Cholamandalam Investment & Finance: Prepared, Equipped and Armed

Cholamandalam Investment & Finance

BSE Sensex

31,213

S&P CNX

9,647

Cholamandalam Investment & Finance

Initiating Coverage | Sector: Financials - NBFC

CMP: INR1,040

TP: INR1,250 (+20%)

BUY

Stock Info

Bloomberg

Equity Shares (m)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

M.Cap. (INR b)

M.Cap. (USD b)

Avg Val, INRm

Free float (%)

Prepared, Equipped and Armed

CIFC IN

156.3

1244 / 805

-1/17/-4

163

2.5

361

46.9

On path to become one of India’s finest multi-product lenders



Financial Snapshot (INR b)

Y/E March

2017 2018E

NII

23,473 28,492

PPP

14,162 18,035

Adj. PAT

7,187 8,861

46.0

56.7

EPS (INR)

26.3

23.3

EPS Gr. (%)

274

323

BV (INR)

2.6

2.8

RoAA (%)

18.1

19.0

RoE (%)

Valuations

P/E (x)

22.8

18.5

3.8

3.2

P/BV (x) Div.

0.5

0.6

Yield (%)

2019E

33,870

22,200

11,044

70.6

24.6

386

3.0

19.9

14.9

2.7

0.7



From a niche vehicle financier, Cholamandalam Investment and Finance

Corporation (CIFC) has transformed into a diversified asset finance play, with

vehicle finance (VF) now comprising 69% of the loan book, followed by home

equity (HE; 28%) and new business segments (home loan/MSME financing; ~3%).

Over the past five years, CIFC has delivered 20% AUM CAGR, driven by 19% CAGR

in VF and 25% in HE. However, EPS compounded at 30% over the same time

period. We believe CIFC has built the foundation to achieve 19% AUM CAGR and

23% PAT CAGR over FY17-20.

CIFC also improved its expense ratio by 60bp to 3.2% over FY12-17, driven by

better use of technology. We believe CIFC is well poised to reap further benefits of

operating leverage due to better employee productivity, enhanced use of

technology for loan sourcing and moderation in recovery expenses. We expect the

expense ratio to decline from 3.2% to 2.7% over FY17-20.

The structural decline in opex ratios following productivity improvement should

elevate RoA/RoE from 2.6%/18% in FY17 to 3.0%/20% in FY20. The stock price has

consolidated over the past year, which provides an attractive entry point. We

initiate coverage with a Buy rating and a target price of INR1,250 (3.2x FY19E BV).

Shareholding pattern (%)

As On

Mar-17 Dec-16 Mar-16

Promoter

53.1

DII

15.9

16.7

24.4

FII

20.7

17.8

15.3

Others

10.3

12.5

7.2

FII Includes depository receipts

Cholamandalam Investment

& Finance

Prepared, Equipped and Armed

Strong foundation to deliver 18-20% AUM growth over the foreseeable future

CIFC was an early entrant in the loans against property (LAP) business, which has

helped it to navigate the downturn in the CV cycle over 2012-14. The LAP book

has now grown to INR96b (28% of AUM). Conversely, the subsequent pick-up in

the vehicle finance segment over the past 6-8 quarters has helped it to navigate

the slowdown in LAP. CIFC has also started MSME financing and home loans.

Both these segments are growing at a fast pace (albeit off a low base – INR9b

cumulative). Given the sheer market opportunity in home loans, combined with

the fact that most financiers focus on the salaried segment, management

believes that the home loan book could be as big as the home equity book in five

years.

We believe CIFC has enough levers to maintain 18-20% AUM growth

over the foreseeable future without compromising on underwriting standards.

Structural decline in opex ratios to drive improvement in RoA/RoE to 3%/20%

Despite investing in branch expansion and technology, CIFC improved its

expense ratio by 60bp to 3.2% over FY12-17. However,

employee productivity,

as measured by disbursements per employee, declined from INR15.6m in FY13

to INR11.4m in FY15, given increased focus on recoveries. Recovery costs more

than doubled from INR650m in FY13 to INR1.4b in FY15.

However, with stable

asset quality, we expect moderation in recovery costs. Employee productivity

has also picked up over the past two years, but is still below FY13 levels. CIFC has

been able to cut down on overhead expenses with the use of technology.

expect further decline in the expense ratio from 3.2% to 2.7% over FY17-20.

Piran Engineer

91 22 3980 4393

Piran.Engineer@motilaloswal.com

Please click here for Video Link

13 June 2017

Cholamandalam Investment & Finance

Stock Performance (1-year)

Diversified asset finance play; ~20% market share in LCV financing

CIFC has emerged a significant player in the commercial vehicle (CV) finance market

by carving a niche in light commercial vehicle (LCV) finance.

It is the largest player in

the LCV finance market, with a market share of ~20%, as per our calculations.

CIFC

has built a diversified vehicle finance portfolio across M&HCVs, LCVs, tractors, used

CVs, etc., making it one of India’s most diversified vehicle finance players. In

addition to product diversification, the overall loan portfolio is also geographically

well spread out, with presence across 25 states – the largest state accounts for just

12% of its loan book. Such diversification provides flexibility in re-orienting the

portfolio based on market opportunity.

Asset quality superior to most peers; NPL recognition ahead of schedule

CIFC enjoys excellent asset quality;

its GNPL ratios of 4.2% in VF and 5.7% in LAP

(90dpd) are better than most of its asset financing peers.

This is due to its

conservative underwriting standards, stringent loan appraisals, and proactive default

detection and action upon early warning signals. CIFC disburses home equity loans at

an average LTV of 55%, lower than most of its peers. With rising stress in this market

in north India, CIFC has scaled back on disbursements there. While the shift to 90dpd

NPA recognition has increased headline NPAs, we do not expect any significant

impact on net credit losses. Additionally,

CIFC is now authorized to use SARFAESI for

defaulters in its LAP segment and has already sent 100+ notices. We expect

resolution of many of these cases in FY18. As a result, credit cost should remain

stable at ~1% over FY18-20.

Valuation and view: Strong performance to support premium valuation

CIFC is set to deliver 18-20% AUM growth over FY17-20, driven by its diversification

into newer segments and geographies.

The structural decline in opex ratios

following productivity improvements, along with stable credit costs, should

elevate RoA from 2.6% in FY17 to 3.0% in FY20.

Asset quality would remain largely

stable and better than most peers. The housing finance business, which is at a

nascent stage, would be a key value driver over the next 3-5 years. The stock has

witnessed some consolidation over the past year, which provides an attractive entry

point. We use an RI model with Rf of 7%, CoE of 13% and terminal growth rate of 5%

to arrive at a target price of INR1,250 (3.2x FY19E BV). Initiate with a

Buy

rating.

