The quarter's performance underscores Sundaram Finance's ability to maintain strong growth momentum despite a challenging macroeconomic environment. Interest income climbed to ₹2,513.95 crores in Q3 FY26, marking a 14.78% increase from ₹2,190.31 crores in Q3 FY25, whilst sequential growth of 5.38% over Q2 FY26 demonstrates consistent operational progress. This robust top-line expansion reflects the company's sustained disbursement growth and effective asset quality management within its core vehicle financing business.
Financial Performance: Strong Profitability Amid Margin Pressures
Sundaram Finance's Q3 FY26 results reveal a company successfully navigating the dual challenges of growth and margin management. Consolidated net profit of ₹541.36 crores represents an 18.86% year-on-year increase and a 10.91% sequential improvement over Q2 FY26's ₹488.12 crores. On a standalone basis, net profit stood at ₹521.98 crores, up 15.79% year-on-year from ₹451.18 crores in Q3 FY25.
The company's net interest margin (NIM) stood at 29.64% in Q3 FY26, marginally lower than Q2 FY26's 29.77% but significantly ahead of the year-ago quarter's performance. This compression reflects the ongoing competitive pressures in the NBFC sector and rising cost of funds, though Sundaram Finance has demonstrated resilience in protecting its core spread. Interest expenses rose to ₹1,209.33 crores in Q3 FY26 from ₹1,087.20 crores in Q3 FY25, representing an 11.23% year-on-year increase, whilst interest income growth outpaced this at 14.78%, indicating positive operating leverage.
| Quarter | Interest Income (₹ Cr) | QoQ % | Net Profit (₹ Cr) | QoQ % | NIM % |
|---|---|---|---|---|---|
| Dec'25 | 2,513.95 | +5.38% | 541.36 | +10.91% | 29.64% |
| Sep'25 | 2,385.64 | +1.56% | 488.12 | +2.72% | 29.77% |
| Jun'25 | 2,348.93 | +3.98% | 475.21 | -14.06% | 26.87% |
| Mar'25 | 2,259.05 | +3.14% | 552.98 | +21.41% | 36.66% |
| Dec'24 | 2,190.31 | +5.07% | 455.47 | +4.43% | 30.07% |
| Sep'24 | 2,084.67 | +6.82% | 436.15 | +0.30% | 29.28% |
| Jun'24 | 1,951.60 | — | 434.85 | — | 29.35% |
Operating profit before depreciation, interest, and tax (PBDIT) excluding other income reached ₹2,005.24 crores in Q3 FY26, the highest quarterly figure on record, with operating margins expanding to 79.76% from 78.43% in the previous quarter. This improvement reflects better operational efficiency and cost management, with employee costs growing at a controlled pace of 7.29% year-on-year to ₹263.94 crores. The PAT margin improved to 20.76% in Q3 FY26 from 20.58% in Q2 FY26, demonstrating the company's ability to convert top-line growth into bottom-line expansion.
Operational Excellence: Sustained Disbursement Growth
The company's operational metrics reveal a well-managed growth trajectory. Sundaram Finance has maintained its position as a leading player in commercial vehicle and construction equipment financing, with its diversified loan book providing stability through economic cycles. The average Return on Equity (ROE) of 13.41% reflects solid capital efficiency, though it remains below the peer group average of approximately 15%. This moderate ROE suggests room for improvement in asset utilisation and profitability enhancement.
Key Operational Strengths
Asset Quality Resilience: Sundaram Finance has demonstrated consistent asset quality management, with its established presence in commercial vehicle financing providing a stable foundation for growth. The company's debt-to-equity ratio of 4.35 times, whilst elevated, is typical for NBFCs and has shown improvement on a half-yearly basis, reaching its lowest level in recent quarters.
Institutional Confidence: High institutional holdings at 26.56% signal strong confidence from sophisticated investors in the company's business model and growth prospects.
The balance sheet shows shareholder funds of ₹13,196.83 crores as of March 2025, up from ₹11,078.22 crores in the previous year, reflecting retained earnings and capital appreciation. Fixed assets stood at ₹1,263.77 crores, whilst investments totalled ₹6,536.63 crores, providing liquidity cushion and diversification benefits. The company's book value per share of ₹1,002.62 has grown steadily, underpinning intrinsic value creation for shareholders.
Asset Quality Analysis: Maintaining Steady Performance
Whilst specific non-performing asset (NPA) data for Q3 FY26 was not disclosed in the available information, Sundaram Finance's track record suggests prudent credit underwriting and collection practices. The company's focus on secured lending in the commercial vehicle segment, combined with its deep understanding of customer profiles and robust recovery mechanisms, has historically enabled it to maintain healthy asset quality metrics even during economic downturns.
