The assigned rating factors in SFL’s established business profile and franchise, moderate business risk appetite, good financial flexibility, consistent track record in earnings, and comfortable liquidity.
SFL has a favourable asset-liability position, and also a fairly diverse funding profile with a range of sources including NCDs, subordinated debt, commercial paper, bank loans, fixed deposits and securitised pools. Both these factors impart liquidity comfort and also help SFL in controlling its cost of funds, which remains lower than most of its peers.
There has been moderation in business yields with increased competitive pressures leading to a contraction of net interest margins. Yet, its overall return on average managed assets has remained stable and good at about 2.4-2.5% over the last three years, supported by non-interest income.
The revival in commercial vehicle demand aided improvement in asset quality profile. SFL’s asset quality profile is superior to its peers currently, and is like to remain healthy going forward as well, ICRA said. The company has demonstrated ability to operate across business cycles without any deterioration in its overall risk profile. This is supported by its good understanding of the customer segment, conservative underwriting policies and efficient collection and recovery systems.
ICRA takes comfort from SFL’s strong track record in the vehicle finance business and relationships with its customer base (more than 60 per cent of CV loans are to repeat customers).
The company’s capitalisation profile is comfortable with tier-I at 13.5 per cent and managed total capital at 17.4 per cent on June 30, 2016. SFL also has headroom to raise tier-II capital in the form of subordinated and hybrid instruments.
SFL’s net interest margin moderated from 5.2 per cent in FY15 to about 4.9 per cent for FY16. Its further declined to 4.5 per cent for Q1 FY17 on account of the increased focus on new M&HCV segment, yields in which are lower, and increased competitive pressures. SFL’s ability to maintain healthy NIMs in a competitive business environment, while keeping the asset quality under control, would be the key rating sensitivity, ICRA said.
SFL has also invested in several subsidiaries in an effort to provide a gamut of products in the retail financial services market. It has presence in housing finance, mutual fund, insurance and financial product distribution.
On a consolidated basis, SFL reported a net profit of Rs 583 crore on a total asset base of Rs 28,027 crore in FY16 compared to a net profit of Rs 576 crore on a total asset base of Rs 25,785 crore in FY15.
