Buy Cholamandalam Investment and Finance Company; target of Rs 1475: Motilal Oswal

Motilal Oswal's research report on Cholamandalam Investment and Finance Company

Cholamandalam Inv. & Finance (CIFC)’s 3QFY25 PAT grew ~24% YoY to INR10.9b (in line). NII grew ~33% YoY to ~INR28.9b (in line). Other income grew ~60% YoY to~INR6.5b (~14% higher than MOFSLe). This was primarily driven by upfront assignment income of ~INR650m wherein CIFC undertook an assignment transaction after almost 4-5 years. Opex rose ~33% YoY to ~INR14.1b (in line) and the cost-to-income ratio declined ~70bp QoQ to ~40% (PQ and PY: ~41% each). PPoP grew ~40% YoY to INR21.3b (in line). Management shared that opex will remain elevated at ~3% for the next two years since the company will be investing in incubating newer businesses, technology, and branch additions.

Outlook

The stock trades at 2.9x FY27E P/BV. For these premium valuation multiples to sustain, the company will have to keep providing higher confidence in its execution capabilities in the newer product lines. Further, it will have to navigate any cyclicality (if at all) in vehicle demand to deliver healthy AUM growth and asset quality through its diversified product mix. Reiterate BUY with a TP of INR1,475 (premised on 3.6x Sep’26E BVPS).