Cholamandalam Investment & Finance Company Ltd. share price target

We maintain our BUY' rating on the stock and value CIFC at 5.1x Sep'24E ABV to arrive at a target price of Rs 1,075/share, implying an upside of 13% from the CMP. The premium valuations reflect the superior performance delivery potential by CIFC.

CIFC reported a strong 31% YoY net profit growth driven by a healthy expansion in net income and a sharp, 36% YoY decline in credit costs. The business momentum continued in a robust trajectory with the AUM increasing 31% YoY with a continued show of strong contribution from new businesses to the incremental growth as well as market share gains in the traditional segments. The management commentary was positive highlighting improving structural growth factors, especially in the vehicle finance segment.

Strong AUM growth (9% QoQ), largely stable NIMs (~7%) in rising interest rate environment, and improved asset quality (gross stage-3 assets (GS-3) of 3.5% vs 3.8% in Q2FY23) sum up a very strong Q3FY23 for Cholamandalam Investment and Finance (Chola). Consequently, PPOP grew 4% QoQ despite 14% QoQ increase in opex while lower credit cost led to 22% QoQ growth in PAT.

CIFC is a high-quality franchise that combines strong growth with robust profitability. Its strong and competitive positioning in its traditional and multi-product vehicle finance segments has given it a strong growth edge as vehicle finance momentum returned post- Covid pandemic and should sustain broadly despite some near-term adverse sentiments in sub-segments.

We recommend a BUY rating on the stock with a target price of Rs 793/share, implying an upside of 10% from the CMP.