(Rating: ADD, TP: Rs580, Upside: 10.3%)
Swift recovery in collections and transient nature of stress pool comes to rescue
- Chola (CIFC) missed our Q1 FY22 PAT estimate by 35% due to lower disbursements and sharper-than-anticipated increase in PAR 30 which mandated higher provisions. PAR 30 increased by 11 ppt qoq to 21% of loan portfolio, though bulk of the bulging was in Stage-2.
- After swiftly recovering to 101% in June, the collection efficiency improved further to 114% in July (similar to March); implying that normalization and roll-back activity in the overdue buckets has started. Management expects to fully reverse the increase in PAR 30 within the fiscal, and thus estimates a much lower credit cost than FY21 (2%).
- While the extent of portfolio movement in Q1 FY22 came as a negative surprise, the evolving collection picture and transient nature of the stress pool provides comfort on the likelihood of substantial bucket corrections and lower credit cost in ensuing quarters.
- We retain ADD rating on the stock, and the reduction in price target to Rs580 reflects the modifications to our growth and credit cost assumptions for FY22.
Shares of Cholamandalam Investment and Finance Company Ltd was last trading in BSE at Rs. 516.8 as compared to the previous close of Rs. 526.35. The total number of shares traded during the day was 124522 in over 3375 trades.
The stock hit an intraday high of Rs. 528 and intraday low of 512.15. The net turnover during the day was Rs. 64480480.