Buy Cholamandalam Investment and Finance Company; target of Rs 1500: Sharekhan

Sharekhan is bullish on Cholamandalam Investment and Finance Company has recommended buy rating on the stock with a target price of Rs 1500 in its research report dated May 02, 2024.

Broker Research

May 03, 2024 / 10:53 IST

Buy

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Sharekhan's research report on Cholamandalam Investment and Finance Company

Cholamandalam Investment and Finance Company’s (CIFC) Q4FY2024 numbers were strong on most of the business matrices. Net interest income (NII) grew 33% y-o-y/8% q-o-q, led by strong AUM growth and better margins. Net interest margin (NIM, calculated as a % of average AUM) was at 6.4% vs. 6.3% q-o-q. Core fee income grew 165% y-o-y/27% q-o-q as the insurance distribution business was taken over. Total operating expenses grew 63% y-o-y/21% q-o-q, led by continued investments in various business segments, pay hikes, and as employees of the insurance distribution business were taken on the company’s payroll. Opex to average AUM stood at 3.5% vs. 3.1% q-o-q.

Outlook

Maintain BUY with a revised PT of Rs. 1,500. CIFC is likely to sustain its rich valuations on account of high-growth potential and steady return ratios. The company is likely to deliver a consistently sustainable RoE of 20%. Healthy AUM growth, bottoming-out of margins, and contained credit cost should translate into a healthy earnings trajectory going ahead. Moderation in opex growth is expected over the medium term. The company has managed early delinquencies arising in its CSEL business and has taken timely corrective measures. We take comfort from the company’s historic execution track record on the asset-quality front. In the past business cycles, the company has performed well, which provides comfort in the quality of its high growth.

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