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AUM growth picks up; NIMs remain range-bound

Q1FY27 has seen a pick-up in disbursement growth (+22% YoY) with continued improvement in economic activity even amidst West Asia conflict. Q1 AUM grew 17% YoY to INR 622.8bn and we build a run-rate of 17%/16% for FY27/28E. Calculated NIM compressed QoQ to 5.43%; we expect it to remain range-bound in FY27/FY28E at 5.4%/5.5%; lower yield to be offset by a controlled CoF. Asset quality trend saw a deterioration in Q1 (GS3/NS3 at 1.71%/ 0.88%) and we build a credit cost of 77/82bps in FY27/28E. We slightly tweak our FY27/ FY28E estimates upward factoring in pick up in growth and controlled CoFs & opex. We value SUF’s standalone business at INR4,149 (2.7x ABV vs. 2.6x earlier) and assign a value of INR1,152 to subsidiaries with a 20% holding company discount to arrive at TP of INR5,070. Maintain ACCUMULATE.

Expect 17/16% AUM growth in FY27/28E: Q1 saw a pick-up in disbursement growth (22% YoY) to INR89.5bn. Auto sector volumes were materially stronger in Q1FY27. Company reported its highest ever first quarter sales across key vehicle categories in a sharp contrast to the flat to declining sector environment in Q1FY26. Sector witnessed stronger origination opportunities across most of vehicle categories. Consequently, Q1 AUM grew 17% YoY/4% QoQ to INR622.8bn, driven by Car (+15.9% YoY), Commercial Lending & Other (+44% YoY), MHCV (+12.2% YoY), Retail CV (+8.4% YoY), CE (+14.7% YoY), Tractor (+15.2% YoY). AUM mix during the quarter stood at 42.9% / 24.2% / 10.6% / 6.8% for CV / Car / CE and tractor segments respectively. With a lower than expected fuel cost transmission impact and thereby increase in auto sector volumes, we build AUM growth of 17/16% in FY27/28E.

NIM to remain range-bound: NII grew by 17% YoY/1% QoQ to INR7.9bn. Yields saw a decline by 19bps to 12.1% while CoF increased by 12bps QoQ to 6.96%. As a result, calculated NIM compressed QoQ by 18bps to 5.43% (vs. 5.61% in Q4). Company is focusing on the right asset class/ customer mix to optimize margins. We expect NIM to remain range-bound in FY27/28E at 5.4%/5.5%; lower yield to be offset by a controlled CoF. Opex grew 18% YoY/ 5% QoQ, with an increased C/I ratio at 29.3% (vs. 26.7% in Q4). PBT grew 21% YoY and PAT grew 22% YoY, in-line with AUM growth.

Headline asset quality deteriorates QoQ: Asset quality trend sees a deterioration QoQ with gross Stage 3/net Stage 3 at 1.71%/ 0.88% vs. 1.44%/ 0.69% in Q4FY26. GNPA/NNPA (as per RBI) stood at 2.28%/ 1.35% vs. 2.14%/ 1.27% QoQ, and the company maintains a PCR of 49%. Current collections measured as collections of current demand, for Q1FY27 stood at 92% vs 91% for FY26. We build a credit cost of 77/ 82 bps in FY27/FY28E to account for geopolitical uncertainty and a shortfall in monsoon. Capital adequacy ratio stood at 18.4% as of Q1.

Subsidiaries report healthy performance:

(1) Sundaram Home Finance – AUM grew by 13% YoY to INR203.3bn, while disbursements grew by 10.4% YoY. The proportion of non-housing loans stood at 51% vs. 55% in Q4FY26. Asset quality trend worsened QoQ (GNPA/NNPA at 1.4%/ 0.7% vs. 1.1%/ 0.5% in Q4). The company continues to focus on the self-employed segment and is growing its affordable lending portfolio as well.

(2) Royal Sundaram – GWP grew 7% YoY to INR13.8bn, and the company reported a PAT of INR1.35bn. The combined ratio stood at 116%.

(3) Sundaram Asset Management – Average AUM grew by 12% YoY and stood at INR900bn, while PAT grew 13% YoY to INR510mn. The proportion of equity-oriented schemes stood at ~80%.

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