Cholamandalam Investment & Finance Company Ltd. share price target

CIFC surprised yet again on bottomline aided by an in-line performance in disbursals and AUM growth and a stronger earnings performance driven by a sharply lower provisions (28% QoQ decline vs. 50% increase est.) This led to the strong net profit beat. The company management sounded optimistic on delivering growth, especially the new products, which are expected to keep momentum intact in the likelihood of a VF segment slowdown.

Superb disbursement streak continues

Cholamandalam Investment and Finance (Chola) has in the past stood out among peers in terms of business performance across cycles. The most prominent driver for that outperformance was the ability to grow most in a CV upcycle (26% vehicle AUM CAGR during FY16-FY19 vs 13% / 17% / 17% for Shriram Finance / MMFSL / Sundaram, respectively) and it has yet again done the same in FY23 (27% for Chola vs 15% / 23% / 22% for Shriram Finance / MMFSL / Sundaram).

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.