Cholamandalam Investment & Finance ::Nirmal Bang

Another stable quarter
Cholamandalam Investment and Finance (CIFC) reported results in line with
expectations with strong growth in NII driven by higher disbursements and
benefit of capital raising done in the quarter. Improving product mix towards
higher yielding segment and presence in LCV segments has helped the company
to maintain growth momentum. Despite addition in branches and higher
employee base cost to income ratio of the company stood within targeted levels.
Provisions were on the higher side which was due to provision for loan loss asset
during the quarter. PAT stood at Rs 86 cr up 59% YoY and 5.3% QoQ in Q4FY13.
For FY13, PAT stood at Rs 307 cr up 77.7%.
We are impressed with the strategy of Management to maintain growth without
compromising on the asset quality. In order to maintain asset quality company
has not been focusing on increasing the gold loan portfolio considering the
overall concerns in the sector. Even though the CV industry is not doing good
CIFC is a safe player as its focus is more towards the LCV segment which has not
yet seen any significant signs of stress and is performing satisfactorily. Moreover,
company also focuses on high yielding and growing segment of used CVs and
tractor financing. This will ensure that the company continues to maintain its
growth momentum. Improving productivity of branches will lead to an
improvement in cost to income ratio. We believe that margins will continue to
remain strong with easing interest rate cycle as most of the loans of the
company are at fixed rate.
The above initiatives with a revamped business model will lead to a sustainable
and profitable growth in CIFC’s business and expect PAT to grow at a CAGR of
28.7% over FY13-FY15E. We expect CIFC to report an improvement in its RoE
from 18.3% in FY13 to 20.2% in FY15E and RoA (post tax) to improve from 1.9%
in FY12 to 2% in FY15E. At CMP the stock is trading at 1.69x FY14E and 1.43x
FY15E ABV and 9.65x FY14E and 7.58x FY15E EPS respectively. Based on our
estimated BV of Rs.159 per share for FY14E and P/ABV target multiple of 2.0x
we arrive at a target price of Rs.317. We continue to maintain our positive
outlook on the stock and recommend investors to HOLD the stock for a further
upside of 18% from current levels.
CIFC reported strong growth in AUM at 41.1% YoY and 10.9% QoQ to Rs
18,998 cr in Q4FY13.
Disbursements growth remained robust at 32.6% YoY and 22.3% QoQ to Rs
3,808 cr during Q4FY13.
CIFC opened 12 branches in Q4FY13 taking the total branch network to 518
branches in line with expectations and added 1,416 employees during the
quarter. Despite this the cost to income ratio was broadly stable during the
quarter at 48.8% reflecting improving productivity.
Gross NPA stood at 1.0% as compared to 1.17% in Q3FY13. Net NPA stood
at 0.2% vs 0.63% QoQ.

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