Buy Cholamandalam Investment; target of Rs 230: Emkay Global Financial

Emkay Global Financial's report on Cholamandalam Investment

CIFC reported ~58.1% yoy and 37.9% qoq decline in disbursements to Rs35.9bn as the lockdown impacted overall demand and management preferred conservative underwriting during this volatile period. AUM growth was steady at ~10.4% yoy (+4.9% qoq) on a fall in repayments to 1.1% from average 9-10% due to elevated moratorium. Moratorium remained elevated at 74%; however, the company has indicated that roughly ~50% of the customers under moratorium have started paying, with ~34% of customers under moratorium paying more than one EMI already. Overall provisioning charges remained low at Rs562mn (~36bps of AUM) vs. Rs5.5bn during the last quarter. We like CIFC due to its diversified product portfolio (within the vehicle finance), strong liability franchise and efficient underwriting and recovery practices. Though NPA trends are expected to remain volatile due to Covid-19-related lockdowns, CIFC is well-placed to regain growth momentum and manage asset quality with its strong collection efficiency.

Outlook

We are raising our disbursement numbers and provisioning charges spread across FY21-22E, leading to ~9.1%/14.1% increase in our FY22/23E earnings. We roll forward valuations to Sept’22E. Maintain Buy and raise TP from Rs190 to Rs230 (~1.6x P/Sept’22E Book). We are EW on CIFC in sector EAP.

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