Prabhudas Lilladher has given Buy recommendation for Cholamandalam Investment and Finance Company with a target price of Rs. 501 in its research report issued on Feb 01, 2021

Prabhudas Lilladher’s research report on Cholamandalam Investment and Finance Company

While CIFC maintained steady business momentum (13%YoY/2%QoQ) for Q3FY21, the asset quality did deteriorate (3.75% NPA vs PLe: 3.34%) much to our expectations. Industrial production led transport and school bus segments that also saw increased share into ECLGS disbursements (Rs15bn) led to slippage of Stage 2, 3 assets. Yet restructured book stands capped at 2% for the year. Moreover, 45% ECL, 16% Stage 2 provisioning, 2.5% credit costs, PPoP at 1.5% of AUMs and CAR at 19% are existing shock absorbers for CIFC. With major front-loading on provisions done in 9MFY21, we prune down our credit costs estimates to 1.55% (earlier 1.9%), resultantly our EPS estimates stands higher by 14% higher for FY21, 4-7%. For FY22-23. Said that, our FY21 still factors sufficient conservatism in the nature of (a) incremental mere 2% AUM growth (but 16% YoY) in Q4FY21 with normalization coming through post festive demand, (b) 4.6% NPA (c) modest margins at (6.6%).

Outlook

CIFC’s continued focus on right product positioning and broad-level strategy on creating financing ecosystem make it a constructive long term bet. 2.7% RoA and 17%+ RoE by FY22 only corroborates our confidence in the business model and hence we reiterate BUY recommendation on the stock with marginal uptick in price target to Rs501 valuing the Co. at 3.6x PABV Mar’23E.

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