Cholamandalam Investment and Finance may launch Rs 4,000 cr QIP in September; picks 3 investment banks

Cholamandalam Investment and Finance Company to raise Rs 4,000 crore via QIP.

Murugappa Group-backed Cholamandalam Investment and Finance Co has shortlisted 3 investment banks as advisors to raise upto Rs 4,000 crore via a QIP ( qualified institutional placement), as the NBFC arm of the south based conglomerate steps on the growth pedal, multiple industry sources with knowledge of the matter told Moneycontrol.

The firm's share price has surged by nearly 39 per cent in the last 6 months.

" Depending on market conditions, the proposed QIP is likely to be launched in September. That's the plan for now.  Investment banks Kotak Mahindra Capital, IIFL Capital and HSBC Securities have been taken on board and work has begun," said one of the persons above.

Four other persons familiar with ongoing negotiations confirmed the syndicate of bankers for the QIP and alluded to the targeted September timeline.

One of these four persons told Moneycontrol, "The company has seen strong growth across segments and is expanding into new verticals. It is seeing more opportunities going ahead, especially in terms of using the main vehicle finance vertical to cross-sell other loans. The fund raise should happen before September end. "

" There is a lot of optimism in the NBFC sector currently and most stocks have performed well. Lot of NBFC IPO's are also in the works.  Cholamandalam Investment is looking to scale up. These are early days and the QIP may be launched in September or early October," another person cited above told Moneycontrol.

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All the five persons above spoke to Moneycontrol on the condition of anonymity.

Moneycontrol is awaiting an email response from Kotak Mahindra Capital, HSBC Securities and IIFL Capital.

In response to an email query , Cholamandalam Investment and Finance Company directed Moneycontrol to an interview dated 2nd August, 2023 of Arul Selvan, President and CFO of the firm.

Responding to a query by CNBC TV-18 on the rationale and timing of the Rs 4,000 cr QIP, Selvan said, " We are seeing growth happen slightly at a larger pace, for the intervening period, because of expenses and shorter trends of the NIMs compression we spoke about, we need to adequately protect the CAR and that's where we got this clearance from board to raise Rs 4,000 crore. "

"The Rs 4,000 crore will come by way of partly equity and partly convertible instruments. We will be starting discussions with bankers and will get more clarity on the process and timing in the next few weeks. If the market is good, we will certainly raise ( before next results). Investor appetite and our expectations on pricing should match...that's key," he added.

CAR is the capital adequacy ratio . It is the ratio of a bank or financial institution's capital in relation to its risk-weighted assets and current liabilities and is an indicator of how well the firm can meet its obligations.

On August 1, 2023, the company disclosed its capital raise plans to exchanges - "The Board of Directors at their meeting held this afternoon have, subject to the approval of shareholders, approved a proposal for Capital raising by way of qualified institutional placements (equity issuance and/or compulsory convertible securities) at a price to be determined under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. We are targeting to raise Rs 4000 crs by way of these instruments, subject to necessary approvals."

In the past, Cholamandalam Investment and Finance Co has raised Rs 1,200 crore (Rs 900 crore through QIP and Rs 300 crore through preferential issue to the parent) during the last quarter of fiscal 2020.

THE NBFC RALLY 

Over the last six months, the share prices of the major NBFC peers of Cholamandalam Investment and Finance Co like Bajaj Finance, Bajaj Holdings and Investments, Shriram Finance, IRFC and Muthoot Finance have risen by 16.94 percent, 24.4 per cent, 41.81 per cent, 48.84 per cent and 28.6 per cent respectively.

As part of its Q1 earnings, Cholamandalam Investment and Finance Co reported a 28 percent year-on-year rise in net profit at Rs 726 crore versus a net profit of Rs 566 crore in the year-ago period.

It's assets under management (AUM) rose 40.12 percent on-year to Rs 1.15 lakh crore, according to the investor presentation. Vehicle finance is a major component worth Rs 71,065 crore or 62 percent of the total AUM. This was followed by loan against property worth Rs 22,866 or 20 percent of total AUM. The remaining share comprises of home loans and new businesses, 8 percent and 10 percent respectively, of the total AUM.

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