Cholamandalam Investment and Finance Company - A steady quarter - HDFC Securities

Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities

CIFC's 4QFY21 PPOP growth (35% YoY) was below our expectations due to steep increase in operating expenses (28% YoY). Disbursements witnessed a slowdown (2% QoQ), after registering strong growth in the previous two quarters. Asset quality witnessed marginal deterioration (GNPA up by 21bps to 3.96%), although it is adequately provided for (PCR at 44.3%). We revise our FY22/FY23E earnings estimates downward by 2.6/2.9% on account of higher opex and provisioning due to the second wave of pandemic. Maintain BUY with a revised TP of INR613. CIFC remains our top pick among NBFCs.

NIM remains steady, higher opex drive lower earnings: CIFC's NIM during the quarter remained steady at 7.6%, with continued cost of funds tailwinds (~120bps sequentially), offset by interest income reversals. Employee expenses (68% YOY) witnessed a steep increase on account of deferred incentives/salary increases, along with headcount additions in the collections team, as per management.

Marginal deterioration in asset quality, provisioning remains elevated: CIFC's asset quality witnessed marginal deterioration (GNPL at 3.96%) with vehicle finance GNPA inching up from 2.7% to 3% sequentially, while GNPA for home equity segment remained elevated at 7.3%. While the management has indicated improving trends in collection efficiency in its bucket 1 and bucket 2 at 99% and 95% respectively, collections in April and May have been impacted by the second wave of the pandemic. Non-tax provisions remained elevated at 3.1% (annualised) on account of COVID- related provisions (~2%). However, the company has adequately provided for its GS-II/III assets at 16.8/44.3% PCR (including COVID-related provisioning).

Disbursals taper off, likely to remain muted in the near term: Disbursement momentum tapered off sequentially to 2%, after posting strong growth in 2HCY20. Slowdown was evident, particularly in used vehicles (-25% QoQ), tractors (-13% QoQ) and home equity segment (-2% QoQ). The second wave of the pandemic is likely to further slash the disbursals. We expect AUM growth of 15.4% CAGR during FY22-FY23E.

Shares of Cholamandalam Investment and Finance Company Ltd was last trading in BSE at Rs.550.55 as compared to the previous close of Rs. 553.9. The total number of shares traded during the day was 179971 in over 6068 trades.

The stock hit an intraday high of Rs. 554.55 and intraday low of 532.25. The net turnover during the day was Rs. 97725419.

Source : Equity Bulls

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