Sundaram Finance closed financial year 2024-25 with a 6% rise in net profit at Rs 1,543 crore and a 17% growth in assets under management (AUM) at Rs 51,476 crore. Managing director Rajiv Lochan talks to Narayanan V about the non-banking financial company’s disbursement strategy and growth outlook for the current fiscal.
What caused the decline in disbursement growth from 25% in FY24 to 9% in FY25?
Our disbursements grew 9% to Rs 28,405 crore in FY25. The single-digit growth reflects both external economic factors and internal prudence. Our teams were measured in their exposure, especially in riskier asset classes. Externally, FY25 was a challenging year — it began with an unusually tough summer and a general election spread over seven phases, which disrupted activity in the first two quarters. This, combined with geographical and weather-related challenges, impacted customer sentiment. Even the festive season in Q3, typically a strong period, fell short of expectations across sectors. Government capital expenditure also slowed. Taken together, these factors made it a muted year. Our preferred long-term growth range is 15-20%, which we consider sustainable. That said, we have been focused on gaining market share, and we are quite pleased with the gains achieved across asset classes and geographies.
Gross Stage-3 assets increased to 1.44% from 1.26% in FY24…
If you look at our earlier quarterly results, Gross Stage-3 assets were significantly higher due to a lack of commercial activity and government transitions in several states. As a result, cash flows were tight. Many of our customers weren’t receiving payments from their end clients — be it state governments or contractors — which led to delayed payment cycles and, naturally, a deterioration in asset quality. We also began seeing stress build up in MFIs (microfinance institutions) and unsecured personal loans. Many borrowers were tapping those sources to repay liabilities on our side. But as liquidity tightened across the system, that option also dried up. If you look at the movement in Gross Stage-3, we managed to pull back well in Q4 compared to Q3 and Q2. With liquidity and sentiment improving, and the government stabilising, a number of positives came together. We believe this momentum will now sustain.
How have rate cuts impacted your net interest margins?
Our net interest margins actually expanded by 20 basis points this year. Overall spreads also improved by 20 bps to 4.5%, which is where we typically operate. With rate cuts, transmission on the borrowing side is becoming tougher, especially with banks. However, since a significant portion of our borrowings come from NCDs (non-convertible debentures) and commercial paper, we are already seeing some benefit in terms of reduced borrowing costs. The real challenge for us lies on the asset side. Our key lever is the composition of higher-yielding assets — like used vehicles, tractors, and retail commercial vehicles. If we get that mix right, yields will hold up, and margins will remain stable despite cost pressures.
When do you see urban and rural demand picking up?
FY26 should be better than the year before on multiple fronts. We won’t have the disruption of a general election or the resulting slowdown in government spending. Government capex will provide a strong boost on the urban side. On the rural front, a normal monsoon has been forecast, and the procurement and MSP announcements look encouraging. That should result in a strong harvest. We are already seeing encouraging signs — tractor demand has been strong over the past two to three months, with the season underway in many regions. Two-wheeler sales have also improved in the last quarter, pointing to a pickup in rural sentiment. On the urban side, personal income tax cuts should give a further boost to consumption. So, Q2 onwards, we expect demand to firm up across both rural and urban markets. Overall, the outlook in the asset classes we operate in is cautiously optimistic.