Motilal Oswal has given Buy recommendation for Cholamandalam Inv and Fin recommended buy rating on the stock with a target price of Rs 925 in its research re with a target price of Rs. 925 in its research report issued on Oct 13, 2022
Motilal Oswal’s research report on Cholamandalam Inv and Fin
Despite cyclicality in the vehicle finance business, CIFC is slowly but steadily morphing into an enviable franchise by diversifying into newer product segments, scaling up its LAP (Loan against property) segment, and further strengthening its liability franchise. Notably, CIFC is highly focused on improving the underlying asset quality, which was adversely impacted during the pandemic. We believe sectoral tailwinds in vehicle finance will sustain at least over the next 12-18 months, aiding the disbursement momentum in the near-term. Over the medium term, we believe that CIFC would have sufficiently strengthened its LAP, Home Loans, and the three newer business segments—Consumer & Small Enterprise Loan (CSEL), Secured Business & Personal Loan (SBPL) and Small & Medium Enterprises (SME)—to start reaping the benefits of diversification and mitigate the effects of cyclicality on its core Vehicle Finance business. A deeper understanding on the approach undertaken by CIFC to build these three new businesses has led us to believe that the company may not repeat the follies from a decade back when it forayed into consumer finance in a JV with DBS Bank. FY23, in all likelihood, is expected to be a blockbuster of a year for the multi-product vehicle financiers in general and CIFC in particular. The loan disbursements trends in 1HFY23 (reported in 1Q and based on our channel checks in 2Q) indicate that CIFC can deliver a 74%/30% YoY growth in FY23 disbursements/AUM. We continue to maintain a conservative stance on our estimates for both loan disbursements and repayments (to guard against a volatile macro environment) but we acknowledge upside risks to our FY23 disbursements/AUM growth estimates.
We estimate AUM and PAT CAGR of 24% and 20%, respectively, over FY22-FY25E. The stock trades at 3.5x FY24E P/BV, above its 10-year average of 2.7x. Given CIFC’s ability to deliver industry-leading growth in the loan book – coupled with its strong asset quality (expected average credit cost of ~1.1% over FY23–25E) and consequently a healthy RoE of ~21-22% – we believe it would continue to command premium valuations in the sector. We reiterate our Buy rating with a TP of INR925 (4.0x Sep’24E BVPS).
At 17:30 Cholamandalam Investment and Finance Company was quoting at Rs 726.40, up Rs 1.90, or 0.26 percent.
It has touched an intraday high of Rs 740.10 and an intraday low of Rs 725.00.
It was trading with volumes of 11,696 shares, compared to its thirty day average of 66,076 shares, a decrease of -82.30 percent.
In the previous trading session, the share closed down 2.64 percent or Rs 19.65 at Rs 724.50.
The share touched its 52-week high Rs 817.95 and 52-week low Rs 469.75 on 06 September, 2022 and 20 December, 2021, respectively.
Currently, it is trading 11.24 percent below its 52-week high and 54.56 percent above its 52-week low.
Market capitalisation stands at Rs 59,682.02 crore.