Cholamandalam Investments is a strong play on the uptick on commercial vehicles cycle as its loan book is dominated by CV financing. The company boasts of a robust operating profile with AUM of Rs 42900 crore as of March 2018 with net NPA of 1.66 percent and a healthy RoA of 4.6 percent.
Disbursement for FY18 stood at Rs 25113.5 crore, a growth of 35 percent YoY. During FY18, India Ratings and CARE have upgraded long-term debt rating from AA to AA+. Return on equity stood at 20.78 percent in FY18. The company is consistently profit making and dividend paying company since 1979 with a strong track record of dividends to shareholders. We expect an upside of 30 percent for FY19 end with a target price Rs 2141.
The company is part of the Rs 30000 crore Murugappa Group – founded in 1900, one of India's leading business conglomerates with 28 businesses including 8 listed companies and workforce of 40,000 employees.
Cholamandalam Investment and Finance Company Limited was incorporated in 1978. Chola commenced business as an equipment financing company and has today emerged as a comprehensive financial services provider offering vehicle finance, home loans, home equity loans, SME loans, investment advisory services, stock broking and a variety of other financial services to customers.
It operates from around 873 branches across India with assets under management above Rs 42,000 crore. The subsidiaries of Chola are Cholamandalam Securities Limited (CSEC), Cholamandalam Distribution Services Limited (CDSL) and White Data Systems India Private Limited.
The company witnessed PAT growth of 32.6 percent on YoY basis in Q4FY18 to Rs 291.09 crore owing to lower cost of funds and higher fee income. For the full year, net profit witnessed strong growth of 35.5 percent to Rs 974.12 crore on YoY basis.
"The growth in profit was driven by lower non- performing assets, reduction in our cost of funds and better fee income," the company's executive vice chairman and managing director, N Srinivasan, said.
The company's cost of fund in the quarter reduced to 7.1 percent in the quarter from 7.7 percent in the year-ago period. Gross non-performing assets stood at 2.94 percent from 4.66 percent, while net NPA was at 1.66 percent as against 3.19 percent.
It's aggregate disbursements grew 54 percent to Rs 8,007 crore from Rs 5,213 crore last year same quarter, riding on the growth in commercial vehicle (CV) industry. Vehicle finance disbursement grew 54.8 percent to Rs 6,820 crore from Rs 4,407 crore year-ago.
Home equity business disbursed Rs 806 crore as against Rs 544 crore in the fourth quarter of FY17, registering a growth of 48 percent. Assets under management grew by 25 percent at Rs 42,879 crore compared to the last financial year, which stood at Rs 34,167 crore.
In the quarter, the company raised Rs 12,000 crore from banks as well as bonds. For the current financial year, it plans to raise Rs 20,000 crore from banks as well as various instruments, including bonds, Srinivasan said.Disclaimer: The author is Vice-president, Equity Research at Ajcon Global Services. The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.