Cholamandalam Investment & Finance Company Ltd. share price target

3QFY20 does little to change our thesis on CIFC and it remains our top pick in the NBFC space. CIFC has benefited from the polarisation in the space, due to its diversification across products and geographies and its ability to access funds. While GS-III assets have seen a sustained uptick (due to extrinsic factors) and opex growth has been elevated, CIFC's performance on these fronts is within acceptable bounds. 3QFY20 saw AUM growth slow, NIMs improve and asset quality deteriorate slightly. Pre-tax earnings were in line with estimates while tax expense was lower. Maintain BUY (TP of Rs 412 (3.2xFY22 E ABV of Rs 128)).

The quarter was characterized by lower AUM growth and an increase in the GNPL ratio. While LAP AUM growth has been steady at 16-17% YoY, During the quarter, CIFC assigned ~INR7b worth of vehicle finance loans. As loan growth slowed down and the company assigned loans worth ~INR10b overall during the quarter, it did not raise capital from other sources. Over the past nine months, CIFC has heavily curtailed its M&HCV; disbursements (due to asset quality pressure). While HCVs accounted for 14% of total AUM, they formed only 6% of fresh disbursements in 9MFY20. Stage 3 PCR declined 250bp QoQ to 33% due to lower eventual credit losses in M&HCVs; compared to other products. Increase in opex in the quarter is on account of higher collection costs and higher growth in low-ticket products like 2Ws. In M&HCVs;, customers have slowly started repaying EMIs in January.

Cholamandalam Investment and Finance Company Ltd (CIFC) is a well diversified play in secured asset segments such as vehicle finance and home equity (loan against property). Diversification across segments/geographies and better access to funds (via parentage and strong credit practices) is enabling

2QFY20 is mostly in line with our positive thesis on CIFC. Diversification across segments/geographies and better access to funds (via parentage and strong credit practices) is enabling it to withstand sectoral headwinds. Even though VF GNPAs have risen, they remain best in class and nowhere near alarming. While we have increased our opex estimates, in view of the faster opex growth over the past few qtrs, current efficiency levels are acceptable. The leadership clarity is welcome. CIFC remains our top-pick amongst asset financiers. 2QFY20 saw disbursals dip QoQ (albeit up ~7% YoY), resilient AUM growth (~24%) and slight NIM expansion at CIFC. The bump-up in opex and GS-III were disappointing but excusable. Maintain BUY. Our TP is Rs 404 at 3.5x Sept-21E ABV.

7 November 2019 2QFY20 PAT/PBT grew 0.8%/14% YoY to INR3.1b/INR5.2b (in-line). Company also incurred a one-time tax impact of INR800m on DTA revision under the new tax rate regime. Disbursements grew 7% YoY to INR73.8b (v/s est. 22%), largely driven by muted growth in vehicle finance (5% YoY). In 1HFY20, disbursements grew 14% YoY to INR160b. assigned loans in the vehicle finance book after several quarters (INR8.3b). Core spreads declined 20bp YoY to 6.1% due to 50bp increase in cost of funds to 8.5%. Share of bank funding increased to 53% v/s 47% in the last quarter.

In Q2FY20, CIFC reported weak momentum in disbursement growth for the Vehicle Finance business, which grew ~3.3% yoy to Rs57.9bn, but was down 16.5% qoq. Home Equity disbursements grew ~16.9% yoy to Rs10.6bn (down 3.4% qoq). Although growth is in sync with overall auto industry trends (LCV, MHCV), it has been relatively disappointing compared with Street expectations. Despite weak disbursements, AUM grew ~24.1% yoy and ~3.1% qoq to Rs592.9bn, backed by lower repayments and probable stretch in loan tenures. However, the trend of weak disbursements should gradually be reflected in AUM growth as well....

Growing polarization in the NBFC space (stemming from better parentage and access to funds) has enabled CIFC to sustainably outperform peers across operating metrics. Diversification across products and geographies along with superior underwriting practices and focus on collections pave the way for sustained outperformance. However, with deteriorating macros, asset quality (across asset financiers) will be watched. Yet again, CIFC outperformed across operational parameters, amidst an increasingly tough economic environment. Maintain BUY with a TP of Rs 372 (3.5x Jun-21E ABV).

Market Share Gains in CV, HE Healthy; At 3x, Maintain Accumulate The NBFC reported a strong quarter, with a NII growth of 21% YoY, lower credit costs and improved asset quality. Its opex increased due to investments in 121 new branches. This is expected to improve traction in asset growth next year. We have factored an asset growth of CAGR 18% (reduced our asset growth estimates marginally by 200 bps against vehicles), driven by 15% and 18% in vehicles and LAP, respectively. The PAT is likely to grow at a CAGR 25% over FY19-21E and the ROA is expected to...

Despite the liquidity squeeze on NBFCs, upcountry macro sluggishness and weak headline auto vols, CIFC has grown its Vehicle Finance portfolio and improved asset quality via superior field practices and underwriting. Strong parentage gives it steady access to funds. The sustained improvement in HE asset quality (aided by SARFAESI) is an additional positive. We believe CIFC deserves a slightly higher valuation multiple (3.5x vs. 3.25x). CIFC outperformed peers on growth and asset quality in 4QFY19, meriting an upgrade in our valuation multiple. Maintain BUY with a TP of Rs 1,671 (3.5x Mar-21E ABV).

Maintain BUY with a TP of Rs 1681 (3.25x FY21E ABV of Rs 517). In the midst of the systemic crisis of confidence faced by NBFCs, we expected polarization to increase, resulting in increasingly divergent performance, with good players getting better at the expense of others. CIFC, with its strong parentage, granular and diversified B/S profile has emerged stronger.