Balance Sheet Quality Indicators
The company's debt-to-equity ratio of 4.35 times reflects the leveraged nature of NBFC operations, though this has improved from higher levels in previous periods. With current assets of ₹7,934.87 crores as of March 2025 and a growing reserves base of ₹13,074.44 crores, Sundaram Finance maintains adequate financial flexibility to support business expansion whilst managing liability costs effectively.
Tax expenses in Q3 FY26 were ₹160.26 crores at an effective tax rate of 23.49%, lower than the previous quarter's 24.47% and the year-ago quarter's 24.90%. This reduction in tax rate positively contributed to net profit growth, though investors should note that tax rates can fluctuate based on various factors including tax planning strategies and regulatory changes.
Industry Leadership: How Sundaram Finance Compares to Peers
Within the competitive NBFC landscape, Sundaram Finance occupies a distinctive position with its focus on vehicle and equipment financing. A comparative analysis against industry peers reveals both strengths and areas requiring attention.
| Company | P/E Ratio | P/BV Ratio | ROE % | Debt/Equity | Div Yield % |
|---|---|---|---|---|---|
| Sundaram Finance | 27.87 | 3.63 | 13.41% | 4.35 | 0.71% |
| Cholamandalam Inv | 27.55 | 5.15 | 17.68% | 7.23 | 0.13% |
| Aditya Birla Capital | 26.38 | 2.67 | 13.07% | 4.86 | — |
| SBI Cards | 33.55 | 4.74 | 18.56% | 3.33 | 0.34% |
| L&T Finance | 24.70 | 2.65 | 8.71% | 3.72 | 0.96% |
| HDB Financial Services | 27.16 | 3.06 | 15.92% | 5.56 | 0.28% |
Sundaram Finance trades at a P/E ratio of 27.87x, broadly in line with the peer average of approximately 28x, suggesting the market values it similarly to comparable NBFCs. However, the company's ROE of 13.41% lags behind stronger performers like Cholamandalam Investment (17.68%) and SBI Cards (18.56%), indicating potential for improved profitability metrics. The price-to-book ratio of 3.63x is moderate compared to peers, with Cholamandalam commanding a premium 5.15x multiple, reflecting that company's superior ROE profile.
Sundaram Finance's debt-to-equity ratio of 4.35x sits in the middle of the peer range, lower than Cholamandalam's 7.23x but higher than SBI Cards' 3.33x. This leverage level is appropriate for the company's business model and growth aspirations. The dividend yield of 0.71% is competitive, with the company having declared a dividend of ₹21 per share with an ex-dividend date of July 09, 2025, demonstrating commitment to shareholder returns whilst retaining capital for growth.
Valuation Analysis: Fair Value at Premium Multiples
At the current market price of ₹5,348.50, Sundaram Finance trades at a market capitalisation of ₹55,943 crores, positioning it as the sixth-largest company within its peer group. The stock's valuation metrics present a mixed picture for investors evaluating entry points.
The P/E ratio of 28x represents a 27% premium to the industry average of 22x, suggesting investors are pricing in expectations of above-average growth or quality. This premium appears partially justified given the company's consistent performance and institutional backing, though the valuation grade has shifted from "Expensive" to "Fair" as of November 03, 2025, indicating some moderation in stretched multiples.
The EV/EBITDA multiple of 16.35x and EV/EBIT of 16.90x place Sundaram Finance at reasonable levels for a quality NBFC with established market presence. The PEG ratio of 1.34x, whilst above the ideal 1.0x threshold, suggests the stock is not excessively expensive relative to its growth trajectory. With 5-year sales growth of 11.96% and EBIT growth of 12.77%, the company has demonstrated steady expansion that supports current valuation levels.
Shareholding: Institutional Confidence Building
The shareholding pattern reveals a stable ownership structure with gradual shifts in institutional participation. Promoter holding remains steady at 37.21% as of December 2025, marginally down by 0.01% from the previous quarter, reflecting minimal dilution and strong promoter commitment to the business.
| Shareholder Category | Dec'25 | Sep'25 | Jun'25 | QoQ Change |
|---|---|---|---|---|
| Promoter Holding | 37.21% | 37.22% | 37.22% | -0.01% |
| FII Holding | 19.13% | 19.06% | 18.81% | +0.07% |
| Mutual Fund Holding | 4.76% | 4.42% | 4.80% | +0.34% |
| Insurance Holdings | 2.23% | 2.41% | 2.40% | -0.18% |
| Other DII Holdings | 0.43% | 0.55% | 0.61% | -0.12% |
| Non-Institutional | 36.23% | 36.34% | 36.15% | -0.11% |
Foreign Institutional Investors (FII) increased their stake to 19.13% in Q3 FY26 from 19.06% in the previous quarter, marking the third consecutive quarter of rising FII participation. This upward trend signals growing international investor confidence in Sundaram Finance's business prospects and governance standards. The presence of 510 FII entities holding stakes demonstrates broad-based institutional interest.
