Hold

Result Update Cholamandalam Invst & Target Price

03th August 2021 Finance Company Ltd 570
Banking

Strong Operating Performance; Pressure on Asset Quality (CMP as of Aug 02, 2021)
Cholamandalam Invst. & Finance Company Ltd (CIFC) Q1FY22 performance was a mixed bag, CMP (Rs) 526
with strong operating performance (PPOP up 55.8%/19.9% YoY/QoQ) while elevated Upside /Downside (%) 8%
provisioning of Rs 5.6 Bn led to a PAT de-growth of 24% YoY (up 34% QoQ). NII growth
High/Low (Rs) 601/197
(34.8%/1.4% YoY/QoQ) was driven by stable NIM of 7.6% even as the AUM growth lagged.
Market cap (Cr) 43,175
Disbursements were muted at Rs 36 Bn, down 55% QoQ as mobility was restricted due to
lockdown restrictions. Asset quality deteriorated as Gross stage 3 assets rose to 6.8% (4% Avg. daily vol. (6m) Shrs. 16,99,230
QoQ). No. of shares (Cr) 82
Total stress book stands at ~12% while the management overlay provisions is ~1% of the book. Shareholding (%)
The management expects credit costs and GNPAs in FY22 to be lower than those of the last
Jun-21 Mar-21 Dec-20
year. The total restructured book stood at Rs 36.4 Bn (5.4% of AUM). Collection Efficiencies
have picked up in Jun-Jul’21. Promoter 51.6 51.6 51.6
FIIs 18.9 16.5 13.2
CIFC with its conservative management, comfortable liquidity position, and diversified
portfolio mix is well-placed to ride on the demand recovery. However, given the rise in MFs / UTI 19.9 21.2 23.0
book stress levels, and positives largely priced in, we await better entry points. We Banks / FIs 0.0 0.0 0.0
maintain HOLD with a target price of 570 (3.7x FY23 P/ABV) Others 9.7 10.7 12.2

Key Result Highlights Financial & Valuations

• Disbursements: Disbursements declined 55% QoQ led by a decline in Vehicle Finance

Y/E Mar (Rs. mn)
NII
2021
46,483
2022E
56,884
2023E
69,098
(VF) disbursements, down 53.7% QoQ to Rs 28.4 Bn. LAP disbursements declined 58.8% PPOP 33,603 40,628 51,271
QoQ to Rs 5.7 Bn while Home Loan disbursements were down 63% QoQ to ~Rs 2 Bn. Net Profit 15,149 20,978 28,274
VF/LAP forms 78%/16% of the overall disbursements. EPS (Rs.) 18.5 25.6 34.5

• AUM: Decline in disbursements led to AUM decline of 3.1% QoQ, though it was up 6.8%
ABV
P/ABV
99.0
5.3
126.0
4.2
152.8
3.4
YoY to Rs 678 Bn. This was largely on account of 4% QoQ de-growth in VF while the LAP
ROAA 2.2 2.5 2.8
AUM de-grew 1.5% QoQ. Home Loan AUM was up 1.3% QoQ. NNPA (%) 2.1 1.3 1.3
• NIM: NIM was stable at 7.6% QoQ and up from 6.1% YoY led by benign funding costs. Change in Estimates (%)
Yields declined 30 bps QoQ to 13.7% while CoF dropped 20 bps QoQ to 6.1%. Y/E Mar 2022E 2023E
• Operating performance: Operating performance remained strong with PPOP up 55.8% NII 0.0 0.0

/19.9% YoY/QoQ to Rs 9.9 Bn led by higher NIM and cost-controls. PPOP 0.0 0.0

• Gross stage 3 assets: Gross stage 3 assets spiked to 6.79% (3.96% in Q4), with
PAT 0.0 0.0

Axis vs Consensus
calculated PCR declining to 35.5% (44.3% in Q4).
EPS Estimates 2022E 2023E

Key Concall Takeaways Axis 25.6 34.5

• Restructuring increased with incremental restructuring (2.0) at Rs 25.6 bn (3.9% of the loan
Consensus 25.4 31.6
Mean Consensus TP (12M) 596.0
book). The total restructured book stood at Rs 36.4 Bn (5.4% of AUM). Total stress book
stood at 12.2% of the book. The company dipped into its overlay provisions of Rs 11 Bn, ESG disclosure Score**
utilizing Rs 4 Bn for additional provision in Stage 1 and higher provisioning for Stage 3. Environmental Disclosure 1.8

Outstanding overlay provisions stood at Rs 7 Bn (1% of AUM). Social Disclosure Score 40.0

