Sundaram Finance Holding – Like a mutual fund of top notch TVS group auto ancilliary companies

Sundaram Finance Holding Ltd (SFHL) is a very interesting company. I used to hold Wheels India and it popped up as promoter share holder. Digging deeper I realized that this was an entity which was demerged from Sundaram Finance. Now TVS family has split and Sundaram group has gone to TSF group. They have their holding in all the auto ancillary companies directly and through SFHL. It is similar to Tata investments. SFHL also has mandate to invest upto 10% in other opportunistic bets.

Looking further at its holdings led to to realization that it was holding 23.57% in a gem called Brakes India Pvt Ltd. This is a high growth high ROCE business. A close comparison would be Wabco India. As these companies make complete braking system including actuation and not a single component, they command a high PE ratio.

Another positive is that none of its companies face EV disruption except for Turbo Energy which is 10-15% of valuation. Turbo chargers are still in growth phase in India. Non of Maruti engines use turbo chargers yet. Turbo charges in commercial vehicles are not going away.

Below table lists holdings and I have tried to do a valuation exercise.

Companies % Holding Mcap (in crore) Profit (in crore) Assumed PE Implied value
Brakes India 23.57% 716.00 50 8438
Turbo Energy 32.00% 265.00 15 1272
Axles India Limited 38.81% 86.00 20 668
The Dunes Oman FZC (LLC) 43.69% 56.00 15 367
Sundaram Dynacast 26.00% 20.00 20 104
Transenergy 42.41% 9.00 15 57
SBSL 100.00% 17.00 15 255
IMPAL 20.00% 1650 330
Wheels India Limited 23.96% 2000 479
TVS Holding 6.49% 30000 1947
Sundaram Clayton 7.49% 3540 265
Sundaram Composite 39.00% Annual report 15
Lucas-TVS 5.32% Annual report 65
Delphi TVS Technologies 3.19% Annual report 20
Fettle Tone 2.71% Annual report 87
Cash and equivalent Annual report 720
15089

Fettle Tone is one of promoter of Max health insurance. It is part of opportunistic bet which I have mentioned earlier.

SBSL - Sundaram Biz Services Ltd is into IT/BPO

Current market cap even after a sharp run-up is 9000 crore.

Below link summarizes performance of SFHL and its major holdings.

Disc: Invested around Rs 200. Not a buyer at this level.

But I am very bullish on Brakes India. This can command much better valuations with getting into advanced braking solution. They are catching up with Wabco. Infact Brakes India was JV with ZF and when ZF acquired Wabco they had to divest their stake in Brakes India to meet Competition Commission requirements as both companies were in similar biz

Latest move from Brakes India is about getting into electronics and software side of braking - controls and systems. Required for advanced systems like ECS (Electronic Stablity Control). They have partnered with Japanese leader ADVICS (Advanced Intelligent Chassis Systems). They are Toyota subsidiary. This will immediately open up Toyota and High end Maruti market for them. As safety norms become stricter all cars will eventually need to have advanced braking.

They are also developing new products and setting up north america presences (required for tax efficient exports to US)

14 Likes

What’s the holding company discount ?

For market to decide. Else it should equal to long term capital gain tax, which is 12.5%

Hi,

Thank you very much for creating this thread. I always looked for SFHL thread in value picker. I am also a shareholder of it.

I am also on the firm believer of Brakes India doing well in future also, however real value unlocking will only happen if Brakes India gets listed in Bourses. Don’t see any articles regarding this to happen by management. The other significant investment is in Turbo Energy Company, which is also unlisted. Its listing also not sure. Turbo Energy is currently testing what opportunities they can have in the EV landscape.

The major listed companies include Wheels India Limited, IMPAL which dont have significant market cap and also in terms growth and profitability these 2 companies dont score high.

Other small investments in listed companies are in TVS Holdings(Parent Company of TVS motors) and Sundaram Clayton are good in future growth and profitability margin.

I believe the company has good fundamentals and can create wealth for investors. And listing of Brakes India, Turbo Energy or Axles India ltd can make the real difference.

Disclaimer : Investor, views can be biased.

Thanks,
Deb

2 Likes

They will slowly sell TVS Holdings and Sundaram Clayton and invest in current holdings or new biz. It is more like cash sitting on books. As those companies have gone to Srinivasan.

TSF group key businesses are
Sundaram FInance
Auto ancillaries -
Held partially through SFHL and partially directly. SFHL remains the driver holding company for this biz. They issued right share to increase holding in Brakes India when ZF had to exit. This gives me confidence that this is best auto ancillary play in India.

Brakes India is huge with billion dollar revenue.

Turbo energy is a JV with BorgWarner @babu44b Where did you get info about their EV plans. My understanding is that BorgWarner is pursuing that on their own. But this business is still in growth mode in India.

This pic gives out which family group controls what. Some amount of cross holding still exists.

5 Likes

Hi @nav_1996 ,

It is mentioned in the rating report by Crisil. Quoting the same.

“TEPL is in the primitive stages of researching E-compressors and Electronic Braking which will be used in EVs. The amount spent on the R&D are expenses as revenue expenditure as technical feasibility has not been achieved. Evolution of EVs, and ability to introduce new products, including for EVs will be a key monitorable for TEPL.”

Please refer the below link for the Report.it is of Jul 2023.

https://www.crisilratings.com/mnt/winshare/Ratings/RatingList/RatingDocs/TurboEnergyPrivateLimited_July%2031,%202023_RR_322075.html

Thanks,
Deb

4 Likes

One thing I have noticed is that Brakes India, Wheels India and Axle India are going to recent exhibitions as integrated solution providers.

2 Likes

thank you for opening up the thread on this company. Very interesting company but a bit overvalued right now

1 Like

Nice analysis ,holding @160/-

1 Like

Niva Buppa IPO is coming. SFHL is invested in promoter investor Fettle Tone LLP to tune of 87 cr. Found following note “Investment is made for the specific purpose of reinvesting in Nivabupa Health Insurance Company Limited as per the agreement
entered into with Fettle Tone LLP”

This should see some value unlocking depending on agreement.

2 Likes

Can you mention Source please

Annual Report 2023-2024

1 Like

Good growth from past year, what resulted in such double digit growth?
image

Being a holding company it is bit complex as dividends will fluctuate a lot depending on biz needs and performance of each company.

Best is to value each company based on its profit/revenue as provided in Annual report. I had adopted same in first message of the thread. That gave me idea of tremendous undervaluation.

As dividend was minuscule after covid as profits were down for each company and they were conserving cash to get back on feet.

3 Likes

Hi,

Thank you for pointing this information. I have couple of points to add here.

The below screenshot is from the Annual report and I can see that the valuation of investments in last year was 102 crore but it has decreased to 87 crore this year. not sure whether the investment amount was sold or valuation of investment decreased.

And moreover I think this amount is small for any meaningful value unlocking.
Disclaimer: Invested so views may be biased.

Thanks,
Deb

1 Like

Not sure about reduction in holdings.

Agree amount is small for any meaningful value unlocking.

But as mentioned earlier. This is not a core holding. This is part of strategy that they can make opportunistic bets outside core holding upto 10%. So they are likely to rotate this amount. More like venture funding.

3 Likes