KRChoksey is bullish on Cholamandalam has recommended Buy rating on the stock with a target price of Rs 975 in its research report dated May 03, 2016.
KRChoksey's research report on Cholamandalam
Compelling recovery in the CV finance business coupled with sustained home equity finance demand led to put up a healthy Q4 quarter of FY16 for Cholamandalam Finance (CIFC). PAT at INR 1.9 bn exceeded our estimates reporting 42% Y-o-Y growth on the back of robust NII that was up 33% and improved asset quality. CIFC happens to be the largest beneficiary of the CV cycle recovery. Maintain BUY.
With robust 20%+ earnings CAGR over FY16-18E and RoE poised to expand to 18% 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. Against this backdrop, we maintain BUY recommendation on the stock. While the recent run-up helped achieve our target price of INR 870, we now tweak multiple and value the company at 3.5x P/ABV FY18E with a revised target price of INR 975 factoring higher business and earnings CAGR. At CMP, the stock is trading at 3.0x P/ABV FY18E.
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