Prabhudas Lilladher is bullish on Cholamandalam Tech has recommended buy rating on the stock with a target price of Rs870 in its research report dated April 5, 2016.
Prabhudas Lilladher's research report on Cholamandalam
Retail finance arm of the Chennai-based Murugappa Group, Cholamandalam Investment and Finance Co Ltd (CIFC) caters predominantly to the small and medium road transport operators (SRTOs), self-employed non-professionals and MSME businesses in semi-urban and rural India. Post restructuring the business model back in 2009-10, CIFC has been strategically engaged in scaling up its business verticals and improving operational efficiencies. The right blend of company’s portfolio mix comprising of cyclical vehicle finance business coupled with steady-state home equity segment should ensure staunch business growth and profitability ahead. With the much anticipated macro recovery round the corner, CIFC stands at the point of inflection, CIFC poised to deliver superior growth.
With robust 20%+ earnings CAGR over FY16-18E and RoE poised to expand to 17% levels on the back of cyclical recovery and steady home finance book, we reckon, CIFC as one of the strong plays in the retail finance space justifying higher valuations. We initiate coverage with a BUY recommendation on the stock with a target price of INR 870, valuing the company at 3.7x P/ABV FY17E and 3.2x P/ABV FY18E. At CMP, the stock is trading at 3.1x P/ABV FY17E and 2.7x P/ABV FY18E and we reckon that CIFC possesses a strong upside potential.
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