Buy Cholamandalam Investment and Finance Company; target of Rs 1350: Sharekhan

Sharekhan's research report on Cholamandalam Investment and Finance Company

Cholamandalam Investment and Finance Company (CIFC) reported PAT at Rs. 726 crore (up 28% y-o-y/down 15% q-o-q), below our estimates, mainly led by lower-than-expected NIM (down ~26 bps q-o-q at ~6.3% based on our calulations) and higher credit cost (at 126 bps annualised vs. estimate of 75 bps). Core PBT grew by 25% y-o-y/down 17% q-o-q. However, strong performance across its existing product lines and scaling up of the new business segment resulted in robust AUM growth of 42% y-o-y/9% q-o-q. Disbursements grew by 50% y-o-y/down 5% q-o-q. The new business segment – consumer, SME, and small business loans – contributed 23% to the disbursement mix in Q1. Headline asset-quality trends were broadly stable, with GS3/NS3 assets at 3.06%/1.67% vs. 3.01%/1.62% q-o-q. PCR on Stage-3 assets also remained stable q-o-q at ~45%; however, in absolute terms, GS2 and GS3 assets grew by 3% and 10% q-o-q, respectively, due to seasonality.

Outlook

The near-term outlook remains positive except for cost of funds. At the CMP, the stock trades at 4.5x/4.1x its FY2024E/FY2025E ABV estimates. We maintain our Buy rating with an unchanged PT of Rs. 1,350.