3 May 2016

4QFY16 Result Update | Sector: NBFC

Cholamandalam Invst. & Fin.

BSE SENSEX

25230

Equity Shares (cr)

52-Week Range (Rs)

1,6,12 Abs.Perf.(%)

M.Cap. (Rs cr)

M.Cap. (US$ b)

S&P CNX

7747

15.6

860/552

16/35/44

12,170

182

CMP: INR846

YEAR NET INC PAT

END

FY16

FY17E

FY18E

EPS

(INRCr) (INRCr) (INRCr)

2142

2630

3136

567

768

986

36

49

63

TP: INR1000 (+18%)

EPS

Gr.(%)

31

36

28

PE

(X)

23.3

17.2

13.4

ABV

(INR)

221

268

331

P/BV

(X)

3.6

3.0

2.5

P/ABV ROAA

(X)

3.9

3.2

2.6

(%)

2.3

2.6

2.7

BUY

ROAE

(%)

16.7

19.0

20.1

Result Highlights: Above est; Acceleration in AUM growth & low OPEX leads to strong beat in profits (+42%

YoY); Strong disbursement growth of 41%



Chola's Net Income grew by 33% to INR 602cr backed by AUM growth of 17% to INR 29,815cr and 150bp expansion

in NIM to 9.4%. PAT has grown by 41% YoY to INR 148cr aided by lower OPEX growth at 11%.



A recovery in the CV industry (50% of Chola's AUM) has translated into resumption of growth for Chola. Disbursements

growth bounced back to a strong 41% which is a 14 quarter high led by 47% growth in Vehicle Finance and 16%

growth in Home Equity (LAP). Consequently AUM growth was at a 6 quarter high of 17%. The LCV/SCV loan book

(35% of Chola's AUM) witnessed 8% growth in AUM after declining for 5 quarters. We expect the turnaround in AUM

growth for LCV/SCV to sustain going forward as the industry comes out of a three year downturn combined with

transport operators witnessing highest capacity utilisation since FY12. GNPAs declined QoQ to 3.5% against 4.3%

on 4 month basis.

4QFY15

452

3QFY16 4QFY16

543

215

328

107

221

75

146

14

38

8.5

40

4.3

2.1

16.7

602

208

395

99

296

104

192

17

41

9.4

34

3.5

2.8

21.5

YoY

33

9

51

70

46

54

42

QoQ

11

(3)

20

(8)

34

38

32

FY15 FY16

1,729 2,142

749

845

YoY

24

13

32

32

33

36

31

INRCr

Net Income

Operating Expenses 190

Operating Profit

Provisions

Profit Before Tax

Tax Provisions

Net Profit

Loan Growth (%)

Disbursements (%)

NIMs (%)

C/I Ratio (%)

261

58

203

68

136

9

-4

7.9

42

980 1,296

325

655

222

433

9

-2

7.9

43

2.4

2.0

15.8

427

869

302

567

24

21

8.7

39

3.5

2.3

16.7

Gross NPAs (%) - 4mNA

ROA (%)

ROE (%)

2.0

17.6

Valuation and view



Chola's branch network (534) has gone up over 3x since FY10 and is up 53% since FY12 whereas, peers have increased

their branches by 18% over the same period. This is reflected in Chola's higher cost/income ratio at 39% vs peer group

average of 32%. However, with the recovery in the CV cycle (especially LCVs), Chola shall enjoy higher operating leverage

which would enable it to grow its profits at a higher rate of 32% CAGR over FY16-18E as against its peer group.





The management expects home loans business to grow aggressively in coming years and reach the size of its Home

Equity business (LAP) over a five year period, thereby lowering Chola's dependence on vehicle finance business.

Diversification of loan book towards home loans, normalization of credit costs and reduction of GNPAs / provisioning from

the current cyclical peaks should transform the business to 3.0% ROA from current ROA of 2.3% in coming years.

Improvement in ROA should translate into a rerating opportunity for the business. We raise our earnings estimates for

FY17/18 by 9% and also raise our target P/B multiple to 3.0x (in line with Sundaram Finance; earlier 2.3x) and arrive at a

target of INR 1,000 (earlier INR 700).

Jehan Bhadha

(jehan.bhadha@MotilalOswal.com); Tel: +91 22 33124915

Investors are advised to refer through important disclosures made at the last page of the Research Report.

