Axis Direct is bullish on Cholamandalam Investment and Finance and has recommended buy rating on the stock with a target price of Rs 760 in its research report dated February 2, 2016
Axis Direct Research report on Cholamandalam Investment and Finance
Cholamandalam Investment and Finance’s (CIFC) Q3FY16 PAT atRs 1.5 bn (up 31% YoY) was above estimate on healthy net interest income (+17% YoY). Headline asset quality improved marginally with GNPLs (on 120 dpd; better than most peers) down 12 bps QoQat 4.3%. Disbursement growth picked up sharply by 38% YoY leading to 13% YoY growth in AUM. We expect AUM to post 15% CAGR over FY15- 18. CIFC is in the process of appointing a consultant for its payment bank project and is expecting the bank to be ready in next 12-14 months. The company highlighted that earnings in the payment bank will not be accretive in next few years as it will be in investment mode; however, expects to deliver real value to shareholders in a 4-7 year window.
Growth in vehicle finance disbursement was on account of strong momentum in volume of heavy commercial vehicles and also healthy growth in used vehicles. Disbursement in home equity (21% share) too witnessed healthy traction at 17% YoY. Small vehicle growth continues to be muted. Margin (as % of assets) witnessed an uptick of 27 bps QoQ to 8.8%, largely on account of reduction in funding cost on decline in base rates by the banks. Healthy net interest income coupled with decline in staff expenses led to +150 bps QoQ improvement in cost-income ratio (calc.) to ~40%. The board has approved an additional investment of Rs 750 mn in its wholly-owned subsidiary Cholamandalam Distribution Services Ltd (CDSL) for setting up payment bank operations. Total investment by the company in CDSL will be at Rs 1.2 bn.
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