Sundaram Finance -- Quality, its asset

Anup Menon

THE fixed deposit programme of Sundaram Finance is a good option for a portfolio with a low-risk profile. The rates on offer are comparable to some of the riskier options open to investors.

Though certain banks also off similar rates of return, the quality of service offered by Sundaram Finance is far superior.

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True, there are some signs of slowdown in the automobile industry which may have an impact on the cash flows of the company in the near term. But as in the past, investors are not likely to regret investing in the fixed deposit programme.

The company's gearing and ability to cover interest payments are comfortable. Given the rates on offer, investors can consider the one- and three-year options on offer. Though the two-year option is also attractive, the incremental benefit offer is lower vis-a-via the three-year option.

Hence, investors considering the two-year option can as well invest in the three-year option as far as the regular FDs go. But, in the cumulative scheme, even the two-year option can be considered as the effect of compounding yields better returns.

Sundaram Finance's fixed deposit programme offers both fixed and cumulative schemes. While the tenure for the former is one, two and three years respectively at 10 per cent, 10.5 per cent and 11.5 per cent respectively, for the same tenors on offer, the effective compounded yields on offer for the latter are 10.82 per cent, 11.52 per cent and 12 per cent respectively. The minimum deposit amount under both options is Rs 10,000 and, thereafter, in multiples of Rs 1,000. Deposits are accepted at the registered office of the company at Sundaram Finance Ltd, PO Box: 3704, 21, Patullos Road, Chennai - 600 002.

Sundaram Finance is among the leading players in the financial services industry, with focus on the hire-purchase business. With the automobile industry showing some signs of slowing down, the quality of the company's assets may be affected.

But the company's performance in the near future may not be a cause of worry for the investors. Unlike in the past, competition for the company is largely limited to some of the banks which have entered the hire-purchase business. However, given that the company has built-up brand equity and a fairly extensive distribution network, the negative impact of the changes in the broad economy and increasing competition are likely to be low.

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The financial performance for the first half of fiscal 2000-2001 was in line with expectations. Total revenues rose 6 per cent to Rs 222.97 crore compared to the previous corresponding period. In the same time-frame, operating profit margins rose 38 per cent to 43 per cent. Post-tax earnings declined by around 4 per cent to Rs 21.62 crore due to higher tax provision.