Cholamandalam Investment & Finance Company Ltd

July 31, 2019

Q1FY20 Result Update Buy

Industry NBFC Result Highlights
CMP (Rs) 243 Cholamandalam Investment and Finance Company Ltd (CIFCL)
FY21E Target Price (Rs) 317 reported Q1FY20 net profit of Rs 3142mn as against our
52 Week H/L (Rs) 311/208 estimate of Rs 3525mn, mainly driven by higher than expected
Volumes (BSE+NSE)* 12,51,620
provision cost.
Shares O/S (mn) 782.2
Market Cap (Rs bn) 190.1
Free Float (%) 47.1
Assets under management grew by 26.0% YoY to
Bloomberg CIFC IN Rs 574.9bn on the back of 28.3%, 16.9% and 36.2% YoY
Reuters CHLA.BO growth in vehicle loans, home equity loans and other business
*Three month daily average loans respectively. Disbursements grew by 22.0% YoY to
Rs 85.7bn with 22.5% YoY growth in Vehicle Finance and
Share Holding Pattern (30/06/2019) 17.3% YoY growth in Home Equity. The performance of the
Shares Holding company in terms of AUM growth is much better than our
Particulars
(mn) (%)
expectations despite slowdown in auto sales and tight liquidity
Promoters 413.8 52.9 conditions for NBFCs. We maintain our AUM growth assumption
FIIs 148.6 19.0
of 20% CAGR over FY19-21E and continue to monitor trends
DIIs 132.2 16.9
in auto sales and progress of monsoon which may impact
Others 87.6 11.2
the outlook on AUM growth.
Total 782.2 100.0
Source : BSE
Borrowings stood at Rs 551.2bn, comprising of Bank loans -
58% (up sharply from 53% in Q1FY19), Debentures - 17% (Vs
Financial Highlights 27% YoY), Securitisation – 10% (Vs 12% QoQ), Commercial
(Rs bn) FY19 FY20E FY21E
Paper - 10% (Vs 11% YoY). Company did not face any issues in
terms of availability of funds from the market. Further, the
Operating Income 34.0 41.4 51.2
Company has been carrying excess liquidity from the second
PAT 11.9 15.3 18.5
quarter of last financial year and this trend continued during the
PAT Growth (%) 29.2 28.9 21.3
current quarter as well. The excess money as of Q1FY20, was
ABV (Rs) 69.0 85.7 105.8 held in fixed deposits for Rs 47.53bn and balance of Rs 5.91bn
P/ABV (x) 3.5 2.8 2.3 in cash and current account balances with banks. This resulted
RoAE (%) 21.0 22.3 22.1 in a negative carry and adversely affected the Net Interest
RoAA (%) 2.3 2.5 2.6 Margins.

Operating income (NII+Other Income) grew by 15.1% YoY to

CIFCL - 3 Year Stock Price Trend (Rs) Rs 9425mn. Reported YoA improved to 14.4% from 14.3% in
2000
1800 Q4FY19, however, reported NIM declined to 6.7% in
1600
1400
Q1FY20 compared to 6.8% in Q4FY19. Management aims to
1200
1000
protect profitability with better utilization of excess liquidity and
800
600
higher growth in higher yielding assets.
400
200
0 Total operating cost (Employee+Other Opex) was up 24.3%
25-Dec-16

25-Dec-17

25-Dec-18
25-Apr-16

25-Apr-17

25-Apr-18

25-Apr-19
25-Aug-16

25-Aug-17

25-Aug-18
25-Feb-17

25-Feb-18

25-Feb-19

YoY, with a cost-to-income ratio of 37.1% (Vs 34.4% YoY

25-Oct-16

25-Oct-17

25-Oct-18
25-Jun-16

25-Jun-17

25-Jun-18

and 42.5% QoQ).

