Reiterate BUY on Cholamandalam Investment and Finance Company - Macro tailwinds aid strong fundamentals - HDFC Securities

Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities

CIFC's 3QFY21 earnings were 19.2% ahead of estimates, on account of better- than-expected operating performance (PPOP 14.8% ahead of estimates), offset by higher provisions. Higher margins, a strong rebound in disbursals and better efficiencies were among the positives. Improving macros reflected in a cyclical uptick in CV sales, adding to CIFC's potent combination of a fortified balance sheet and a superior ability to access funds. We reiterate BUY with a revised target price of INR 502; CIFC remains our top pick among NBFCs.

Disbursals surge: CIFC clocked an overall disbursal growth of 6/22.8% YoY/QoQ to ~INR 79.3bn, led by 55.1/33.8% growth in HE disbursals (17.8% of overall disbursals). Used vehicle disbursals grew the fastest at ~19.3/69%, constituting 40% of total VF disbursals. CIFC disbursed ~INR 15bn under the ECLGS, of which ~INR 11.6bn was towards the VF segment (on a relative basis, CIFC's disbursals were much higher than that of peer asset financiers'). Overall AUM growth came in at 13.1/2.3% and we build in an AUM CAGR of 14.1% over FY21-23E.

HE high on pro forma stress, but not too worrisome: Pro forma GS-III came in at ~3.8% (VF: ~2.8% and HE: ~7.3%). While the management guides for stable to slightly improving impairment ratios from current levels, we conservatively build in GNPAs of 4.1% in FY21E. Non-tax provisions remained elevated at ~Rs 4.4bn (2.6% annualised) and were 9.7% ahead of our estimates. We believe CIFC is adequately provided with Stage II/III coverage at 16.2/43.5%. We build LLPs of ~1.3% over FY21-23E.

NIMs rise: Driven by a benign funding environment (CoF down 120/40bps) and gradual reduction in balance sheet liquidity, CIFC's NIMs expanded 80/50bps to 7.8%, ahead of our estimates. We see limited scope for incremental expansion in spreads although receding liquidity buffers may continue to have an offsetting impact in the near-term. We model NIMs of ~7% over FY21-23E.

Shares of Cholamandalam Investment and Finance Company Ltd was last trading in BSE at Rs.439.15 as compared to the previous close of Rs. 443.5. The total number of shares traded during the day was 494792 in over 9892 trades.

The stock hit an intraday high of Rs. 475 and intraday low of 434.1. The net turnover during the day was Rs. 225881881.

Source : Equity Bulls

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