Buy Chola. Invest. & Finance; target of Rs 1162: Centrum
Centrum is bullish on Chola. Invest. & Finance has recommended buy rating on the stock with a target price of Rs 1162 in its research report dated November 17, 2016.
November 24, 2016 / 03:53 PM IST
Chola. Invest. & Fin. Co. Ltd (CIFCL) reported decent results with 19% growth in assets under management (AUM), Net interest income (NII) growth of 17% and net profit growth at 42% backed by lower provisioning. Disbursements grew 21% to Rs 4,444 crore. Asset quality improved with gross non-performing assets (NPA) declining 10bps QoQ to 3.4% on 120 days past due (dpd) basis. We expect CIFCL to move to 90dpd earlier than FY18, thus resulting in elevated NPAs for FY17E. With moderate growth in VF (esp. in HCVs) and HE disbursements, the company’s loan is expected to grow 18-19% in FY17E.
After the Jun’16 quarter results, we had recommended investors to ‘Book Profit’ in the stock at a price of Rs 1,155 considering its high valuation. Post that, stock moved up to Rs 1,200 and then corrected in line with our expectation. It was trading at Rs 1,108 till November 8, 2016 when government announced demonetization, which resulted in a sharp fall in NBFC stocks due to the expectation of slowdown in business and increase in NPAs in some cases. This resulted in fall in CIFCL also. CIFCL’s current valuation of 3.6x its FY18E ABV looks attractive and therefore, we change our recommendation from ‘Book Profit’ to ‘Buy’. This does not preclude the possibility of volatility in its share price due to market sentiment and impact of demonetization on its financials. However, considering its long-term track record of consistent performance, its ability to weather multiple business cycles and management pedigree, we give a ‘Buy’ rating with a target price of Rs 1,162, valuing it at 4.2x its FY18E ABV.
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