Cholamandalam Investment & Finance Company Ltd. share price target

Maintain BUY. Our TP is Rs 1,767 (4x Mar-20E ABV). Stellar disbursal growth (+35% YoY) and a pullback in asset quality (GNPA at 2.49% vs. 4.66% in FY17) through FY18 compel us to reaffirm our faith in CIFC. Despite apprehensions on sustainability of growth, we believe CIFC is well poised given its expanding presence (added 336 branches over 2 yrs) and regulatory tailwinds in automobiles (BS-VI emission norms, overloading compliance and scrappage policy).

Maintain BUY with a TP of Rs 1,767 (4x Mar-20 ABV of Rs 442) CIFC ended FY18 on a high, with a strong beat in 4Q. The 18% sequential acceleration in disbursals (especially in the Vehicle Finance slice), coupled with the steady NIM uptick (8.70%, +30bps QoQ) led to a core earnings beat of ~6%. Though costs were at a multi-qtr high, justification was visible in the stark reduction in GNPAs to 2.94% (higher incentives paid for collection) and the rapid expansion in reach (170 in the past 12 months).

Cholamandalam Investment and Finance's (CIFC) 4QFY18 PAT grew 32% YoY to INR2.9b, a 6% beat. CIFC had another strong quarter on the vehicle finance front. Disbursements grew 55% YoY and AUM grew 33% YoY. At the same time, GNPL ratio in this segment declined 74bp QoQ to 2.04%. This is lower than even the number reported on 180dpd basis in FY15. The home equity segment has stabilized. While disbursement growth on a YoY basis looks optically high at 48%, it is merely due to the low base effect. Otherwise, disbursements have largely been around INR8b in the past three quarters. More importantly, there have been some resolutions under SARFAESI due to which the GNPL ratio declined 60bp YoY to 5.4%

Business continued to grow at higher pace: CIFL is one of the major player in the vehicles finance in the country. Heavy and light commercial vehicles finance accounts for around 40% of the vehicles finance AUM. Over the last four quarters, disbursements to vehicles finance segment witnessed a strong traction in line with the improving commercial vehicles (CV) sales growth in India. M&HCV; production growth in the last seven months (Sep-Mar) increased at avg. 26.1% YoY mainly driven by the infrastructure activity. Loan growth from this particular segment is likely to remain strong over the near to medium term...

CIFC posted a stellar Q3 with 53% YoY growth in PAT to Rs 2.5 bn (higher than our and consensus estimates). Strong earnings growth was backed by uptick in disbursements (up 55%/23% YoY/QoQ) and improvement in asset quality with ~80 bps QoQ decline in GNPA ratio to 3.7%.

Cholamandalam Investment & Finance Company Ltd Q3FY18 results comment Operating Income increased by 6.98% to Rs. 1404.33 Cr in Q3FY18 when compared to the previous quarter

Maintain BUY with a TP of Rs 1,520 (3.75x Dec-19 ABV of Rs 405) CIFCs 3Q numbers show an improvement on all fronts. Acceleration in disbursements (+55/23% YoY/QoQ) led to a core earnings jump of 30/7% YoY/QoQ. Frugal cost increase (+5% QoQ) despite aggressive branch expansion (added 133 branches in 3Q) and controlled provisioning caused an earnings beat of ~9%. Effort on collections was clearly visible as asset quality starkly improved (GNPAs dipped 76bps QoQ) for successive quarters.

CIFC reported robust Q2 marked by strong growth in vehicle portfolio disbursements (up 32.3% YoY), uptick in margin (100 bps YTD to 9.6%) and improvement in headline asset quality (GNPLs at 4.5%; down 24 bps QoQ; PCR at 35%).

Maintain BUY. Our TP is Rs 1,427 (3.75x Sept-19 ABV). CIFCs 2Q results reiterate our stand on management quality and superior operating metrics. Growth revived (disbursements +24% YoY), propelling core earnings to a new watermark while the efforts to improve asset quality paid off (GNPAs dipped ~270bps to 4.46%). Though NII jumped 26% YoY, core earnings growth was arrested by a spike in personnel (+19% YoY) and origination (+37%) expenses.