Exhibit 1: Valuation comparison

Price

SCUF

STF

BAF

MMFS

CIFC

2,433

987

1,363

351

1,040

RoA

FY17

2.7

2.0

3.3

1.0

2.6

FY18E

3.6

2.6

3.5

1.7

2.8

FY19E

3.9

2.9

3.6

1.8

3.0

FY17

11.8

11.7

21.7

6.4

18.1

RoE

FY18E

16.2

14.5

24.0

10.9

19.0

FY19E

17.8

16.3

26.2

12.9

19.9

FY17

3.2

2.0

7.8

3.1

3.8

P/B

FY18E

2.8

1.8

6.3

2.9

3.2

FY19E

2.4

1.6

5.0

2.7

FY17

28.8

17.8

40.6

49.5

22.6

P/E

FY18E

18.7

12.9

29.0

27.1

18.4

FY19E

14.8

10.2

21.4

14.7

Source: Company, MOSL

13 June 2017

Cholamandalam Investment & Finance

Well positioned to deliver high growth

Strong branch expansion and new product addition to drive growth



CIFC has built a diversified portfolio within vehicle financing with presence across the

spectrum. In addition, the LAP portfolio offers further loan book diversification and

helped the company during the years of the CV industry downturn (FY13-14). The

company disburses LAP from only 123 branches (out of 703), thus providing immense

scope for growth without further branch expansion.

While the company curtailed its branch expansion over FY13-16, it has now adding to

its branch network, especially in rural areas. It expects to take the total branch count

to 800 from 703 in FY18.

While demonetization impacts disbursements in the near term, the medium-term

growth story is structurally intact. Growth in the medium term will also be aided by

new products, namely SME financing and home loans.

With an AUM of more than

INR235b, CIFC is among the

largest players in the

vehicle financing industry

Diversified vehicle finance exposure protects it from cyclicality

CIFC is among the largest commercial vehicle financiers with a diversified product

suite with presence across M&HCVs, LCVs, tractors, used CVs, passenger cars, three-

wheelers, MUVs as well as used vehicles. It is the largest player in the light

commercial vehicle (LCV) segment, with ~20% market share. In addition, it has

increased its market share in the M&HCV segment from 3% to 6% over the past five

years. It is now the third largest vehicle finance player among NBFCs in India.

Exhibit 2: Vehicle Finance (ex-2W) AUM of key players (INR b)

813

788

457

309

292

236

200

HDFCB

SHTF

MMFS

IIB

KMB

CIFC

SUF

Source: MOSL, Company; Note: KMB numbers are consolidated

CIFC is well-diversified

geographically with no state

accounting for more than

12% of AUM

CIFC has aggressively expanded its branch network and is geographically well

diversified with presence across 25 states and no single state accounting for more

than 12% of the loan book. We believe this is one the biggest strengths of CIFC

versus other peers that are more concentrated in particular regions. Such

diversification provides flexibility in reorienting the portfolio based on market

opportunity and optimizes the risk-return profile. In addition, over 90% of its

branches are in semi-urban and rural areas. CIFC has strategically positioned itself in

the middle-to-lower end of the opportunity pyramid by targeting small road

transport operators (SRTO) for new vehicles, first-time users and small-ticket

operators (for used vehicles).

13 June 2017

Cholamandalam Investment & Finance

Well-diversified VF loan

book provides greater

stability

Exhibit 3: Diversified loan book provides greater stability in down-cycles

LCV

MUV

Cars & 3W

Used CV

Tractor

HCV

Refinance

Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17

Source: MOSL, Company

Exhibit 4: Competitive positioning in the vehicle finance segment

Source: MOSL, Company

Underwriting is

conservative with 80-85%

LTV for new vehicles and

70% for used vehicles

Exhibit 5: Vehicle financing snapshot

Category

LCV

MUV

Cars & 3W

Used CV

Tractor

HCV

Refinance

% of Portfolio

% of disbursement

Avg ticket size (INR m)

0.45

0.40

0.18

0.38

1.20

Source: MOSL, Company

13 June 2017

Cholamandalam Investment & Finance

90%+ of branches are in

rural and semi-urban areas

Pan-India presence with 90%+ branches in Tier-II and III cities

As of March 2017, the company has 703 branches across 25 states in India.

Currently, over 90% of CIFC’s branches are based in semi-urban and rural areas,

where it has operated for more than two decades and carved a niche in vehicle

financing. CIFC has a strong presence in southern, northern and western regions,

and is also expanding its footprint in the eastern markets.

Exhibit 7: 90%+ branches are in semi-urban and rural areas

Rural

FY17

FY12

FY13

FY14

FY15

FY16

FY17

Urban

Semi-Urban

Exhibit 6: Geographically well-spread branch network

South

FY12

FY13

North

FY14

West

FY15

FY16

East

Source: MOSL, Company

No state accounts for more

than 12% of AUM

Exhibit 8: Loan book well spread geographically

Haryana, 3

Orissa,

5 UP, 6

KTK, 5

Other States, 13

TN, 8

AP, 4

MAH, 12

MP, 6

Delhi, 3

WB, 5

Kerala, 4

GUJ, 5

Chattisgarh, 7

Source: MOSL, Company

RAJ, 10

PUN, 4

The LCV segment has begun

to witness a turnaround in

the past few quarters

The turnaround in HCV sales volumes in the past year, the gradual pickup in

industrial activity with the government’s thrust on infrastructure (such as improved

road development) will likely provide significant opportunities for CIFC in the vehicle

finance segment. CIFC’s LCV segment, which witnessed declining AUM in FY15/16,

has begun to turnaround in the past 4-5 quarters. Generally, a turnaround in the LCV

segment comes with a lag over the M&HCV segment. We believe sustained pick-up

in the HCV segment and stabilization in fuel costs should likely lead to a turnaround

in the LCV segment too.

Market leader in Light Commercial Vehicles (LCV)

LCV has historically been an important segment for the company. However, the

segment’s contribution to overall AUM has dropped to 22% in FY17 from 29% in

FY14. Yet, the portfolio grew at 2% Cagr, which comfortably exceeds the volume

decline of 5% for auto manufacturers in the segment over the same time period.

13 June 2017

Cholamandalam Investment & Finance

Exhibit 9: Market share in LCV and M&HCV

LCV

M&HCV

CIFC is a leader in LCV

financing and has

maintained its market share

over the years

FY12

FY13

FY14

FY15

FY16

FY17

Source: MOSL, Company

Several indicators point to sustained pick-up in vehicle financing

While disbursements in the vehicle financing business grew at 31% Cagr over FY08-

13, it came to a grinding halt over the next two years driven by the down-cycle in

the CV industry. Disbursements contracted 5% over FY13-15, with LCV

disbursements contracting over 30% over the two-year period. However, with the

government’s thrust on infrastructure, M&HCV volumes turned, leading to a 16%

CAGR in HCV disbursements over FY15-17. With stable freight rates, significant focus

on road construction and pick-up in mining activity, we expect CV volumes to

continue to deliver robust growth over the medium term.

