EUR 120.00 For Business Accounts Only

MOSL: CHOLAMANDALAM INVESTMENT AND FINANCE (Buy)-In-line operating performance-some uptick in GNPL

(CIFC IN, Mkt Cap USD3.5b, CMP INR323, TP INR390, 21% Upside, Buy)

PAT in line; records higher upfront assignment income
** PAT increased 28% YoY to INR3.89b (2% miss) in 3QFY20. The quarter was characterized by modest disbursements in vehicle finance and LAP, improving spreads, and marginally deteriorating asset quality.

** Total income increased 6% QoQ (+24% YoY) to INR10.8b (6% beat). The company recorded upfront assignment income amounting to INR825m in the quarter. Note that upfront income amounts to INR2.1b for 9MFY20 and INR867m for FY19.

Disbursements modest due to muted CV demand
** Disbursements remained modest at 2QFY20 levels at INR74b. Surprisingly, home equity disbursements were ~15% lower than the run-rate of the past few quarters.

** As a result, AUM growth in vehicle finance slowed down to 19% YoY, while that in home equity was largely steady at 16%.

** CIFC opened 44 branches in the quarter, which led to opex increase of 6% QoQ (+35% YoY) to INR4.25b. In our view, recovery expenses would have also increased meaningfully, given the overall economic environment.

Asset quality deteriorates marginally
** Provisions jumped 40% YoY to INR1.4b (our estimate: INR1.1b) on account of a 25bp QoQ increase in gross stage 3 loans to 3.54%. PCR has been maintained at 33%, in line with prior quarters.

** INR3b preferential allotment to the promoter

** The board approved a preferential issue of INR3b to its promoter entity, Cholamandalam Financial Holdings Ltd. The company plans to raise further capital.