4 days ago
South-Based NBFCs Post Strong Profits, But Valuations Concern Investors
Three lending companies based in southern India reported much higher profits in the June 2026 quarter.
They grew by lending more money for vehicles, gold, farms, small businesses and other uses.
Shriram Finance had the fastest profit growth, at 59.8%.
Sundaram Finance had the smallest profit increase, at 21.7%.
Cholamandalam grew profits by 45.6% and had the highest return on equity.
The companies also earned strong interest margins from their loans.
However, their shares are already expensive compared with the industry average.
Investors may watch them, but the article says their prices already reflect much of their expected growth.
Sundaram Finance, Shriram Finance and Cholamandalam Investment reported profit growth of 21.7%, 59.8% and 45.6%, respectively, in the June 2026 quarter.
Their loan books grew in double digits, led by commercial vehicles, gold, used cars, tractors, SMEs and consumer loans.
Shriram Finance recorded the highest net interest margin at 9.04%, while Cholamandalam reported 8.2%; Sundaram Finance did not disclose its NIM.
Cholamandalam had the highest standalone return on equity at 19.3%, but also the highest net NPA ratio among the three at 2.95%.
The stocks traded at 3.1 to 5.2 times standalone book value, well above the industry median of 1.85 times.
- Who
- Sundaram Finance, Shriram Finance and Cholamandalam Investment and Finance Company.
- What
- The three south-based NBFCs reported strong loan-book, net interest income and profit growth, while their stocks traded at high valuations.
- Where
- The companies are south-based, with Sundaram Finance and Shriram Finance described as Chennai-based.
- When
- The June 2026 quarter; stock prices cited in the article are from 2026 trading sessions.
- Why
- Growth in higher-margin lending segments helped improve operating performance, but the resulting strong valuations raised questions about further stock upside.
Growth and operating strength
Valuation and risk concerns
Loan growth
Growth and operating strength
Double-digit loan-book growth during a typically slack June quarter suggests strong demand for higher-margin commercial-vehicle, gold, used-car, SME and related loans.
Valuation and risk concerns
The article says the valuations already factor in growth opportunities over the next few quarters, so continued strong growth may be needed to justify current prices.
Profitability
Growth and operating strength
Higher net interest income and margins supported profit growth across all three companies, with Shriram Finance reporting a 9.04% NIM and the fastest profit increase.
Valuation and risk concerns
High margins reflect lending to borrowers and segments with higher risk profiles, while Shriram Finance and Cholamandalam still reported substantial impairment expenses.
Stock attractiveness
Growth and operating strength
The companies showed healthy operational performance and strong returns on equity, making them candidates for investors' 2026 watch lists.
Valuation and risk concerns
All three traded well above the 1.85-times industry median price-to-book ratio; Cholamandalam's 5.2-times multiple was particularly high, and its net NPA ratio exceeded those of its peers.
Key facts
- Profit growth
- Standalone net profit rose 21.7% at Sundaram Finance, 59.8% at Shriram Finance and 45.6% at Cholamandalam in the June 2026 quarter.
- Loan-book growth
- Sundaram Finance's assets under management rose 17% to Rs 62,275 crore; Shriram Finance's loan book rose 15.3% to Rs 3.13 lakh crore; Cholamandalam's assets under management rose 22% to Rs 2.33 lakh crore.
- Net interest income
- Core or standalone net interest income grew 17.2% at Sundaram Finance, 33.5% at Shriram Finance and 26.8% at Cholamandalam.
- Net interest margins
- Shriram Finance reported a 9.04% NIM and Cholamandalam reported 8.2%; Sundaram Finance did not provide its NIM in its quarterly press release.
- Asset quality
- Net NPA ratios were 1.35% for Sundaram Finance, 2.33% for Shriram Finance and 2.95% for Cholamandalam.
- Return on equity
- Standalone ROE was 15.9% for Sundaram Finance, 16.4% for Shriram Finance and 19.3% for Cholamandalam.
- Price-to-book valuation
- The stocks traded at 4.0 times book value for Sundaram Finance, 3.1 times for Shriram Finance and 5.2 times for Cholamandalam, versus an industry median of 1.85 times.
Sources
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