MOSL: CHOLAMANDALAM INV. & FINANCE (Buy)-Growth slowing down; M&HCV stress to last 8-9 months
(CIFC IN, Mkt Cap USD3.6b, CMP INR318, TP INR390, 23% Upside, Buy)
** PAT increased 28% YoY to INR3.9b (2% miss) in 3QFY20. The quarter was characterized by lower AUM growth and an increase in the GNPL ratio.
Vehicle finance loan growth slowing down; lower incremental CoF
** AUM growth slowed down from 24% YoY in the prior quarter to 21% YoY in 3QFY20. While LAP AUM growth has been steady at 16-17% YoY, vehicle finance AUM growth moderated from 24% YoY to 19% YoY.
** During the quarter, CIFC assigned ~INR7b worth of vehicle finance loans. The company used to sell down via the securitization route, but has started direct assignments in VF too for the past two quarters.
** As loan growth slowed down and the company assigned loans worth ~INR10b overall during the quarter, it did not raise capital from other sources. Total borrowings declined 2% QoQ. The share of bank loans jumped from 53% to 61% QoQ. Management commented that incremental cost of funds has declined 20-30bp QoQ in 4Q.
Tweaking VF product mix; GNPL ratio increasing
** 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. On the other hand, it has grown faster in refinance and used vehicles (33% of disbursements vis-à-vis 26% of AUM).
** GNPL ratio increased across segments: Vehicle Finance - 2.7% v/s 2.35% QoQ, Home Equity - 6.0% v/s 5.9% QoQ and Home Loan - 3.7% v/s 3.8% QoQ. Stage 3 PCR declined 250bp QoQ to 33% due to lower eventual credit losses in M&HCVs compared to other products.
Cholamandalam Investment and Finance Company Limited is a diversified non-banking finance company. The Company provides vehicle finance, home loans and corporate mortgage loans, small and medium enterprises (SME) loans, investment advisory services, stock broking and a range of other financial services. The Company focuses on vehicle finance, corporate finance, home equity loans and distribution of financial products. The Company operates from over 530 branches across India. The Company also offers Rural and Agri Loans, which include loans for purchase of tractors and farming equipment; wealth management, which includes mutual funds, fixed deposits and bonds, life and general insurance, and home loan, and securities, which include stock and derivatives, Internet broking, demat services, exchange traded funds and bonds. Its subsidiaries include Cholamandalam Securities Limited, Cholamandalam Distribution Services Limited and White Data Systems India Private Limited.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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