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Disclaimer: This document has been prepared by Motilal Oswal Securities Limited (hereinafter referred to as Most) to provide information about the company(ies)

and/sector(s), if any, covered in the report and may be distributed by it and/or its affiliated company(ies). This report is for personal information of the selected

recipient/s and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or inducement

to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report

is not for public distribution and has been furnished to you solely for your general information and should not be reproduced or redistributed to any other person

in any form. This report does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs

of individual clients. Before acting on any advice or recommendation in this material, investors should consider whether it is suitable for their particular

circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go

down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not

guaranteed and a loss of original capital may occur.

MOSt and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We and our affiliates have

investment banking and other business relationships with a some companies covered by our Research Department. Our research professionals may provide input

into our investment banking and other business selection processes. Investors should assume that MOSt and/or its affiliates are seeking or will seek investment

banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing

this material may educate investors on investments in such business . The research professionals responsible for the preparation of this document may interact

with trading desk personnel, sales personnel and other parties for the purpose of gathering, applying and interpreting information. Our research professionals

are paid on twin parameters of performance & profitability of MOSt.

MOSt generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or

derivatives of any companies that the analysts cover. Additionally, MOSt generally prohibits its analysts and persons reporting to analysts from serving as an officer,

director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals or affiliates may provide oral or

written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading

and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you

should be aware that any or all of the foregoing among other things, may give rise to real or potential conflicts of interest. MOSt and its affiliated company(ies),

their directors and employees and their relatives may; (a) from time to time, have a long or short position in, act as principal in, and buy or sell the securities or

derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation

or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may

have any other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no

bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the

views of the affiliates of MOSt even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report

Reports based on technical and derivative analysis center on studying charts company's price movement, outstanding positions and trading volume, as opposed

to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamental analysis. In addition MOST has different

business segments / Divisions with independent research separated by Chinese walls catering to different set of customers having various objectives, risk profiles,

investment horizon, etc, and therefore may at times have different contrary views on stocks sectors and markets.

Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information

specifically agrees to exempt MOSt or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt

or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSt or any of its affiliates or employees free and harmless from

all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. The information contained herein

is based on publicly available data or other sources believed to be reliable. Any statements contained in this report attributed to a third party represent MOSt's

interpretation of the data, information and/or opinions provided by that third party either publicly or through a subscription service, and such use and

interpretation have not been reviewed by the third party. This Report is not intended to be a complete statement or summary of the securities, markets or

developments referred to in the document. While we would endeavor to update the information herein on reasonable basis, MOSt and/or its affiliates are under

no obligation to update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so.

MOSt or any of its affiliates or employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent

error in the information contained in this report. MOSt or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind,

regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-

infringement. The recipients of this report should rely on their own investigations.

This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial

advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents.

Most and it's associates may have managed or co-managed public offering of securities, may have received compensation for investment banking or merchant

banking or brokerage services, may have received any compensation for products or services other than investment banking or merchant banking or brokerage

services from the subject company in the past 12 months.

Most and it's associates have not received any compensation or other benefits from the subject company or third party in connection with the research report.

Subject Company may have been a client of Most or its associates during twelve months preceding the date of distribution of the research report

MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise of over 1 % at the end of the month immediately preceding the

date of publication of the research in the securities mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of Interest Statement

in this document. This should, however, not be treated as endorsement of the views expressed in the report.

Motilal Oswal Securities Limited is under the process of seeking registration under SEBI (Research Analyst) Regulations, 2014.

There are no material disciplinary action that been taken by any regulatory authority impacting equity research analysis activities

Motilal Oswal Securities Limited is registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014. SEBI Reg. No. INH000000412

A graph of daily closing g prices of securities is available at www.nseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes.

Analyst Certification

The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the

compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s)

in this report. The research analysts, strategists, or research associates principally responsible for preparation of MOSt research receive compensation based upon

various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues

Disclosure of Interest Statement

1.Analyst ownership of the stocks mentioned above

2.Served as an officer, director or employee

Cholamandalam Invst. & Fin.

No

No

Regional Disclosures (outside India)

This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such

distribution, publication, availability or use would be contrary to law, regulation or which would subject MOSt & its group companies to registration or

licensing requirements within such jurisdictions.

Motilal Oswal Securities Ltd

Motilal Oswal Tower, Level 6, Sayani Road, Prabhadevi, Mumbai 400 025

Phone: (91-22) 30894200 Fax: (91-22) 22885038. E-mail: info@motilaloswal.com