Cholamandalam Invest. & Finance - Q2FY21 Result Update - YES Securities

Strong growth delivery and well-provided for potential stress - Retain ADD with 12m PT of Rs305

A robust operating performance (positive surprise on NIM and opex), reassuring collection/customer activation trends & commentary, and expectations of business traction largely sustaining and credit cost normalizing leads us to substantially upgrade FY21/22 earnings and BV estimates. We estimate 2.6%/20% RoA/RoE for FY22 after baking in modest acceleration in growth, structural drop in cost and material reduction in provisions. Valuation at 2.3x FY22 P/ABV is not demanding for a quality franchise like CIFC and could re-rate further. Retain positive stance and raise price target to Rs305.

Robust operating performance

- CIFC delivered a big 40%+ beat on our PPOP estimate, courtesy 20%+ NII outperformance (surprise NIM expansion and robust AUM growth) and a sequentially flat opex (despite much higher business origination)

- Company yet again delivered a large growth surprise - AUM grew 6% qoq and annual growth accelerated to 13%. Growth was pervasive across business segments - Vehicle Finance (5% qoq/12% yoy), Home Equity (7%/12%) and Home Loans (9%/40%). Portfolio mix in VF business continue to veer away from new HCV financing.

- Aggregate disbursements in Q2 FY21 were up 80% qoq and down only 13% yoy. VF disbursements were lower 17% yoy, while HE disbursements were flat yoy

- On blended basis, NIM improved by 1.2 ppt qoq to 7.3% driven by both sustained decline in borrowing cost and a significant hardening of portfolio yield (favorable incremental product mix + decline in surplus BS liquidity). Spread improvement was mainly driven by VF segment.

- As of Sept 30, disregarding SC stand-still, the Stage-2 assets would have been sequentially stable at ~2.7% and Stage-3 assets would have declined to 3%. Collections have improved significantly in the recent months and over 95% of the moratorium customers (75-80% of total borrower base) have started repayments till October 28.

- Despite the above, CIFC on a prudent basis created additional provisions of Rs2.5bn on its Stage-1 (overdue) and Stage-2 assets. The company now holds a provisioning cover of 12.6% (v/s usual 0.4%) on Stage-1 (overdue) exposures and 19% (2x of usual) on Stage-2 assets. On the Stage-3, the coverage stands high at 43% to take care of increase in LGDs.

- Company continues to hold strong liquidity buffer on the BS at Rs68bn. Further, it has undrawn sanctioned limits worth Rs30bn.

Shares of Cholamandalam Investment and Finance Company Ltd was last trading in BSE at Rs.273.1 as compared to the previous close of Rs. 250.1. The total number of shares traded during the day was 1194918 in over 30472 trades.

The stock hit an intraday high of Rs. 280.3 and intraday low of 248.6. The net turnover during the day was Rs. 321997153.

Source : Equity Bulls

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