MOSL: CHOLAMANDALAM INV & FIN (Buy)-Growth surprises positively; Asset quality improves
Cholamandalam Inv & Fin: Growth surprises positively; Asset quality improves
(CIFC IN, Mkt Cap USD3.1b, CMP INR1286, TP INR1520, 18% Upside, Buy)
- Cholamandalam Investment and Finance's (CIFC) 3QFY18 PAT grew 53% YoY to INR2.49b, exceeding our estimate by 13%, driven by better operating profit (7% beat) and lower provisions.
- CIFC had a strong quarter on the vehicle finance front. Like peers, it witnessed strong disbursement growth (61% YoY, 31% QoQ) and AUM growth (26% YoY). At the same time, the GNPL ratio in this segment declined 100bp sequentially to 2.8%.
- The home equity segment has stabilized. Disbursements were in line with recent quarters at INR8b, but below the pre-demonetization peak of INR10b. However, there has been no traction with respect to NPL recovery - this remains a concern. GNPL ratio was unchanged QoQ at 6%.
- The company managed to maintain yields despite competitive pressure. Given the sharp annual decline in CoF, NIM on AUM expanded 80bp YoY to 8.3%. While the margin performance is encouraging, we believe margins have by-and-large peaked out. Incremental CoF via NCDs is ~8.25%.
- Overall, the company generated 20% RoE for 3QFY18 and 9MFY18. We expect ~3%/20% RoA/RoE trajectory to continue over the medium term. Further upside could accrue from potential operating leverage benefits.
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.
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