Buy Cholamandalam Inv and Fin; target of Rs 1420: Motilal Oswal

Motilal Oswal is bullish on Cholamandalam Inv and Fin recommended buy rating on the stock with a target price of Rs 1420 in its research report datedd December 07, 2023.

Broker Research

December 08, 2023 / 14:27 IST

Buy

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Motilal Oswal's research report on Cholamandalam Inv and Fin

Cholamandalam Finance (CIFC) has taken a successful leap forward in reducing the cyclicality, which was inherent in its core vehicle financing business. Non-auto product segments now account for ~40% of the loan mix, which includes ~11% from new businesses of Consumer and Small Enterprise (CSEL), SBPL and SME (incorporated in Jan’22). As of Sep’23, AUM of new businesses rose ~180% YoY (albeit on a small base) to ~INR133.3b. Among new businesses, CSEL accounts for ~7% of total AUM. CSEL typically has two sourcing channels: 1) Traditional branch and DSA-led sourcing, and 2) Partnerships with fintechs and consumer-tech. CIFC and other lenders in this product segment have acknowledged higher delinquencies and stress build-up in the partnership-led CSEL business, which makes up ~25% of total CSEL AUM of ~INR82b.

Outlook

Given its ability to deliver industryleading growth in the loan book, strong asset quality (expected average credit cost of ~1.2% over FY25-26E) and healthy RoE of ~22%, we believe CIFC should continue to command a premium valuation in the sector. We reiterate our BUY rating with a TP of INR1420 (4.3x Sep’25E BVPS).

For all recommendations report, click here