Prabhudas Lilladher's research report on Cholamandalam Investment and Finance Company
We initiate coverage on CIFC with BUY recommendation given that the company has doubled its AUMs defying business cycles, GNPAs averaged at <3% levels (barring demo impact in FY17) translating into steady 17%+ RoE's for past five years. We expect current cyclical recovery to enable 15% CAGR in CV volumes aiding CIFC to grow its AUM at 20% CAGR over FY18-20. Lower credit costs at 80bps and improvement in HE business will enable 27% PAT CAGR over same period. We expect premium valuations to sustain on the back of CIFC's diversified vehicle finance book, secular home equity and resilient balance sheet.
We assign a P/ABV multiple of 4.2x FY20E and arrive at a price target of Rs1,881. BUY.
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