Sharp slowdown in VF

disbursements in FY14 and

FY15 due to lack of

industrial capex and impact

of mining ban

Exhibit 10: VF disbursements has witnessed a pick-up in the past two years

VF disbursements (INRb)

Growth(%)

FY11

FY12

FY13

101

FY14

(8)

FY15

124

FY16

145

FY17

Source: MOSL, Company

Government’s thrust on

infrastructure (especially

road construction and

affordable housing) bodes

well for the CV industry

One of the significant focus areas of the current Union Government has been on

road building. Road construction target has increased from less than 10km/day in

2014 when the current government was elected to 40km/day. Recently, the

government also cleared a proposal wherein the NHAI/Govt Agency would have to

pay 75% of dues payable to road contractors in matters of arbitration. This would

help contractors deleverage their balance sheets as well as bid for new road

projects. We believe this is a significant step towards increasing private sector

participation in infrastructure development. We believe the CV industry is a direct

beneficiary of increased investments in infrastructure.

13 June 2017

Cholamandalam Investment & Finance

Pickup in LCV segment comes with a lag

While growth in M&HCV sales has picked up smartly over the past two years, the

LCV sales have lagged it. It has been observed that generally, a pick-up in LCV sales

happens with a lag over M&HCV sales. In addition, the ratio of LCVs sold to M&HCVs

sold in India was 1.4x in FY17, significantly below the average of 3.0x in developed

countries. While the ratio has gradually improved over the past decade, it is still

below its peak of 2.2x in FY14. With a fourth of the VF book comprising LCV

financing, we expect CIFC to be a key beneficiary of the expected growth in LCVs

over the medium term, due to reasons mentioned above.

Exhibit 11: LCV growth has lagged M&HCV growth in the recent past

-20

-40

M&HCV growth %

LCV growth %

Source: MOSL, Company

Ratio of LCVs to M&HCVs

sold at 1.4x is way below

historical average

Exhibit 12: Sales of LCVs per M&HCV – Long-term trend on an upswing (x)

2.0

1.2

1.3

2.2

1.6

1.1

0.6

0.7

0.8

1.1

1.2

1.4

Source: MOSL, Company, SIAM

Early entrant in the Home Equity (LAP) segment

CIFC entered the Home

Equity (LAP) segment in

2007, in order to diversify

the business

CIFC entered the home equity (loans against property) business in 2007 in order to

provide stability to its loan growth and earnings. Over the past few years, the

company has built capabilities in assessing underlying assets and cash flows of

borrowers. The company has been operating in this segment for the past nine years

and has grown steadily without much asset quality issues.

Over FY11-16, the home equity portfolio grew at more than 33% CAGR, driven by

the disbursement CAGR of 23%. With the slowdown in the vehicle finance segment,

the home equity proportion in CIFC’s AUM mix increased from 22% to 29% over the

same time period. Management took a cautious stance in LAP in FY17 (given early

signs of stress) resulting in 12% YoY decline in disbursements in FY17. However,

management is confident of a return to normalcy in 1-2 quarters. We expect the

13 June 2017

Cholamandalam Investment & Finance

share of LAP to remain largely stable going forward. In addition, of the 703

branches, home equity loans are disbursed from only 123 branches. This provides

immense opportunity to scale up the HE business without geographic concentration.

Exhibit 13: HE disbursements up almost 3x over FY11-16

HE Disbursements (INRb)

(12)

Growth (%)

Exhibit 14: Resulting in >30% CAGR in HE AUM over FY11-16

Home Equity AUM (INRb)

Growth (%)

Source: MOSL, Company

The share of HE loan book

increased from 22% in FY11

to 27% in FY17

Exhibit 15: Loan book mix trend

Vehicle Finance (%)

Home Equity (%)

Others (%)

Source: MOSL, Company

CIFC is a conservative player

in LAP, offering loans with

average ticket size of INR5m

at LTV of 50-60% with yields

of 14-15%

CIFC offers its home equity products through 109 branches and primarily targets

self-employed non-professional individuals in the middle socio-economic class with

self-occupied residential properties. The loans carry yield of ~13% incrementally,

with LTVs in the range of 50-60%, tenures of 5-7 years and the average ticket size of

INR5m. The focus is predominantly on self-occupied residential properties (88% of

AUM).

Exhibit 16: 88% of portfolio comprises self-occupied residential property

Self Occupied

Residential

Property

88%

Commercial,

Others,

Source: MOSL, Company

13 June 2017

Cholamandalam Investment & Finance

Home Equity loans have a

lower yield than VF loans;

however, operating costs as

well as credit costs are

lower too

Home equity loans are sticky (with higher tenure of up to 7 years vs 3 years for

vehicle finance) and hence help the company to build scale. Yields in the home

equity loans business are lower than those in the vehicle finance business -

however, this is compensated by lower operating costs, led by a larger ticket size

and lower collection costs. The foray into this business has particularly benefited

credit costs, which, despite hardening, are significantly lower than the vehicle

finance business.

Exhibit 18: … compensated by lower expense ratio

NIM - HE

Opex - VF

Opex - HE

3.8 3.8 3.8 3.8 3.8 3.7 3.8

3.5 3.3 3.5 3.5 3.6 3.7

Exhibit 17: Lower NIMs in HE….

NIM - VF

7.1 6.7 6.9 7.2 7.5

8.1 8.1 8.2 8.5 8.1 8.1 8.2 8.4

5.6 5.3 5.3 5.3 5.4 5.1 5.1 5.1 5.1

4.5 4.5 4.4 4.4

1.6 1.4 1.4

1.3 1.3 1.2 1.2 1.2 1.2 1.1 1.2 1.2 1.2

Source: MOSL, Company

Exhibit 19: Lower credit cost in HE

Credit cost VF (%)

Credit cost HE (%)

2.2 2.1 2.1

1.9 1.8 1.9 2.0

1.6

1.7

1.4 1.4

1.3

0.2 0.2

0.5 0.4 0.5 0.4

0.7 0.7

0.9 1.0

0.7 0.8 0.9

Exhibit 20: RoA depressed in near term due to yield pressure

VF RoA (PBT) (%)

3.8 3.7

3.7

3.4 3.6

3.4

HE RoA (PBT) (%)

3.1 3.2 3.2 3.1

3.0

2.4

2.1

2.0 2.2 2.2

1.6 1.6 1.8

2.6

3.1 3.1

3.2

2.3 2.3 2.2

Source: MOSL, Company

Expertise in assessing cash flows of borrowers

65-70% of credit decisions

in home equity are taken at

the branch level

CIFC does not rely solely on the assessment of the collateralized asset for credit

sanction. Rather, the appraisal of the business and its cash flows are key factors of

the appraisal exercise. Most SMEs do not disclose their entire income in the

financial statements and assessing cash flows thus becomes challenging. The

appraisal team at CIFC forecasts cash flows of businesses with analysis done via site

visits, local intelligence and reference checks. Moreover, the company has not

restricted itself to any particular segment, but has developed expertise in

understanding business dynamics of several SME segments. Around 65-70% of

credit decisions are taken at the branch level. Generally credit decisions for cases

with large ticket sizes, high LTVs or specific industries which branch level credit

managers do not have strong understanding of, are taken at the head office levels.

