Cholamandalam Investment -Tailwinds Ahead; Result Update Q2FY15 :: Edelweiss, link

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->

Cholamandalam Investment and Finance Ltd. (CFL) has reported muted set of numbers for Q2FY15. The company’s AUM grew by 17% YoY, from INR 20,907 cr in Q2FY14 to INR 24,468 cr in Q2FY15. PAT increased to INR 95 cr in Q2FY15 from INR 93 cr in Q2FY14, representing a growth of 2% YoY. Disbursement growth remained muted mainly due to marginal growth of 2% in vehicle disbursements (71% of AUM). The asset quality deteriorated marginally, with Gross NPA increasing from 2.4% in Q1FY15 to 2.6% in Q2FY15. NPAs are expected to peak out in the next few quarters. There is a discernible change in sentiment at the ground level but it will take few quarters to reflect the same in the company’s financials. We maintain our bullish stance on the stock from a long-term perspective.

Muted loan growth

CFL’s AUM increased by 17% YoY from INR 20,907 cr in Q2FY14 to INR 24,468 cr in Q2FY15. The loan book mix changed, with the vehicle financing book ratio as % of total AUM coming down from 75% in Q2FY14 to 71% in Q2FY15. At the same time, home equity book ratio as % of total AUM increased by 225bps. The ratio is expected move further in favor of home equity going forward. And, although the vehicle finance book has higher NIMs vis-à-vis home equity book, the latter has higher return on assets (RoA).

Return ratios to stabilize

During Q2FY15, CFL reported RoE of 14.1%. Due to a weak macroeconomic environment, growth in vehicle financing book remained low. There is a discernible change in sentiment at the ground level but it will take few quarters before growth comes back on a sustainable basis. At the company level, there has been constant focus on reducing costs. The operating cost-to-asset ratio has remained flat YoY at 3.5%. CFL targets to bring down the same below 2.5% over the next few years. Out of the total 579 branches, only 67 branches do home equity. With the increase in ratio of branches providing home equity loan, operating leverage will kick in going forward. The company targets to achieve RoE of 18-20% through change in product mix, reduction in funding cost and controlling operating costs.

Asset quality to stabilize in coming quarters

CFL has reported a dip in asset quality, with gross NPA increasing from 2.4% in Q1FY15 to 2.6% in Q2FY15 and net NPA increasing from 1.1% in Q1FY15 to 1.4% in Q2FY15. The provision coverage ratio stood at 46% in Q2FY15 compared to 54% in Q1FY15. The NPAs are expected to peak out in the next few quarters.

Capital raising

Currently, the capital adequacy ratio is at 19.78% and Tier-II ratio is at 7.17%. The company has issued 5 lakh Compulsorily Convertible Preference Shares of INR 100 each. This has led to capital infusion of INR 500 cr. The conversion price of CCPS is INR 407 per share. Post the fund raising, the company will be well capitalized for the next two years.

LINK

https://www.edelweiss.in/research/Cholamandalam-Investment-Tailwinds-Ahead;-Result-Update-Q2FY15/10005132.html