EUR 120.00 For Business Accounts Only

MOSL: CHOLAMANDALAM INV & FIN (Buy)-Strong performance in a tough environment

CHOLAMANDALAM INV & FIN: Strong performance in a tough environment

(CIFC IN, Mkt Cap USD2.9b, CMP INR259, TP INR315, 21% Upside, Buy)

 

• 1QFY20 PAT grew 10% YoY to INR3.1b (6% below our est.). While operating profit was in line, higher credit drove the miss v/s our expectations.
• CIFC's disbursements grew 22% YoY to INR85.7b (v/s our est. of 7%). In vehicle finance, the company grew in all segments, barring HCVs (down 30% YoY).
• As a result, AUM was up 6% QoQ/ 27% YoY to INR574b. Home Equity AUM growth of 17% YoY was the highest in the past 11 quarters.
• NIM (calc.) on AUM compressed 20bp QoQ /60bp YoY to 6.7% as cost of funds increased 10bp QoQ /20bp YoY. Borrowing mix remained largely unchanged, barring debentures (share reduced to 17% from 21% sequentially) and term loans (share increased to 56% from 53% in the previous quarter).
• Opex grew 24% YoY to INR3.5b. C/I ratio increased ~250bp to 37%. The company opened ~100 branches during the quarter.
• Asset quality: Gross Stage 3 percentage increased 30bp QoQ to 3%. PCR was largely stable at 36%.
• Valuation and view: CIFC has a diversified portfolio, both geographically and product-wise. It is expanding into new segments like home loans and MSME financing. With strong branch expansion and focus on new products, we expect mid-teens AUM CAGR over the medium term, despite sluggish OEM volumes. However, we look to closely monitor two factors - margin trajectory and asset quality. We upgrade our FY20/FY21 EPS estimates by 2-5% to account for stronger growth. Buy with a TP of INR315 (2.7x FY21 BVPS).