• Collections efficiencies have improved in Jun-Jul‘21 to ~100% post dips in April and
Governance Disclosure Score
Total ESG Disclosure Score
51.8
24.1
May’21. ~80-85% of the customers in Stage 2/3 have paid current month EMI in Jun-Jul ‘21.
Source: Bloomberg, Scale: 0.1-100
The management expects customers to move back to Stage 1 in due course as they repay **Note: This score measures the amount of ESG data a company reports publicly,
and does not measure the company's performance on any data point. All scores
are based on 2020 disclosures
their earlier missed EMIs.
Relative performance
Key Financials (Standalone) 300
(Rs Mn) FY20 FY21 FY22E FY23E 250
NII 35,319 46,483 56,884 69,098 200
150
PPOP 24,831 33,603 40,628 51,271
100
Net Profit 10,524 15,149 20,978 28,274
50
EPS (Rs.) 12.8 18.5 25.6 34.5 0
Jul-20 Nov-20 Mar-21 Jul-21
ABV 82.9 99.0 126.0 152.8
CIFC Sensex
P/ABV 6.3 5.3 4.2 3.4
ROAA 1.7 2.2 2.5 2.8 Source: Capitaline, Axis Securities

NNPA (%) 2.3 2.1 1.3 1.3

Source: Company, Axis Research9 Siji Philip
Sr. Research Analyst

Call: (022) 4267 1738

email: siji.philip@axissecurities.in
1
Key Concall Takeaways (Contd…)
• The management expects HCV demand to pick up in FY22 led by replacement demand. While the company has deliberately brought
down its market share in this category, it is eyeing revival on improved demand. It has guided growth to be better than the industry
growth in VF disbursements.
• CIFC is sitting on a comfortable liquidity position. Total liquidity position stood at Rs 164.2 Bn (Rs 97.8 Bn as of Mar’21. This includes
Rs 79.2 Bn as cash balance (Jun’21)
• The management expects credit cost in FY22 to be lower than FY21 levels with lower GNPA levels.

Change in Estimates (Rs Mn)

Revised Old %Change
FY22E FY23E FY22E FY23E FY22E FY23E
NII 56,884 69,098 56,884 69,098 0.0 0.0
PPOP 40,628 51,271 40,628 51,271 0.0 0.0
PAT 20,978 28,274 20,978 28,274 0.0 0.0
EPS 25.6 34.5 25.6 34.5 0.0 0.0

Source: Company, Axis Research

Valuation & Outlook

CIFC navigated COVID 1.0 crisis very well on account of its well-diversified portfolio, robust capitalisation, comfortable liquidity, and cost
rationalisation initiatives. Asset quality is under pressure on account of COVID 2.0. However, provisioning is largely adequate and the
management expects lower credit costs in FY22. A long-term investment thesis on the stock remains intact with marquee management and
the ability to see the business through tough periods. We keenly eye management’s plan to roll out new strategies in the near term and the
possibility of a banking license. However, given the rise in stress levels and most positives priced in, we maintain a HOLD rating on the stock
with a target price of 570 (3.7x FY23 P/ABV).

Result Update (Standalone) (Rs Mn)

Y/E March Q1FY22 Q1FY21 % YoY Q4FY21 % QoQ
Net Interest Income 12,674 9,403 34.8 12,493 1.4
Non Interest Income 958 427 124.5 924 3.7
Operating expenses 3,705 3,458 7.1 5,138 -27.9
Staff Cost 1,523 1,562 -2.5 2,690 -43.4
Pre provision profits 9,927 6,372 55.8 8,279 19.9
Provisions and contingencies 5,519 562 882.9 5,035 9.6
PBT 4,407 5,810 -24.1 3,244 35.9
Provision for Tax 1,139 1,501 -24.1 812 40.3
PAT 3,268 4,309 -24.2 2,432 34.4

Disbursements 36,350 35,890 1.3 80,710 -55.0

Vehicle Finance 28,460 32,310 -11.9 61,530 -53.7
AUM 6,78,000 6,35,000 6.8 6,99,960 -3.1

NIM (%) 7.6 6.1 7.6

Cost-Income ratio (%) 27.2 35.2 38.3
Gross NPAs (%) 6.8 3.3 4.0
Coverage ratio (%) 35.5 41.6 44.3
Credit cost (% to AUM) 3.3 0.4 2.9

Source: Company, Axis Research

2
Financials (Standalone)
Profit & Loss (Rs Mn)
Y/E March FY20 FY21 FY22E FY23E
Interest Earned 81,242 92,242 1,11,878 1,36,786
Interest Expended 45,922 45,759 54,995 67,688
Net Interest Income 35,319 46,483 56,884 69,098
Other Income 5,287 2,955 3,440 5,124
Total Income 40,607 49,437 60,323 74,222
Total Operating Exp 15,776 15,834 19,695 22,951
PPOP 24,831 33,603 40,628 51,271
Provisions & Contingencies 8,973 13,218 12,279 13,062
PBT 15,857 20,384 28,349 38,209
Provision for Tax 5,334 5,235 7,371 9,934
PAT 10,524 15,149 20,978 28,274
Source: Company, Axis Securities

Balance Sheet (Rs Mn)