13 June 2017

Cholamandalam Investment & Finance

Slowdown in growth due to hyper-competitive environment

Over the past few years, several new players entered the home equity market, given

the high risk-adjusted returns it offered. Our interaction with management suggests

that the northern markets have now started to witness early signs of stress. Chola

has been proactive in scaling back from these markets resulting in AUM growth in

the LAP segment declining from 25% a few quarters back to 14% in 3QFY17. There

has been pressure on yields in the past few quarters for CIFC as the company has

been unwilling to compromise on underwriting standards. Demonetization, too, has

had an impact on growth as well as collections in this segment. Management

believes that recovery is still another 2-3 quarters away.

Pick up in loan growth from FY18 onwards

We expect sustained turnaround in the CV segment, scale-up of home equity in new

geographies and thrust on new segments (home loan and MSME financing) to drive

loan book CAGR of 19% over FY17-FY20E.

Exhibit 21: CIFC’s AUM should pick up in FY18 and grow at 18%+ YoY

AUM (INR b)

Growth (%)

135

FY12

191

FY13

233

FY14

255

FY15

342

FY17

298

FY16

404

FY18E

484

FY19E

575

FY20E

Source: MOSL, Company

13 June 2017

Cholamandalam Investment & Finance

SWOT analysis



Unique and sound business model, presence in high yield,

high growth business segments and superior sustainable

returns



Most diversified asset financier both in term of products as

well as geographies, which helps mitigate risks



CIFC has invested heavily on technology as a strategic

enabler which has helped it to race ahead of peers.

Strength



Operates in a high risk segments particularly in pre-

Weaknesses

owned commercial vehicles. Asset quality in these

segments remain susceptible to volatility



Dependence on wholesale funding is high. The company

is trying to reduce this by exploring the NCD route



The customer segment it caters too does not have

adequate documentation



Operates in business segments with huge growth

potential and is adequately capitalized to maintain

business momentum



Forayed into SME and home loan segment, both of

which offer huge potential

Opportunities

Threats



CIFC operates in lucrative high yielding segments

which could attract stiff competition from small

finance banks and other specialized NBFCs.



In case of economic slowdown or dip in income levels,

NPA accretion could be high



Changes in regulatory guidelines could impact the

business performance

13 June 2017

Cholamandalam Investment & Finance

Structural improvement in operating expenses

Significant productivity gains to lower costs over medium term



Over FY11-14, CIFC more than doubled its branch count as well as employee base. It

also spent heavily on upgrading its technology. As a result operating expenses grew at

~40% CAGR over FY111-14.

Over FY14-16, branch count was largely stable as the company focused more on

recoveries and deepening penetration. The company has just started growing its

branch network in FY17, particularly in rural areas. However, with low set-up costs

and 3-4 employees per branch, growth in operating expenses is expected to moderate

significantly. Recovery expenses, too, are expected to remain stable going forward.

With strong AUM growth over the medium term coupled with moderate growth in

operating expenses, we expect expense ratio to decline 50bps to 2.7% over FY17-20.

Over FY11-14, the company

more than doubled branch

network and headcount

Over FY11-15, CIFC more than doubled its branch count as well as workforce.

Moreover, it has spent heavily on technology upgrade, leading to a CAGR increase of

~31% over FY12-15 in IT expenses, while expenses related to recoveries went up by

~35% CAGR v/s a 20% CAGR in overall expenses.

After rapid capacity addition up to FY14, the company went into consolidation mode

over the next 2 years, with branch count largely stable over FY14-16. The company

resumed branch opening in FY17, taking the branch count from 534 in FY16 to 703

in FY17. Management has guided to reaching a branch network of 800 branches by

1HFY18. However, most of the new branches will be Class ‘E’ branches, i.e. smallest

type of branches with 2-4 employees only, mostly in rural areas. Additionally, the

share of branches opened in eastern geographies will be higher than other

geographies.

Management expects the

branch count to reach 800

branches by 1HFY18

Exhibit 22: Aggressive branch addition during FY10-14

Branch Network

518

375

251

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

574

534

703

Source: MOSL, Company

However, while number of branches remained largely constant over FY13-16, some

branches were made larger and more employees were added to the branches.

Hence, operating expenses grew at 14% CAGR over FY13-16 despite stable branch

count.

13 June 2017

Cholamandalam Investment & Finance

While branch count

remained largely stable

over FY13-16, the number

of employees per branch

increased meaningfully

Exhibit 23: Employee/branch - Opex growth driven by adding more employees to branches

24.5 24.2 24.6 24.5

20.4 20.8 20.9 20.6

22.4

19.5

20.2 20.4

25.4 25.5

22.8

20.0

22.8

Source: MOSL, Company; Note: CIFC opened 149 branches in FY17, due to which the ratio dropped

Driven by improving efficiencies, CIFC’s cost ratios have improved over the past few

years — C/I ratio is down to 42% in FY17 from 56% in FY12, and cost-to-avg AUM is

down by 60bp to 3.2% over the same time period. Despite the improvement, CIFC’s

cost ratios remain elevated compared to peers. In spite of ~30% of the loan book

comprising LAP (which has a lower cost structure), CIFC’s overall expense ratio is still

higher than pure-play VF players like SHTF and MMFS.

Exhibit 24: Comparison of cost structure with peers (FY17)

Cost-to-Income (%)

3.3

3.2

2.4

1.6

42.9

41.7

36.9

22.0

MMFS

CIFC

SUF

SHTF

Source: MOSL, Company

Opex-to-Avg AUM (%)

Automation of loan

origination coupled with

lower growth in headcount

should result in slower opex

growth going forward

Management is very focused on cost reduction over the next 3 years. Loan

origination has been automated with the sales force fully tablet-equipped. Around

35-40% of credit decisions can be taken by the sales manager on the spot,

depending on a host of parameters fed into the tablet. In addition, there will be

slower growth in the employee base going forward as CIFC significantly added to

headcount over FY12-15. Management is confident that legal and recovery expenses

should moderate going forward with bottoming out in asset quality. As such, CIFC

should reap significant benefits from operating leverage in the next three years.

During the years of the CV downturn, recovery expenses increased

disproportionately. Employees were more involved in recoveries, resulting in lower

fresh disbursements per employee. With a turnaround in the CV industry, we expect

employee productivity (disbursements per employee) to improve significantly and

also expect recovery charges to remain largely stable over the medium term.

Employee productivity

(disbursements per

employee) declined over

FY13-16, as greater focus

was on recoveries

13 June 2017

Cholamandalam Investment & Finance

Exhibit 25: Disb per employee declined over FY13-15 (INR m)

15.6

13.7

12.4

11.4

12.5

(5)

(20) (22) (20) (17)

Exhibit 26: … but has picked up in the past few quarters

Disb/employee (TTM)

12 12 12 12

11 11 12 12

Growth %

20 19 21

14 14

(3) (4) 13

(8) (6)

FY13

FY14

FY15

FY16

FY17

Source: MOSL, Company

Recovery charges almost

doubled from FY14 to FY15.

