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Cholamandalam Investment & Finance
Turnaround done, now ready to grow
„ Event: management meeting reassuring on turnaround and growth
We met top management of Cholamandalam Investment & Finance (CIFC). It
highlighted that: 1) unsecured Personal Loan business issues are now behind the
company with Rs1.68bn provisioning in FY11; 2) the growth outlook for FY12 is
positive with 30%+ growth expected in the Vehicle Finance business, driven by
aggressive branch expansion (100 new branches in FY12, currently has 226
branches—90% in Tier-II and Tier-III cities); 3) growth is also driven by lesscyclical light commercial vehicle (LCV) focus and increased focus on used CVs;
and 4) the Tractor Financing business has been launched and the Gold Financing
pilot launch will be in FY12.
„ Impact: lower estimates on no securitisation income and lower spreads
The company has stopped doing securitisation of loans to achieve Asset Finance
Company status (aiding lower funding cost) and given the regulatory environment.
A tighter liquidity environment, slowing CV sales and higher competition also
imply lower spreads. We lower our FY12/13 EPS estimates 18%/23%.
„ Action: reiterate Buy
We reiterate our Buy rating. We expect strong earnings growth from FY12 onward,
with provisioning for personal finance done and strong underlying numbers of
asset finance businesses now getting reflected. We forecast an FY11-13 earnings
CAGR of 76% and ROE of 20% in FY13, driven by strong assets growth.
„ Valuation: new Rs215 price target
We lower our residual income-based price target from Rs252 to Rs215 on the
increased cost of equity. Our price target implies 1.8x FY13E P/BV and 9.8x
FY13E PE.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cholamandalam Investment & Finance
Turnaround done, now ready to grow
„ Event: management meeting reassuring on turnaround and growth
We met top management of Cholamandalam Investment & Finance (CIFC). It
highlighted that: 1) unsecured Personal Loan business issues are now behind the
company with Rs1.68bn provisioning in FY11; 2) the growth outlook for FY12 is
positive with 30%+ growth expected in the Vehicle Finance business, driven by
aggressive branch expansion (100 new branches in FY12, currently has 226
branches—90% in Tier-II and Tier-III cities); 3) growth is also driven by lesscyclical light commercial vehicle (LCV) focus and increased focus on used CVs;
and 4) the Tractor Financing business has been launched and the Gold Financing
pilot launch will be in FY12.
„ Impact: lower estimates on no securitisation income and lower spreads
The company has stopped doing securitisation of loans to achieve Asset Finance
Company status (aiding lower funding cost) and given the regulatory environment.
A tighter liquidity environment, slowing CV sales and higher competition also
imply lower spreads. We lower our FY12/13 EPS estimates 18%/23%.
„ Action: reiterate Buy
We reiterate our Buy rating. We expect strong earnings growth from FY12 onward,
with provisioning for personal finance done and strong underlying numbers of
asset finance businesses now getting reflected. We forecast an FY11-13 earnings
CAGR of 76% and ROE of 20% in FY13, driven by strong assets growth.
„ Valuation: new Rs215 price target
We lower our residual income-based price target from Rs252 to Rs215 on the
increased cost of equity. Our price target implies 1.8x FY13E P/BV and 9.8x
FY13E PE.
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