KR Choksey is bullish on Cholamandalam Finance has recommended buy rating on the stock with a target price of Rs 1335 in its research report dated November 03, 2016.
KR Choksey's research report on Cholamandalam Finance
Robust 19% Y-o-Y growth in AUMs backed by traction in both home equity and vehicle finance segment and improving credit costs boosted earnings for the quarter for Cholamandalam Finance (CIFC). While the company adopts cautious stance on LAP that is currently witnessing elevated levels of stress, the underwriting norms have been tightened. That said, the home equity portfolio maintains healthy growth trends with 17% Y-o-Y increase in disbursements and healthy 18%+ Y-o-Y growth in home equity AUMs. Vehicle finance segment too reported healthy AUM and disbursements trends with 18%+ and 16% Y-o-Y growth respectively during the quarter. PV (cars and MUVs), tractor, Shubh, used vehicles and 2-wheelers should continue to dominate strong vehicle finance traction ahead. Healthy operating metrics (disbursements 25% Y-o-Y growth, NIMs largely stable at 8.4%, expense ratio improving to 3.5% Y-o-Y) coupled with stable asset quality gross NPAs down to 3.5% and credit costs decline to 1.1%) with continued focus on collections and RoA positions the company in a sweet spot.
With robust 20%+ earnings CAGR over FY17-18E and RoE poised to expand to 18% levels on the back of cyclical recovery and thrust upon home loan book, we reckon, CIFC as one of the strong plays in the retail finance space justifying higher valuations. Against this backdrop, we maintain BUY recommendation on the stock. We value the company at 4.8x P/ABV FY18E arriving at a target price of 1,335 factoring higher business and earnings CAGR with superior return profile. At CMP, the stock is trading at 4.1x P/ABV FY18E.
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First Published on Nov 7, 2016 03:17 pm