Mutual fund holdings witnessed a notable uptick, rising to 4.76% from 4.42% quarter-on-quarter, an increase of 0.34%. This represents accumulation by domestic institutional investors, with 26 mutual fund schemes holding positions. Insurance company holdings declined marginally to 2.23% from 2.41%, a reduction of 0.18%, whilst other domestic institutional investor (DII) holdings decreased to 0.43% from 0.55%. The combined institutional holding of 26.56% provides a solid base of long-term oriented shareholders.
Stock Performance: Sustained Outperformance Across Timeframes
Sundaram Finance shares have delivered impressive returns across multiple timeframes, significantly outpacing benchmark indices and demonstrating the market's recognition of the company's fundamental strength.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Day | 7.35% | 1.17% | +6.18% |
| 1 Week | 6.30% | 0.16% | +6.14% |
| 1 Month | 1.01% | -4.78% | +5.79% |
| 3 Months | 16.24% | -2.71% | +18.95% |
| 6 Months | 16.96% | 1.32% | +15.64% |
| YTD | 1.28% | -4.17% | +5.45% |
| 1 Year | 18.83% | 5.37% | +13.46% |
| 3 Years | 133.91% | 36.26% | +97.65% |
| 5 Years | 184.85% | 64.00% | +120.85% |
The stock's 7.35% surge on February 02, 2026, following the Q3 results announcement, reflects strong market approval of the quarterly performance. Over the past week, Sundaram Finance has gained 6.30%, outperforming the Sensex by 6.14 percentage points. The three-month return of 16.24% against the Sensex's decline of 2.71% demonstrates resilience during market volatility, generating alpha of 18.95%.
Longer-term performance is equally impressive. The one-year return of 18.83% comfortably beats the Sensex return of 5.37%, whilst the three-year return of 133.91% versus the benchmark's 36.26% showcases the stock's wealth creation potential. Over five years, investors have enjoyed returns of 184.85%, nearly three times the Sensex gain of 64.00%, translating to alpha of 120.85 percentage points.
The stock trades at ₹5,348.50, just 1.24% below its 52-week high of ₹5,415.45 and 27.35% above its 52-week low of ₹4,200.00. This positioning near all-time highs reflects sustained investor confidence. The stock currently trades above all key moving averages—5-day (₹5,160.73), 20-day (₹5,170.65), 50-day (₹4,978.61), 100-day (₹4,774.83), and 200-day (₹4,875.28)—indicating strong technical momentum and bullish sentiment.
Investment Thesis: Quality NBFC with Consistent Execution
Sundaram Finance presents a compelling investment case built on four key pillars: reasonable valuation following recent moderation, good fundamental quality, positive near-term financial trends, and bullish technical momentum.
The company's quality grade of "Good" reflects its solid long-term financial performance, with 5-year sales CAGR of 11.96% and EBIT growth of 12.77%. The average ROE of 13.41%, whilst not industry-leading, demonstrates consistent capital efficiency. High institutional holdings of 26.56% validate the investment thesis, as sophisticated investors have maintained and increased exposure.
The financial trend turned positive in Q3 FY26, driven by record-high quarterly metrics including net sales of ₹2,513.95 crores, PBDIT of ₹2,005.24 crores, and PAT of ₹592.50 crores (standalone). The debt-to-equity ratio reaching its lowest point at 4.35 times on a half-yearly basis indicates improving financial flexibility. Technical indicators turned bullish on February 01, 2026, with MACD, Bollinger Bands, KST, and moving averages all signalling upward momentum on weekly charts.
Key Strengths & Risk Factors
KEY STRENGTHS
- Consistent Growth Trajectory: Sustained double-digit revenue and profit growth across multiple quarters demonstrates robust business momentum and market share gains in core segments.
- Strong Institutional Backing: 26.56% institutional holdings with rising FII and mutual fund participation signals confidence from sophisticated investors in the company's fundamentals and management quality.
- Operational Efficiency Gains: Operating margins (excluding other income) expanding to 79.76% in Q3 FY26 reflects improving cost management and operational leverage.