We expect recovery

expenses to moderate

Exhibit 27: Recovery expenses more than doubled over FY13-15

Recovery charges (INR b)

0.5

0.4

0.6

0.5

% of AUM

0.4

0.3

0.2

1.20

0.58

0.65

0.83

1.43

1.42

1.35

1.30

1.20

Source: MOSL, Company

If recovery costs decline to

FY13 levels, there would be

5% upside to FY18

estimates

Exhibit 28: Significant upside to FY18 EPS if recovery costs decline to FY13 levels

Base Case

Bear Case

Bull Case

Recovery Charges (INR b)

1.3

1.7

0.6

PAT (INR m)

8.9

8.6

9.3

EPS Impact (%)

0.0

(2.9)

4.8

Source: MOSL, Company

Exhibit 29: Disbursement growth has started exceeding growth in other opex

-15

Disb TTM growth %

Other opex TTM growth %

Source: MOSL, Company

13 June 2017

Cholamandalam Investment & Finance

Exhibit 30: Employee expense spike in FY17 due to induction of off-roll employees on to

the company’s rolls

Employee Expenses (INR b)

Business Origination Expenses (INR b)

Other Opex (INR b)

2.0

1.3

1.1

FY12

2.4

1.7

1.5

FY13

2.7

2.0

1.9

FY14

3.4

1.9

2.2

FY15

3.7

2.3

2.5

FY16

4.3

1.8

4.0

FY17

4.8

2.0

4.6

FY18E

5.3

2.2

5.3

FY19E

5.8

2.5

6.1

FY20E

Source: MOSL, Company

Growth in business

origination expenses and

other opex should

moderate going forward

Exhibit 31: With employees moving on-roll, growth in other opex will be moderate

29.5

FY12-17

FY17-20

15.0

7.0

11.3

16.7

10.6

Employee Expenses

Business Origination Expenses

Other Opex

Source: MOSL, Company

With lower estimated opex CAGR of 13% over FY17-20 (v/s 28% in FY12-17), we

expect the expense ratio to decline 50bp over FY17-20 to 2.7%.

Exhibit 32: Expense ratio to decline over the next two years

3.8

3.5

3.0

3.1

3.2

3.1

2.9

Cost to income (%)

Opex-to-Avg AUM Ratio (%)

2.7

40.0

FY11

56.1

FY12

49.8

FY13

44.1

FY14

43.3

FY15

39.4

FY16

41.7

FY17E

38.8

FY18E

36.6

FY19E

34.9

FY20E

Source: MOSL, Company

13 June 2017

Cholamandalam Investment & Finance

Asset quality better than peers

Moderation in credit cost going forward



With GNPA of 4.7% (90dpd basis), CIFC has superior asset quality to most of its NBFC

peers dealing in vehicle finance. This is aided by its diversified loan book and

conservative underwriting practices.

CIFC has witnessed significant improvement in the 30-day overdue bucket in the

vehicle finance segment in Jan/Feb 2017. In addition, it has recently started

implementing SARFAESI for NPL accounts in the home equity segment. Hence, we do

not expect deterioration in underlying asset quality.

We expect credit costs to remain largely stable over FY17-19.

GNPLs increased in the past

two years due to stress in

the home equity segment

Since FY14, CIFC has experienced elevated levels of credit costs with the operating

environment deteriorating significantly. A deceleration in economic activity and

increased delinquencies in the home equity segment resulted in a sharp increase in

NPA and loan loss provisions (LLP). GNPA increased from 1.0% in FY13 to 2.4% in

FY15 (both on 180dpd basis). Despite this, CIFC has adopted tougher NPA

recognition norms a year ahead of the RBI’s prescribed timeline (currently at 90dpd

against norm of 120dpd).

Exhibit 33: Increase in GNPA due to stress in LAP and migration to 120dpd NPA recognition

GNPA (%)

NNPA (%)

3.1

1.9

0.3

0.8

1.0

0.3

0.2

0.8

2.0

3.5

2.1

4.7

3.2

2.6

Source: MOSL, Company

Exhibit 34: While credit costs in vehicle finance have come off significantly , they have

increased in the home equity segment

Credit cost VF (%)

2.2

2.1

2.0

Credit cost HE (%)

2.1

1.7

1.3

0.8

1.3

0.9

1.4

0.9

1.4

1.9

1.8

1.9

0.2

0.5

0.4

0.5

0.4

0.7

1.0

Source: MOSL, Company

13 June 2017

Cholamandalam Investment & Finance

CIFC enjoys superior asset

quality compared to most

of its peers

9.0

At 90dpd, CIFC enjoys significantly better asset quality than most of its peers given

its conservative underwriting practices and diversified loan book.

Exhibit 36: Credit costs in FY17 – Much lower than peers

4.1

6.7

3.2

Exhibit 35: CIFC’s asset quality is much better than peers

8.2

4.7

1.5

3.0

0.9

0.3

SCUF

SHTF

MMFS

CIFC

SUF

MMFS

SHTF

SCUF

CIFC

SUF

Source: MOSL, Company; MMFS, SHTF and SCUF GNPA is at 120dpd,

CIFC and SUF at 90dpd

Source: MOSL, Company

Credit costs will remain

stable going forward

Exhibit 37: Credit costs (on AUM) to remain stable

1.3

0.7

1.3

0.9

1.1

FY13

FY14

FY15

FY16

FY17E

FY18E

FY19E

FY20E

Source: MOSL, Company

Provisioning policy ahead of

that stipulated by RBI

Exhibit 38: Provisioning policy followed by CIFC

RBI Norms

Up to 5 months

From 5 months to 21 months

From 21 months to 33 months

From 33 months to 57 months

Beyond 57 months

New Vehicle Finance Business

Upto 4 months

From 4 months to 6 months

From 6 months to 2 years

Beyond 2 years

Used Vehicle Finance / Refinance Business

Upto 4 months

From 4 months to 6 months

From 6 months to 1 year

Beyond 1 year

Tractor Finance Business

Upto 4 months

From 4 months to 6 months

From 6 months to 1 year

From 1 year to 2 year

Beyond 2 years

LAP and Housing Business

Upto 4 months

From 4 months to 6 months

From 6 months to 2 year

From 2 year to 5 years

Beyond 5 years

Provisions

100

Source: MOSL, Company

13 June 2017

Cholamandalam Investment & Finance

Strong earnings visibility

Strong AUM growth and Operating leverage to drive earnings



We expect growth to rebound from FY18 onwards as the impact of demonetization

fades. Additionally, new products like home loans and MSME financing will help

support growth.

With several initiatives on cost-control, expense ratio is expected to reduce

significantly. At the same time, credit costs are expected to remain stable.

We expect a structural improvement in RoA from 2.6% in FY17 to 3.0% in FY20. Hence,

we expect a PAT CAGR of 23% over FY17-20.