Y/E March FY20 FY21 FY22E FY23E
SOURCES OF FUNDS
Share capital 1,640 1,641 1,641 1,641
Reserves and surplus 80,079 93,962 1,12,486 1,36,791
Shareholders' funds 81,718 95,603 1,14,127 1,38,431
Total Borrowings 5,50,054 6,37,300 7,54,972 9,37,224
Other Liabilities, provisions 8,158 12,581 39,324 46,500
Total 6,39,930 7,45,484 9,08,422 11,22,156

APPLICATION OF FUNDS
Advances 5,54,027 6,58,393 8,13,692 10,10,119
Investments 729 16,188 16,836 17,509
Fixed assets 2,837 2,293 2,178 2,069
Other Assets 82,337 68,610 75,716 92,458
Total assets 6,39,930 7,45,484 9,08,422 11,22,156
Source: Company, Axis Securities

3
Ratio Analysis (%)
Y/E March FY20 FY21P FY22E FY23E
VALUATION RATIOS
EPS 12.8 18.5 25.6 34.5
Earnings Growth (%) -15.4 43.9 38.5 34.8
BVPS 99.7 116.5 139.1 168.7
Adj. BVPS 82.9 99.0 126.0 152.8
RoAA (%) 1.7 2.2 2.5 2.8
ROAE (%) 16.2 19.0 21.6 24.4
P/E (x) 41.0 28.5 20.6 15.3
P/ABV (x) 6.3 5.3 4.2 3.4
P/PPOP (x) 17.4 12.8 10.6 8.4
Dividend Yield (%) 0.3 0.3 0.5 0.8

PROFITABILITY
Yield on Advances (%) 14.1 14.1 14.5 14.6
Cost of Funds (%) 8.7 7.7 7.9 8.0
Core Spread (%) 5.5 6.4 6.6 6.6
NIM (%) 6.2 7.1 7.4 7.4

OPERATING EFFICIENCY
Cost/Avg. Asset Ratio (%) 2.9 2.5 2.6 2.5
Cost-Income Ratio (%) 39.4 33.5 32.6 30.9

BALANCE SHEET STRUCTURE RATIOS

Loan Growth (%) 5.3 18.8 23.6 24.1
Borrowing Growth (%) 8.3 15.9 18.5 24.1
Equity/Assets (%) 12.8 12.8 12.6 12.3
Equity/Loans (%) 13.5 13.7 13.6 13.3
Total Capital Adequacy Ratio (CAR) 20.7 18.2 17.4 16.7
Tier I CAR 15.3 13.2 12.0 11.7

ASSET QUALITY
Gross NPLs (Rsm) 23,009 27,718 26,843 29,158
Net NPLs (Rsm) 13,709 14,388 10,743 13,058
Gross NPLs (%) 3.8 4.0 3.2 2.8
Net NPLs (%) 2.3 2.1 1.3 1.3
Coverage Ratio (%) 40.4 48.1 60.0 55.2
Provision/Avg. AUM (%) 1.5 1.9 1.5 1.3

ROAA TREE
Net Interest Income 5.8% 6.7% 6.9% 6.8%
Non Interest Income 0.9% 0.4% 0.4% 0.5%
Operating Cost 2.6% 2.3% 2.4% 2.3%
Provisions 1.5% 1.9% 1.5% 1.3%
Tax 0.9% 0.8% 0.9% 1.0%
ROAA 1.7% 2.2% 2.5% 2.8%
Leverage (x) 8.5 7.8 7.9 8.0
ROAE 14.7% 17.1% 20.0% 22.4%
Source: Company, Axis Securities

4
 Cholaman.Inv.&Fn Price Chart and Recommendation History

(Rs)

Date Reco TP Research

10-Feb-20 BUY 300 Initiating Coverage
05-Jun-20 BUY 176 Result Update
03-Aug-20 HOLD 216 Result Update
02-Nov-20 BUY 309 Top Picks
02-Nov-20 BUY 309 Result Update
02-Feb-21 BUY 505 Result Update
11-May-21 HOLD 570 Result Update
03-Aug-21 HOLD 570 Result Update

Source: Axis Securities

5
About the analyst

Analyst: Siji Philip

Contact Details: siji.philip@axissecurites.in

Sector: BFSI

Analyst Bio: Siji Philip is MBA (Finance) from NMIMS with over 15 years of research experience in the
Banking/NBFC sector and stock markets.

Disclosures:

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
1. Axis Securities Ltd. (ASL) is a SEBI Registered Research Analyst having registration no. INH000000297. ASL, the Research Entity (RE) as defined in the
Regulations, is engaged in the business of providing Stock broking services, Depository participant services & distribution of various financial products. ASL is a
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6
 DEFINITION OF RATINGS

Ratings Expected absolute returns over 12-18 months

BUY More than 10%

HOLD Between 10% and -10%

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NOT RATED We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation

UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events

NO STANCE We do not have any forward looking estimates, valuation or recommendation for the stock

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