16 January 2019
Update | Sector: Financials - NBFC
Cholamandalam Inv & Fin
BSE SENSEX
36,321
S&P CNX
10,890
CMP: INR1,193
TP: INR1,525 (+28% )
Buy
Diversifying the asset franchise
Two-wheeler finance and home loans the next growth engine
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
Financials Snapshot (INR b)
Y/E March
2018 2019E
Total Income
31.2
33.9
PPP
18.3
22.0
Adj. PAT
9.7
12.1
EPS (INR)
62.3
77.2
EPS Gr. (%)
35.5
24.0
BV (INR)
324
393
BVPS Gr. (%)
19
21
RoAA (%)
2.7
2.4
RoE (%)
20.9
21.5
Valuations
P/E (x)
19.2
15.4
P/BV (x)
Div. Yield (%)
3.7
0.5
3.0
0.6
CIFC IN
156
186.5 / 2.6
1761 / 1039
-4/-20/-15
488
46.9
2020E
38.9
25.3
13.5
86.4
11.8
470
20
2.3
20.0
13.8
2.5
0.6
Shareholding pattern (%)
As On
Sep-18 Jun-18 Sep-17
Promoter
53.1
53.1
53.1
DII
FII
Others
15.9
20.5
10.6
16.1
20.7
10.2
15.6
21.6
9.8
Cholamandalam Investment and Finance (CIFC) has successfully navigated the
liquidity crisis, which is now a thing of the past. After drawing down bank lines and
borrowing INR60b (approximately one quarter of disbursement) in September, CIFC
refrained from incremental borrowings in October and resumed borrowings only in
November. As per reported data, CIFC recently managed to raise money via CPs at
~7.5%, i.e. at pre-crisis levels. Due to its healthy liquidity position, CIFC has not
needed to cut back on disbursements during the quarter.
In vehicle finance, festive demand has been weaker-than-expected with dealer
inventory piling up. However, management believes this is just a blip and expects
robust volumes over the ensuing months of the financial year. However, given the
high base of the previous year, we expect mid- single-digit disbursement growth in
this segment.
The company has identified two segments that could reap benefits over the medium-
to-long term - two-wheeler finance and home loans. These products were launched
around five years back. However, rather than scaling up the book, management took
the opportunity to understand the nuances of the businesses. CIFC now believes it
has the tools to scale these two segments meaningfully over the next three years.
While the M&HCV cycle is expected to slow down, we note that CIFC has the most
diversified loan book among vehicle financiers. The company has other segments
that could offset the M&HCV slowdown. With good parentage and strong credit
rating, the company has been able to tide over the liquidity situation well. While the
stock trades at a premium to peers, we believe valuations will hold as long as growth
and RoA/RoE remain robust. Key risks to our estimates stem from higher-than-
expected margin impact due to rising cost of funds and slowdown in growth. BUY
with a TP of INR1,525 (2.8x Dec 2020E BVPS).
Liquidity situation well managed; CP rates at pre-crisis levels
CIFC managed its treasury operations well over the past three months.
It drew
down on bank lines and other sources to the tune of INR60b in September, and
hence, did not need to raise more money in October. In addition, as per 2QFY19
result disclosures, CIFC had positive ALM to the tune of INR21b for the month of
October.
This helped the company to not only cater to the festive demand
effortlessly, but also helped in negotiating better rates with lenders, given the
liquid balance sheet. In the past month, CIFC has borrowed money via CPs at 7.5%
- the same rate prior to the IL&FS crisis. We expect overall CoF to increase only
~50bp over 2HFY19 (due to re-pricing of term loans and NCDs).
FII Includes depository receipts
Stock Performance (1-year)
Research Analyst: Piran Engineer
(Piran.Engineer@MotilalOswal.com); +91 22 6129 1526
| Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com); +91 22 6129 1539
Nitin Aggarwal
(Nitin.Aggarwal@MotilalOswal.com); +91 22 6129 1542 |
Shubhranshu Mishra
(Shubhranshu.Mishra@MotilalOswal.com); +91 22 6129 1540
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.