Buy Cholamandalam Inv and Fin; target of Rs 640: Motilal Oswal
Motilal Oswal is bullish on Cholamandalam Inv and Fin recommended buy rating on the stock with a target price of Rs 640 in its research report dated March 19, 2021.
March 22, 2021 / 01:56 PM IST
Motilal Oswal's research report on Cholamandalam Inv and Fin
Contrary to our expectations, CIFC has seen a quick turnaround in terms of both growth and asset quality. Disbursement performance has been superior v/s peers, while collection efficiency (CE) has consistently been 100%+ for the past few months. Macro indicators, such as e-way bills, also point to a strong recovery. The company's strategy to focus less on low-yielding products (such as HCV Financing) compared with high-yielding ones (such as Tractor Finance) has been fruitful. With the cost of funds continuing to decline, coupled with the trimming of excess balance sheet liquidity, margins are poised to expand further going forward. Over the past five years, CIFC's AUM has grown at a 19% CAGR, while RoE has improved from 16% to 20% (adjusted for one-off COVID provisions in FY20). The company is well-diversified across product segments as well as geographies. Asset quality is the best among peers under our coverage. The impact of COVID-19 is now behind us, and the provisions made by the company would suffice for any reasonable increase in GNPLs.
While the stock has re-rated over the past few months, it trades close to its five-year average. Given CIFC's strong RoE and growth potential, we believe there is scope for a further re-rating. Buy, with TP of INR640 (3.6x FY23E BVPS).
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