Declining cost of funds to provide some respite to yield pressure

Share of bank borrowings

declined from 65% in FY14

to 35% in FY17.

The margin profile of CIFC is likely to remain largely stable over the medium term.

While there is pressure on yields in the home equity segment, management targets

to move more away from major towns/cities and into smaller areas and smaller

ticket sizes where yields are 50-100bps higher. However, there will be some

pressure on yields due to higher share of low-yielding home loans and MSME

financing going forward.

On the liability side, CIFC is poised to reap the benefits of falling interest costs as

well as diversifying liability mix. The company is resorting to higher quantum of

capital markets borrowings versus bank borrowings. Additionally, CIFC sells down a

large portion of loans every year (sell-down book is ~20% of total borrowings),

yielding significant reduction to its cost of funds. Upside to margins could accrue

from the potential upgrade of the credit rating for the company over the medium

term. CIFC is rated AA for its borrowing program; rating upgrade to AA+ could save

~10-20bp in terms for borrowing cost for the company.

Exhibit 39: Long-term credit ratings

Cholamandalam Investments

Shriram Transport

M&M Financials

Shriram City Union Finance

Sundaram Finance

CRISIL

AA+

AA-

AA+

ICRA

AA+

CARE

AA-

AA+

AAA

AA+

Source: MOSL, Company

Exhibit 40: Short-term credit ratings

Cholamandalam Investments

Shriram Transport

M&M Financials

Shriram City Union Finance

Sundaram Finance

CRISIL

A1+

ICRA

A1+

CARE

A1+

Source: MOSL, Company

13 June 2017

Cholamandalam Investment & Finance

Share of bank borrowings

have declined from 55% in

FY16 to 35% in 4QFY17

leading to reduction in cost

of funds

Exhibit 41: Gradually increased share of market borrowings (%)

Bank Loans

Debentures

Sub Debt & PDI

Source: MOSL, Company

Exhibit 42: ALM pattern as of Dec 2016 (INR m)

Outflows

Inflows

Exhibit 43: ALM mismatch (Net Inflows, INR m)

Source: MOSL, Company

Exhibit 44: NIM (on AUM) to remain largely stable (%)

6.7

6.3

6.6

6.7

7.5

7.6

Source: MOSL, Company

With 19% CAGR in AUM

coupled with reduction in

expense ratio and credit

costs, PAT is expected to

grow at 23% CAGR over

FY17-20

We forecast 23% CAGR in earnings for CIFC over FY17-20E, driven by 19% AUM

CAGR, stable margins and improvement in expense ratio. As CIFC has several levers

to pull for EPS growth, any negative surprises in any one factor is unlikely to alter

the earnings growth trajectory significantly, in our view. A negative surprise in LLP

could accrue from higher ultimate credit losses in the HE business.

13 June 2017

Cholamandalam Investment & Finance

Exhibit 45: PAT to grow at a CAGR of 23% over FY17-20

PAT (INR b)

Growth (%)

3.1

3.6

4.4

7.2

8.9

11.0

13.4

5.7

Source: MOSL, Company

CIFC raised INR5b from

Apax Partners in July 2015.

With a Tier I ratio of 13.6%

currently, it will not need

capital in the near term

CIFC’s capital adequacy ratio stands at 18.6%, significantly above the minimum

regulatory requirement of 15%. The Tier I ratio stands at 13.6%. The company had

issued Compulsorily Convertible Preference Shares (CCPS) worth INR5b to Apax

Partners in July 2014. CCPS were converted into 12.2m shares of common equity in

July 2015.

While we do not expect any further capital raise in the near term, we believe any

raise done at or near current market prices would be accretive to book value per

share, thus boosting shareholder return.

Exhibit 46: Trend in capitalization

CAR (%)

18.1

11.0

19.0

11.1

21.2

17.2

10.5

13.0

Tier I (%)

19.7

13.3

18.6

13.6

FY12

FY13

FY14

FY15

FY16

FY17

Source: MOSL, Company

13 June 2017

Cholamandalam Investment & Finance

RoA/RoE should reach

3.0%/20.3% by FY20

Exhibit 47: DuPont Analysis

Y/E March

Interest Income

Interest Expended

Net Interest Income

Income from Securitization

Other Operating Income

Other Income

Net Income

Operating Expenses

Operating Income

Provisions/write offs

PBT

Tax

Extraordinary Items

Reported PAT

Leverage

RoE

FY16

16.0

8.4

7.6

0.8

0.3

0.0

8.8

3.5

5.3

1.7

3.6

1.2

0.0

2.3

7.2

16.6

FY17

15.7

8.1

7.6

1.0

0.3

0.0

8.8

3.7

5.1

1.1

4.0

1.4

0.0

2.6

6.9

18.1

FY18E

15.7

7.7

8.0

1.1

0.3

0.0

9.4

3.6

5.7

1.4

4.3

1.5

0.0

2.8

6.7

19.0

FY19E

15.5

7.6

8.0

1.1

0.3

0.0

9.4

3.4

5.9

1.4

4.5

1.6

0.0

3.0

6.7

19.9

FY20E

15.3

7.5

7.9

1.1

0.3

0.0

9.3

3.2

6.0

1.4

4.6

1.6

0.0

3.0

6.7

20.3

Source: MOSL, Company

Exhibit 48: Return ratios on an upswing

RoA (%)

18.1

13.9

8.0

17.1

RoE (%)

18.1

19.0

19.9

20.3

15.9

16.6

0.8

FY11

1.6

FY12

2.0

FY13

1.9

FY14

2.0

FY15

2.3

FY16

2.6

FY17E

2.8

FY18E

3.0

FY19E

3.0

FY20E

Source: MOSL, Company

13 June 2017

Cholamandalam Investment & Finance

Valuation and view

Strong growth and return ratios to sustain premium valuation



CIFC has a well-diversified portfolio, both geographically as well as product-wise. It is

further expanding into newer segments like home loans and MSME financing.

With strong branch expansion, focus on new products and improvement in the

broader economy, AUM is expected to grow at 19% CAGR over FY17-20. This would be

accompanied by a structural improvement in ROE to ~20% by FY19.

The stock has witnessed some consolidation over the past year, which provides an

attractive entry point. Initiate with BUY rating and a target price of INR1,250 (3.2x

FY19E P/B).

Strong performance over

the medium term would

help sustain premium

valuation

CIFC’s premium valuation as compared to peers reflects the optimism about the

evolving growth conditions and the improved outlook for the vehicle finance

business. Its valuation reflects the successful scaling up of its key businesses and the

robust profitability delivered by the company through revenue diversification and

higher operating efficiency.

Over FY10-17, margin expansion and the reduction in cost ratios were the key RoA

drivers. Over FY17-20E, we expect operating cost rationalization to be the key driver

of ROA expansion. This would improve ROA to 3.0% by FY20 from 2.6% in FY17. This

will be accompanied by stable asset quality.

The stock currently trades at 2.7x FY19 BVPS. We use a Residual Income model to

value the company with Rf: 7%, CoE: 13.0%, Terminal growth rate: 5.0% and arrive

at a price target of INR 1,250 (3.2x FY19E P/B).

