Cholamandalam Investment & Finance Company Ltd. share price target

Go to town with the unassailable growth story Cholamandalam Investment and Finance's (CIFC) 2QFY18 PAT grew 33% YoY to INR2.27b, beating our estimate by 7%, largely driven by stronger-thanexpected AUM growth and lower credit costs. AUM grew 4% QoQ and 14% YoY to INR365b, driven by 24% YoY disbursement growth. Vehicle finance had a good quarter, with disbursements up a third to INR43b and AUM up 20% to INR257b. LAP disbursements, too, have been recovering from 4QFY17 lows (up 52% since...

Maintain BUY with a TP of Rs 1,296 (3.75x Mar-19E ABV of Rs 346). CIFCs 1Q performance vindicates our stance of improving margins and efficiency, along with decline in provisions. In the Vehicle Finance (VF) business, the pre-tax RoA improved to 3.5% (25-qtr high), with steady disbursals/AUM growth, improvement in efficiency and lower provision cost.

Operating Income rose by 3.18% to Rs. 1206.91 Cr in Q4FY17 when compared to the previous quarter. Also it grew by 6.58% when compared with Q4FY16.

We interacted with Mr. Arulselvan, CFO of Cholamandalam Investment and Finance (CIFC), at our Auto Conference to get an update on business and understand change in management team. CIFC plans to achieve 65:25:10 mix of Vehicle: Mortgage: Trip financing/MSME by consciously slowing down on home equity

CIFC's PAT (Rs 1.6 bn, up ~12% YoY) was below our expectation due to one-off expenses (~Rs 280 mn) and higher than expected ~30% QoQ rise in provisions (RBI forbearance on NPA recognition not taken). Growth in disbursements did take a hit from demonetization (down 30% YoY in Home equity segment an..

CIFCs 3Q missed estimates (optically, we believe) as it (1) Did not utilise RBI dispensation, leading to higher provisions and interest reversals, (2) Provided an additional Rs 50mn towards shift to 90DPD and (3) Made one-off VAT provisions of Rs 280mn towards repossessed vehicles.

Cholamandalam Investment & Finance Company (CIFC), part of the Murugappa Group is one of the dominant players in the Vehicle Finance business with a market share of ~9%. Focused business model, strong management and high corporate governance standards are the key differentiating parameters of CIFC. Cholmandalm is best placed to play t..

In Q2FY17, Overall AUM growth of 19% YOY was driven by 18% YOY growth each in Vehicle Finance and Home Equity loans and 45% growth in Other Loans (MSME, Home Loans, Agri).

CIFCs vehicle finance (VF) segment (67% of AUM) delivered along expected lines in 2QFY17 with a pre-tax RoAA of 3.1% ( 90bps YoY). Disbursals/AUM grew 16/18%, NIM (8.1%) and expense ratio (3.8%) were steady, provisions fell (-80bps YoY) with GNPA (down 23/4% YoY/QoQ).