Asset quality trends are in-line with the annual trend where
% GNPA increases from Q4 to Q1 every year. % Gross NPA was
at 2.6% Vs 2.3% QoQ and % Net NPA at 1.4% Vs 1.1% QoQ.
Analyst: Amit N Rane
Stage -3 Assets under IND-AS was reported at 3.0% (Vs 2.7%
+91- 22- 40287022
amit@qsmail.com QoQ).

Capital adequacy ratio stood comfortable at 17.2% with

Tier I Capital ratio at 12.9%.
 Quantum Securities

Outlook and Valuations

Our FY20E and FY21E ABV estimates are largely unchanged. Valuing CIFCL at 3.0x (unchanged) on FY21E
ABV of Rs 106 (unchanged), we arrive at price target of Rs 317 (unchanged). Due to recent stock price
correction, we upgrade CIFCL to a Buy rating from an Accumulate earlier.

Q1FY20 Results Summary

Particulars (Rs mn) Q1FY20 Q1FY19 % YoY Change Q4FY19 % QoQ Change
Operating Income 9,425 8,186 15.1 8,989 4.9
Total Expenditure 3,500 2,816 24.3 3,820 -8.4
Operating Profit 5,925 5,370 10.3 5,169 14.6
Provision and Contingencies 1,095 983 11.4 556 97.1
Profit Before Tax 4,830 4,388 10.1 4,614 4.7
Tax 1,688 1,535 9.9 1,695 -0.4
Profit After Tax 3,142 2,852 10.2 2,919 7.7

Balance Sheet Details

Particulars (Rs mn) Q1FY20 Q1FY19 % YoY Change Q4FY19 % QoQ Change
Assets Under Management 5,74,940 4,56,180 26.0 5,42,790 5.9
On Book 5,52,840 4,43,300 24.7 5,26,220 5.1
Off Book 22,100 12,880 71.6 16,570 33.4
Borrowings 5,51,220 4,09,800 34.5 5,05,670 9.0

Key Ratios (As reported)

Key Ratios Q1FY20 Q1FY19 Q4FY19
Gross NPA (%) 2.6 3.1 2.3
Net NPA (%) 1.4 1.8 1.1
Capital Adequacy Ratio (%) 17.2 18.2 17.6

Cholamandalam Investment & Finance Company Ltd – Q1FY20 Result Update Page 2
 Quantum Securities

Income Statement
Y/E March (Rs mn) FY18 FY19 FY20E FY21E
Operating Income 28175.8 34041.9 41366.4 51162.2
Expenditure 10984.2 12695.5 15786.2 19641.2
Operating Profit 17191.6 21346.4 25580.3 31521.1
Provision and Write offs 3178.0 3115.0 2235.3 3200.0
PBT before Exceptional Items 14013.6 18231.4 23345.0 28321.1
Exceptional Items 0.0 0.0 1.0 2.0
Profit Before Tax 14013.6 18231.4 23344.0 28319.1
Tax 4830.6 6370.0 8054.4 9771.5
Profit After Tax 9183.0 11861.4 15289.6 18547.6

Balance Sheet
Y/E March (Rs mn) FY18 FY19 FY20E FY21E
SOURCES OF FUNDS
Share Capital 1564.0 1564.3 1564.3 1564.3
Preference Capital 0.0 0.0 0.0 1.0
Reserves and Surplus 49496.0 60193.1 74020.6 90741.9
Networth 51060.0 61757.4 75584.9 92307.2
Borrowings 381359.0 505667.4 556234.1 667481.0
Other Liabilities 18750.0 6838.2 8205.8 9847.0
Total Equity and Liabilities 451169.0 574263.0 640024.8 769635.2
APPLICATION OF FUNDS
Fixed Assets 1608.0 1758.6 1846.5 1938.9
Investments 3190.0 729.2 4500.0 4501.0
Deferred Tax Assets 3395.5 4530.0 4530.0 4530.0
Receivable under Financing Activity 427257.0 526222.7 615117.6 739639.9
Cash and Bank Balances 3925.0 36748.5 9543.0 14313.4
Other Assets 11793.5 4274.0 4487.7 4712.1
Total Assets 451169.0 574263.0 640024.8 769635.2

