Cholamandalam Inv. & Finance
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
257.7 / 3.6
349 / 226
26 February 2020
3QFY20 Results Update | Sector: Financials
TP: INR390 (+23%)
Growth slowing down; M&HCV stress to last 8-9 months
PAT increased 28% YoY to INR3.9b (2% miss) in 3QFY20. The quarter was
characterized by lower AUM growth and an increase in the GNPL ratio.
AUM growth slowed down from 24% YoY in the prior quarter to 21% YoY in
3QFY20. While LAP AUM growth has been steady at 16-17% YoY,
finance AUM growth moderated from 24% YoY to 19% YoY.
During the quarter, CIFC assigned ~INR7b worth of vehicle finance loans.
The company used to sell down via the securitization route, but has started
direct assignments in VF too for the past two quarters.
As loan growth slowed down and the company assigned loans worth
~INR10b overall during the quarter, it did not raise capital from other
Total borrowings declined 2% QoQ. The share of bank loans
jumped from 53% to 61% QoQ.
Management commented that incremental
cost of funds has declined 20-30bp QoQ in 4Q.
Over the past nine months, CIFC has heavily curtailed its M&HCV
disbursements (due to asset quality pressure). While HCVs accounted for
14% of total AUM, they formed only 6% of fresh disbursements in 9MFY20.
On the other hand, it has grown faster in refinance and used vehicles (33%
of disbursements vis-à-vis 26% of AUM).
GNPL ratio increased across segments: Vehicle Finance – 2.7% v/s 2.35%
QoQ, Home Equity – 6.0% v/s 5.9% QoQ and Home Loan - 3.7% v/s 3.8%
Stage 3 PCR declined 250bp QoQ to 33% due to lower eventual credit
losses in M&HCVs compared to other products.
Increase in opex in the quarter is on account of higher collection costs and
higher growth in low-ticket products like 2Ws.
In M&HCVs, customers have slowly started repaying EMIs in January.
However, their struggle will continue for at least 8-9 months. Eventual
credit losses on HCVs are lower than that for other products.
Vehicle finance loan growth slowing down; lower incremental CoF
Financials & Valuations (INR b)
2019 2020E 2021E 2022E
Total Income 34.0 41.4 47.2 53.5
21.3 25.4 29.4 33.6
11.9 14.2 17.4 19.9
15.2 17.5 21.5 24.5
EPS Gr. (%)
29.1 15.4 22.9 14.0
C/I ratio (%)
37.3 38.7 37.8 37.1
21.5 19.9 19.3 18.5
21.0 18.2 14.8 13.0
Div. Yield (%)
Shareholding pattern (%)
FII Includes depository receipts
Tweaking VF product mix; GNPL ratio increasing
Highlights from management commentary
Valuation and view
There are two aspects of CIFC’s vehicle finance business that stand out
compared to most peers: (i) it is well diversified across product segments and
(ii) there is no state-level concentration – the largest state accounts for only
11% of total portfolio. While CIFC has managed to deliver 20%+ disbursement
and AUM growth in the past, we expect it to slow down to ~15% over the
medium term. There could also be ~30bp rise in credit costs unless the macro
While our estimates on growth and profitability
remain largely unchanged, we incorporate the impact of the recent INR9b QIP
in our numbers. This results in a 3% increase in our EPS estimate for FY21.
with a target price of INR390 (2.7x FY22E BVPS).
Research Analyst: Piran Engineer
(Piran.Engineer@MotilalOswal.com); +91 22 6129 1539 |
(Alpesh.Mehta@MotilalOswal.com);+91 22 6129 1526
(Nitin.Aggarwal@MotilalOswal.com); +91 22 6129 1542 |
(Divya.Maheshwari@motilaloswal.com); +91 22 6129 1540
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.