BUY.

Exhibit 49: CIFC P/B (1 year forward)

4.5

3.0

1.5

0.0

P/B (x)

5 Yrs Avg(x)

Exhibit 50: BAF P/B (1 year forward)

8.0

6.0

P/B (x)

5 Yrs Avg(x)

6.1

2.2

3.2

4.0

2.0

0.0

2.9x

Source: MOSL, Company

13 June 2017

Cholamandalam Investment & Finance

Exhibit 51: SHTF P/B (1 year forward)

4.0

3.0

2.0

1.0

0.0

1.9

P/B (x)

5 Yrs Avg(x)

Exhibit 52: MMFS P/B (1 year forward)

3.5

P/B (x)

2.5

5 Yrs Avg(x)

1.7

2.9

2.3

1.7

1.1

0.5

2.8

Source: MOSL, Company

Exhibit 53: MUTH P/B (1 year forward)

3.0

2.5

2.0

1.5

1.0

0.5

1.4

P/B (x)

5 Yrs Avg(x)

Exhibit 54: SCUF P/B (1 year forward)

2.5

3.5

2.7

1.9

1.1

0.3

P/B (x)

5 Yrs Avg(x)

2.2

2.8

Source: MOSL, Company

13 June 2017

Cholamandalam Investment & Finance

Bull & Bear case

Bull Case



In our bull case, we assume a strong AUM CAGR of 23% (vs. base case of 19%).

We believe the LAP financing segment could surprise on the upside.

We expect margins to increase to 7.9%

We expect significant cost control, with cost-to-income ratio declining to 30.1%

by FY20 (v/s 34.9% in base case)

Asset quality would show some improvement with GNPA of 3.0% by FY20 (v/s

4.0% in base case) on 90dpd basis.

This results in a PAT CAGR of 36% (vs. 23% in base case) over FY17-20 with

RoA/RoE in FY20 equal to 3.7%/25%

Based on the above assumptions, our bull case target multiple is 3.5x FY19 BV,

implying an upside of 64%.

Bear Case



In our bear case, we assume an AUM CAGR of 15% (vs. base case of 19%).

Sustained slowdown in the home equity segment could lead to such a scenario.



We expect margins to remain stable at 7.6%



We expect no cost control, with cost-to-income ratio remaining largely stable at

~41% over FY17-20 (v/s 34.9% by FY20 in base case)



Asset quality would worsen with GNPA of 4.8% by FY20 (v/s 4.0% in base case)

on 90dpd basis.



This results in a PAT CAGR of 10% (vs. 23% in base case) over FY17-20 with

RoA/RoE in FY20 equal to 2.4%/16%



Based on the above assumptions, our bear case target multiple is 2.25x FY20 BV,

implying a downside of 17%.

Exhibit 55: Scenario Analysis – Bull Case

Bull Case

NII (incl. securitization income)

Opex

Provisions

PBT

PAT

NIM - AUM (%)

Credit Cost (%)

RoA (%)

RoE (%)

EPS

Target multiple

Target price (INR)

Upside

FY18E

29,791

11,444

3,543

15,772

10,254

7.9

0.9

3.2

21.6

65.6

332.2

3.5

1,806

64%

FY19E

37,025

12,737

3,927

21,503

13,979

8.0

0.8

3.6

24.0

89.4

412.0

FY20E

45,613

14,138

4,910

27,911

18,145

7.9

0.8

3.7

25.0

116.1

516.1

Exhibit 56: Scenario Analysis – Bear Case

Bear Case

NII (incl. securitization income)

Opex

Provisions

PBT

PAT

NIM - AUM (%)

Credit Cost (%)

RoA (%)

RoE (%)

EPS

Target multiple

Target price (INR)

Upside

FY17E

27,447

11,839

6,286

10,290

6,690

7.5

1.6

2.2

14.7

42.8

309.4

2.25

908

-17%

FY18E

31,802

13,636

6,408

12,900

8,386

7.5

1.4

2.4

16.2

53.6

353.5

FY19E

36,516

15,623

7,346

14,892

9,681

7.6

1.4

2.4

16.4

61.9

403.3

Source: Company, MOSL

13 June 2017

Cholamandalam Investment & Finance

Company background

CIFC was founded in 1978 as the financial services arm of the Murugappa Group of

companies. The promoters have ~53% stake in the company. CIFC commenced its

business as an equipment financing company and has now emerged as a

comprehensive financial services provider offering vehicle finance, home loans,

home equity loans, SME loans, investment advisory services, stock broking and a

variety of other financial services to customers.

CIFC is registered as an asset finance company with a focus on rural and semi-urban

markets, and it has 703 branches spread across 25 states.

CIFC began its operations as an equipment finance company and later diversified

into commercial vehicle financing in 1992. Presently, the company primarily deals in

vehicle finance and home equity loans. CIFC has two subsidiary companies which

provide stock broking and wealth management services. As of March 2017, the

company had an outstanding AUM of over INR340b. In June 2015, CRISIL upgraded

the long-term debt of the company from AA-/Positive to AA/Stable.

Key management personnel

Mr. Vellayan Subbiah currently serves as the Managing Director of the company. His

term expires in August 2017. Effective August 19, 2017, Mr. N Srinivasan will serve

as Executive Vice Chairman and Managing Director of the company.

Exhibit 57: Management

Name

Designation

Description



Has over 40 years of varied experience in fields of banking, finance, economics, technology,

Chairman &

human resource, marketing, treasury and administration. He has served as the former

Independent

Chairman and Managing Director of Canara Bank and Indian Bank. He joined CIFC’s Board

Director

in July 2010.



Has over 20 years of experience in the varied fields of technology, projects and financial

Managing

services. He has worked with Mckinsey and Company and Sundram Fasteners. He joined

Director

the Board of CIFC in August 2010.

Vice-Chairman



Has over 30 years of experience in the fields of corporate finance, legal, projects and

and Non-

general management. He has been on the board of CIFC since December 2006 and is a

Executive Director

director on the Board of several Murugappa group companies.



Graduate in Commerce, an Associate member of the Institute of Chartered Accountants of

Chief Financial

India. He has around 20 years of experience in fields of finance and strategy and has a long

Officer

association with Murugappa group. He has been serving as the CFO since October 2008.

Source: MOSL, Company

Mr. MBN Rao

Mr. Vellayan Subbiah

Mr. N. Srinivasan

Mr. D. Arul Selvan

13 June 2017

Cholamandalam Investment & Finance

Key risks

Asset quality risks in its LAP portfolio

Over the past few years, the large corporate segment, especially in the industrial

and infrastructure sectors, has witnessed tremendous stress. There has been some

trickle-down effect in the SME segment. There have been signs of stress in SME

financing in northern geographies (NCR, Punjab & Haryana). While CIFC remains one

of the most conservative players in the LAP segment with lower ticket sizes and

lower LTVs, it will not be totally immune to any wide-scale stress that could occur in

the future.