Cholamandalam Investment & Finance Company Ltd – Q1FY20 Result Update Page 3
 Quantum Securities

Ratios
Y/E March FY18 FY19E FY20E FY21E
Valuation
EPS (Rs) 11.7 15.2 19.6 23.7
BVPS (Rs) 65.3 79.0 96.6 118.0
Adj BVPS (Rs) 56.0 69.0 85.7 105.8
P/E (x) 20.7 16.0 12.4 10.2
P/BV (x) 3.7 3.1 2.5 2.1
P/ABV (x) 4.3 3.5 2.8 2.3
Dividend Yield (%) 3.5 2.7 3.3 4.1
Payout (%) 16.9 10.0 9.6 9.9
Growth (%)
Borrowings 57.5 32.6 10.0 20.0
On Balance Sheet Loans 50.4 23.2 16.9 20.2
Assets under Management 25.6 26.5 20.0 20.0
Net Interest Income 8.8 28.7 15.9 23.3
Operating Income 16.0 20.8 21.5 23.7
Operating Profit 21.4 24.2 19.8 23.2
Net Profit 27.8 29.2 28.9 21.3
Profitability (%)
Yield on Assets 13.8 13.6 13.9 14.2
Cost of Funds 8.6 8.1 8.6 9.0
Spreads on Core Business 5.2 5.5 5.2 5.2
NIM 6.3 6.0 5.8 6.1
RoAE 19.5 21.0 22.3 22.1
RoAA 2.4 2.3 2.5 2.6
Cost / Income 39.0 37.3 38.2 38.4
Cost to Average Assets 2.9 2.5 2.6 2.8
Balance Sheet Ratios
Leverage (Total Assets/Networth) (x) 8.8 9.3 8.5 8.3
Leverage (Borrowings/Networth) (x) 7.5 8.2 7.4 7.2
Asset Quality (%)
Gross NPA 2.9 2.6 2.3 2.0
Net NPA 1.7 1.5 1.4 1.3
Provision Coverage 41.4 42.1 39.9 35.9
Capital Adequacy (%)
Capital Adequacy Ratio 18.4 17.6 17.4 16.9
Tier I Capital Ratio 13.2 12.6 13.1 13.3
Note: Ratios FY19 onwards as per IND-AS.

Disclaimer: Quantum Securities Pvt. Ltd. (QSPL) offers discount and full service brokerage services and is not involved in any investment banking or
merchant banking activities. This document is based on information obtained from sources believed to be reliable and due diligence has been conducted
to that effect. We do not have any other material conflict of interest at the time of publication of the research report. Opinions & theories expressed are
based on present circumstances & judgment and are subject to change without notice. Quantum Securities Pvt. Ltd. accepts no liability whatsoever for
any direct or consequential loss arising from any use of this document or further communication given in relation to this document.

If annualized returns are greater than 15%, then the stock is rated as BUY, between a range of 10-15% is rated as Accumulate. If annualized returns are
lower than -15%, then the stock is rated as SELL and between a range of -10% to -15% is rated as Reduce. In the range of +/ (-) 10%, the stock is
rated as Hold. However, within this zone we may choose to give an Accumulate, Reduce or Hold rating.

Quantum Securities Pvt. Ltd. does not have any financial interest in the subject company and has not been engaged in market making activity for the
subject company; QSPL or any of its associates have not received any compensation or other benefits from the subject company or third party in
connection with the research report or any other compensation from the subject company in the past twelve months. Further, Amit N Rane has not
served as an officer, director or employee of the subject company; QSPL does not have actual/beneficial ownership of one per cent or more of securities
of the subject company, at the end of the month immediately preceding the date of publication of the research report.

Cholamandalam Investment & Finance Company Ltd – Q1FY20 Result Update Page 4