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Chola Q1 FY22 first take - Strong PPOP show, but dejects on asset quality - YES Securities

Posted On: 2021-08-02 16:14:28 (Time Zone: UTC)

- CIFC missed our PAT estimate by 35% due to lower disbursements and sharper-than-anticipated increase in PAR 30 mandating higher provisions

- Overall disbursements were lower 55% qoq (our expectation was 45% lower) with originations in Vehicle Finance and LAP segments falling by 54% and 68% respectively due to lockdowns

- NIM were stable, despite impact from material addition in Stage-3 loans, aided by 20 bps qoq decline in funding cost. NII growth was robust at 39% yoy

- Sharp opex decline qoq was on account of unusual base (distribution of incentives in Q4 FY21), but a moderate increase yoy represents tight cost control. PPOP grew by impressive 20% qoq and 56% yoy.

- PAR 30 increased by 11 ppt qoq to 21% of loan portfolio - this extent of deterioration comes as a negative surprise.

- Cumulative restructuring increased to 5.4% of the book, of which Restructuring 2.0 was 3.9%.

- Credit cost was substantially higher than expectations at annualized 3.2% on account of sharp deterioration in portfolio's dpd construct and significant restructuring (provided @ stage-2 classification)

- Management overlay provisions were reversed to the extent of Rs4bn pertaining to accounts in Stage-1 which were unimpacted and borrowers in Stage 1 & 2 who slipped into Stage 3 (provided at higher rate now) during the quarter. Management overlay provisions thus stands reduced to Rs7bn (1% of AUM).

- CIFC has witnessed a recovery in disbursements and collections from the latter part of June, and thus expects normalization and rollbacks of accounts which moved to higher buckets in the coming quarters.

- Given higher valuations (3.1x FY23 P/ABV), the sharp deterioration in asset quality could weigh on stock's near-term performance. CIFC had demonstrated a strong pull-back from higher buckets during H2 FY21. July collections and business trends and Management's medium term outlook will be critical. We currently have an ADD rating. Will revisit estimates post the call on Monday.

Shares of Cholamandalam Investment and Finance Company Ltd was last trading in BSE at Rs. 526.35 as compared to the previous close of Rs. 476. The total number of shares traded during the day was 1246070 in over 25771 trades.

The stock hit an intraday high of Rs. 528.8 and intraday low of 470. The net turnover during the day was Rs. 637224209.

Source: Equity Bulls

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