Slowdown in growth

We believe much of the re-rating in the stock over the past year is attributable to

strong growth outlook coupled with improving return ratios. A sustained slowdown

in growth, due to demonetization or severe competition, could lead to operating de-

leverage and thus, decline in RoA/RoE. As a result, the re-rating will not sustain.

Lack of operating leverage

Improvement in the expense ratio is a core part of the thesis. However, increased

costs of the tablet rollout or sluggish scaling-up of the new branches to be opened in

FY17/18 could hamper improvement in profitability over the near term.

13 June 2017

Cholamandalam Investment & Finance

Financials and valuations

Income Statement

Y/E March

Interest Income

Interest Expenses

Net Interest Income

Change (%)

Income from securitisation

Net Interest Income (Incl. Sec. Inc.)

Change (%)

Other Operating Income

Other Income

Net Income

Change (%)

Total Operating Expenses

Change (%)

Employee Expenses

Business Origination Expenses

Other Operating Expenses

Operating Profit

Change (%)

Total Provisions

% of Operating Profit

PBT

Tax Provisions

PAT

Change (%)

Proposed Dividend

2013

24,316

14,110

10,206

46.2

566

10,771

48.1

652

11,443

47.0

5,696

30.4

1,531

1,744

2,421

5,747

68.2

1,243

21.6

4,504

1,443

3,062

77.4

475

2014

30,583

17,711

12,872

26.1

1,215

14,087

30.8

820

14,918

30.4

6,582

15.6

1,875

1,973

2,734

8,335

45.0

2,833

34.0

5,502

1,862

3,640

18.9

501

2015

34,600

19,604

14,996

16.5

1,435

16,431

16.6

870

17,308

16.0

7,489

13.8

2,217

1,870

3,402

9,819

17.8

3,247

33.1

6,572

2,221

4,352

19.5

503

2016

39,163

20,508

18,655

24.4

2,053

20,709

26.0

708

21,429

23.8

8,449

12.8

2,539

2,258

3,652

12,980

32.2

4,272

32.9

8,708

3,023

5,685

30.6

703

2017

43,134

22,308

20,826

11.6

2,647

23,473

13.3

814

24,296

13.4

10,133

19.9

4,027

1,784

4,323

14,162

9.1

3,106

21.9

11,056

3,868

7,187

26.4

782

2018E

49,315

24,296

25,019

20.1

3,473

28,492

21.4

961

29,461

21.3

11,426

12.8

4,630

1,998

4,797

18,035

27.3

4,405

24.4

13,629

4,769

8,861

23.3

938

(INR Million)

2019E

58,001

28,301

29,700

18.7

4,171

33,870

18.9

1,134

35,012

18.8

12,812

12.1

5,279

2,238

5,295

22,200

23.1

5,213

23.5

16,988

5,944

11,044

24.6

1,094

2020E

68,461

33,427

35,034

18.0

4,935

39,969

18.0

1,338

41,314

18.0

14,435

12.7

6,123

2,462

5,850

26,879

21.1

6,195

23.0

20,684

7,237

13,447

21.8

1,251

Balance Sheet

Y/E March

Share Capital

Reserves & Surplus

Net Worth for Equity Shareholders

Borrowings

Change (%)

Total Liabilities

Investments

Change (%)

Loans

Change (%)

Net Fixed Assets

Total Assets

E: MOSL Estimates

2013

1,432

18,216

19,648

152,890

33.6

172,538

2,245

263.9

166,802

35.4

707

172,538

2014

1,432

21,514

22,947

180,932

18.3

203,879

824

-63.3

194,973

16.9

729

203,879

2015

1,437

30,296

31,733

194,752

7.6

226,486

675

-18.1

222,422

14.1

683

226,486

2016

1,562

35,012

36,574

225,762

15.9

262,336

666

-1.3

259,732

16.8

1,113

262,336

2017

1,562

41,251

42,814

242,068

7.2

284,881

2,385

258.3

279,036

7.4

1,402

288,653

2018E

1,562

48,984

50,547

288,989

19.4

339,535

2,862

20.0

327,891

17.5

1,799

339,535

(INR Million)

2019E

1,562

58,711

60,274

346,993

20.1

407,266

3,435

20.0

393,417

20.0

2,110

407,266

2020E

1,562

70,653

72,217

412,719

18.9

484,934

4,122

20.0

467,951

18.9

2,362

484,934

13 June 2017

Cholamandalam Investment & Finance

Financials and valuations

Ratios

Y/E March

Spreads Analysis (%)

Avg. Yield on Loans

Avg Cost of Funds

Int. Spread on Financing Portfolio

NIM (on AUM)

NIM (on loans)

Profitability Ratios (%)

RoE

RoA

Int. Expended / Int.Earned

Other Inc. / Net Income

Efficiency Ratios (%)

Op. Exps. / Net Income

Empl. Cost/Op. Exps.

Asset-Liability Profile (%)

Loans/Borrowings Ratio

Net NPAs to Net Adv.

Assets/Equity

2013

16.8

10.6

6.2

6.6

7.0

2014

16.9

10.6

6.3

6.7

7.1

2015

16.6

10.4

6.1

6.7

7.2

2016

16.2

9.8

6.5

7.5

7.7

2017

16.0

9.5

6.6

7.6

7.7

2018E

16.3

9.2

7.1

7.6

8.2

2019E

16.1

8.9

7.2

7.6

8.2

2020E

15.9

8.8

7.1

7.6

8.1

18.1

2.0

58.0

5.9

17.1

1.9

57.9

5.6

15.9

2.0

56.7

5.1

16.6

2.3

52.4

3.4

18.1

2.6

51.7

3.4

19.0

2.8

49.3

3.3

19.9

3.0

48.8

3.3

20.3

3.0

48.8

3.3

49.8

26.9

44.1

28.5

43.3

29.6

39.4

30.1

41.7

39.7

38.8

40.5

36.6

41.2

34.9

42.4

109.1

0.2

8.8

107.8

0.8

8.9

114.2

2.0

7.1

115.0

2.1

7.2

115.3

3.2

6.7

113.5

3.1

6.7

113.4

2.8

6.8

113.4

2.6

6.7

Valuations

Book Value (INR)

BV Growth (%)

Price-BV (x)

EPS (INR)

EPS Growth (%)

Price-Earnings (x)

Dividend per share

Dividend Yield (%)

E: MOSL Estimates

137.2

28.4

21.4

64.4

3.5

0.3

160.2

16.7

25.4

18.8

3.5

0.3

203.1

26.8

30.3

19.2

3.5

0.3

233.9

15.2

36.4

20.1

28.8

4.5

0.4

273.9

17.1

3.8

46.0

26.3

22.8

5.0

0.5

323.3

18.1

3.2

56.7

23.3

18.5

6.0

0.6

385.5

19.2

2.7

70.6

24.6

14.9

7.0

0.7

461.9

19.8

2.3

86.0

21.8

12.2

8.0

0.8

13 June 2017

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