ADD (Target Rs225, Upside 11.1%)
CIFC's growth and asset quality performance was stronger than expectations in Q1 FY21. A material reduction in NIM led to PPOP coming in marginally below our estimate. However, low provisions drove a substantial earnings beat. Multi-product franchise and strong market positioning drove higher-than-expected disbursements in vehicle financing business (74% of AUM, grew 6% qoq). For CIFC, Tractors, used vehicles, 2w and CE witnessed swift recovery post lockdown relaxation and it gained substantial market share. Augmentation of liquidity (Rs80.5bn, 12% of assets and 14% of borrow.) led to material NIM contraction of 50 bps qoq, despite borrowing cost coming off. Lower variable costs and optimization of fixed costs caused significant opex decline.
There was substantial qoq reduction in Stage 2 and Stage 3 assets (combined fell from 7.3% to 6%). While 79% of portfolio remains under moratorium, 16% of such customers have paid part EMIs and 34% has paid 1-to-4 EMIs. 95%+ of morat portfolio comprises of customers who are either 0 dpd or have no past history of overdues. Also, bulk of morat book represents vintage loans (>12 months old). Management chose to not make additional Covid provisions (0.8% of loan book) encouraged by improving collection in June-July and close understanding about improving earnings of morat customers who have not paid anything so far.
Maintain ADD. Our FY21/22 EPS & ABV estimates undergo significant upgrade as we raise growth estimates and lower opex and credit cost. Stock trades at 1.9x FY22 P/ABV. A resilient Q1 FY21 performance highlights CIFC's core franchise strengths - a diversified product and regional profile, strong customer selection/underwriting and solid collection focus. Company will benefit significantly from stabilization in operating environment.
Shares of Cholamandalam Investment and Finance Company Ltd was last trading in BSE at Rs.201.35 as compared to the previous close of Rs. 202.5. The total number of shares traded during the day was 324230 in over 5647 trades.
The stock hit an intraday high of Rs. 206.45 and intraday low of 196.95. The net turnover during the day was Rs. 65399825.