Cholamandalam Investment & Finance Company Ltd. share price target

While consolidation times have paved way for proliferation of quality LAP, pacing up of SARFAESI resolutions, increased recoveries and subsiding balance transfer cases would determine consistent 15% consistent growth over FY20-21E. The high growth exhibited in Q3 might not repeat ahead and we build in adequate conservatism into our 3-year estimates. Said that, CIFC has sufficient levers in place to stack up overall RoAs to 2.3-2.4% over FY2021E backed by 17-18% AUM traction, 7.4-7.5% NIMs, 0.8-1.1% credit costs. We reiterate our positive stance and believe CIFC is one of the better placed auto financiers sailing successfully across credit and liquidity cycles with clear...

Maintain BUY with TP of Rs 1,611 (3.25xDec-20E ABV of Rs 496). CIFC's 3Q performance is commendable, given the adversities faced by NBFCs in the qtr. Healthy growth, led by an uptick in disbursals and a tight leash on asset quality are the key highlights. VF disbursals were sequentially higher (even as OEM sales were muted) and asset quality improved further. Pre-tax RoA at ~3.4% was lower due to NIM compression and higher provisions

31 January 2019 Cholamandalam Investment and Finance (CIFC) reported 3QFY19 PAT of INR3.04b (+39% YoY), largely in line with our estimate. This was driven by a stable sequential NIM and cost control. Disbursements grew at a steady pace of 13% YoY to INR76.5b. Spreads remained stable on a YoY basis, while increasing on a sequential basis by 20bp to 6.7%. However, cost of funds increased 40bp QoQ. Costs were managed well, which led to an opex growth of 12% YoY. Given opex growth was slower than income growth, it led to C/I ratio decline of 300bp YoY. Also, credit costs were lower by 20bp YoY to 0.8%. CIFC has a diversified portfolio, both geographically and in terms of products. It is expanding into new segments like home loans and MSME financing. With strong branch expansion, focus on new products, and improvement in the broader economy, we expect high-teens AUM CAGR over the medium term.

Cholamandalam Investment and Finance (CIFC) has successfully navigated the liquidity crisis, which is now a thing of the past. After drawing down bank lines and borrowing INR60b (approximately one quarter of disbursement) in September, CIFC refrained from incremental borrowings in October and resumed borrowings only in November. As per reported data, CIFC recently managed to raise money via CPs at ~7.5%, i.e. at pre-crisis levels. Due to its healthy liquidity position, CIFC has not needed to cut back on disbursements during the quarter.

We prefer MMFS (TP Rs 500, 2.75x Dec-20E ABV of Rs 175 + Rs 18 for MBIL) and CIFC (TP Rs 1,616, 3.25x Dec-20E ABV of Rs 497) among asset financiers. In the HFC pack, LICHF (TP Rs 534, 1.5xDec-20E ABV of Rs 356) offers value, despite its low pricing NBFCs have grown significantly ahead of Indian aggregate credit over the last decade (19% CAGR vs. overall credit growth of 14%). This growth can be attributed to both intrinsic and extrinsic factors. Intrinsic factors include their ability to (1) Deliver credit to customers that banks cannot reach, (2) Develop niche credit segments and sticky customer relationships, and (3) Price risk appropriately and manage the lending cycle efficiently.

Cholamandalam Investment & Finance Company Ltd Q2FY19 results Comment Operating Income increased by 3.42% to Rs. 1675.73 Cr in Q2FY19 when compared to the previous quarter. Also, it increased by 24.11% when compared with Q2FY18

Maintain BUY with a TP of Rs 1,553 (3.25x Sept-20E ABV of Rs 478). CIFCs 2Q performance was impressive with healthy growth and improving asset quality. In the Vehicle Finance (VF) business, the pre-tax RoAA improved to 3.8%, with healthy AUM growth, NIM improvement and lower provisioning cost.

Set for a retreat: We reiterate our SELL rating on the stock with reduced target price at Rs 1150 2.5x FY20 P/B(earlier Rs 1430 3.1x FY20 P/B). The stock trades at 57% premium to the long term average (~ 7 yrs P/B 1yr Fwd.) of ~ 2.3x and we believe is yet to factor in a relatively weaker return profile as we factor in deeper pressure on spreads, moderation in AUM growth and guarded optimism on the anticipated operating leverage.

Maintain BUY with a TP of Rs 1,764 (4x Mar-20 ABV of Rs 441). Maintain BUY with a TP of Rs 1,764 (4x Mar-20 ABV of Rs 441). CIFCs business momentum sustained through 1Q even though reporting changes (under IND AS) created some ambiguity. Disbursement growth (+45% YoY) continued to dazzle, with VF leading the way. Though a higher share of lower-yielding HCV business (18% of VF disbursements vs. 11% YoY) dented margins partially, the 47bps dip could largely be attributed to the IND AS shift.