- Established Market Position: Seven decades of operating history within the TVS Group provides brand credibility, distribution strength, and customer trust in vehicle financing.
- Diversified Loan Book: Focus on commercial vehicles, construction equipment, and passenger cars provides portfolio diversification and reduces concentration risk.
- Healthy Capital Adequacy: Improving debt-to-equity ratio and growing reserves base ensure financial flexibility for business expansion and regulatory compliance.
- Superior Long-term Returns: Five-year stock return of 184.85% versus Sensex's 64.00% demonstrates consistent wealth creation for shareholders.
KEY CONCERNS
- ROE Below Peer Average: Average ROE of 13.41% lags stronger peers like Cholamandalam (17.68%) and SBI Cards (18.56%), indicating scope for improved profitability and asset utilisation.
- Margin Compression Pressures: Net interest margin declined marginally from 29.77% to 29.64% quarter-on-quarter, reflecting competitive pressures and rising cost of funds in the NBFC sector.
- High Leverage Profile: Debt-to-equity ratio of 4.35 times, whilst improving, remains elevated and exposes the company to interest rate risk and refinancing challenges.
- Cyclical Business Exposure: Vehicle financing is inherently linked to economic cycles, making earnings vulnerable to slowdowns in commercial vehicle demand or construction activity.
- Valuation Premium to Industry: P/E of 28x represents a 27% premium to industry average of 22x, leaving limited margin of safety for execution missteps or sector headwinds.
- Rising Interest Costs: Interest expenses grew 11.23% year-on-year to ₹1,209.33 crores, faster than historical trends, potentially pressuring future profitability if not offset by volume growth.
- Moderate Dividend Yield: Dividend yield of 0.71% is below some peers like L&T Finance (0.96%), offering limited income attraction for yield-seeking investors.
Outlook: What to Watch
POSITIVE CATALYSTS
- Sustained Disbursement Growth: Continued expansion in loan disbursements across commercial vehicles and construction equipment segments driving top-line momentum.
- Margin Stabilisation: Success in protecting NIMs above 29% despite competitive pressures would validate pricing power and underwriting discipline.
- Asset Quality Resilience: Maintaining stable or improving NPA ratios through economic cycles would reinforce the quality of the loan book and risk management capabilities.
- Rising Institutional Participation: Further increases in FII and mutual fund holdings would provide price support and validate the investment thesis.
- ROE Improvement: Initiatives to enhance return on equity towards 15%+ levels would narrow the gap with best-in-class peers and justify premium valuations.
RED FLAGS
- Further NIM Compression: Continued decline in net interest margins below 29% would signal pricing pressure and potential profitability challenges ahead.
- Asset Quality Deterioration: Any meaningful uptick in NPAs or provisioning requirements would raise concerns about underwriting standards and collection efficiency.
- Slowing Disbursement Growth: Deceleration in loan growth below double digits would indicate market share losses or weakening demand in core segments.
- Institutional Selling: Reversal of FII or mutual fund accumulation trends would remove a key pillar of price support and signal changing sentiment.
- Rising Funding Costs: Inability to manage interest expenses effectively could compress spreads and impact profitability despite volume growth.
The Verdict: Quality NBFC at Fair Valuation
Score: 71/100
For Fresh Investors: Sundaram Finance presents a good accumulation opportunity following the shift to fair valuation territory. The combination of consistent operational execution, strong Q3 FY26 results, rising institutional participation, and bullish technical setup creates a favourable risk-reward proposition. Investors seeking exposure to India's vehicle financing growth story with a quality franchise should consider building positions on any near-term corrections towards the ₹5,100-5,200 levels. The 18.83% one-year return and superior long-term track record demonstrate the stock's wealth creation potential.
For Existing Holders: Continue holding with conviction. The company's transition from "Expensive" to "Fair" valuation, coupled with positive financial trends and record quarterly metrics, validates the decision to remain invested. The stock's positioning near 52-week highs and above all key moving averages indicates sustained momentum. Investors may consider adding on meaningful dips below ₹5,000, whilst maintaining core positions for long-term wealth creation. The improving debt-to-equity ratio and expanding operating margins suggest the business quality is strengthening.
Fair Value Estimate: ₹5,650-5,800 (5-8% upside from current levels), based on sustainable earnings growth of 15-18% annually, gradual ROE improvement towards 14-15%, and a justified P/E multiple of 26-28x given the quality franchise and institutional backing.
Note: ROCE = (EBIT - Other Income) / (Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results. Investments in equity markets are subject to market risks, and investors may lose part or all of their invested capital.
