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Better collections drive superior performance. Focus on collections and early tailwinds in the sector have resulted in better-than-expected results for Chola. Despite having large exposures to LCVs, a segment that still remains weak, Chola’s superior performance as compared to its peers is encouraging, even as CV recovery remains challenging to forecast and will likely be slower than expected. We cut estimates by 4-6% for FY2015-17E; raise target price to `560 (from `500 earlier); retain ADD rating.
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
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Early signs of improvement Chola reported PAT of `11.1 bn, up 21% yoy and 17% above estimates. High income on recoveries (interest income including penal charges) drove NII and led to higher-than-expected earnings. However, credit cost were high as well, at `997 mn, up 16% qoq. Chola’s management indicated delinquency resolution in early buckets (0-4 months) was strong and substantially lower yoy but delinquencies in the past two months slipped into the NPL category. If the current collection trend continues, Chola’s NPLs will be substantially lower over the next two quarters. Chola will remain more measured in its business approach and has guided moderate disbursements in the next few quarters as current trends can still only be described as early signs of recovery. Sector tailwinds, focus on recoveries Chola has benefitted from early positive macro trends and its recovery efforts. HCV sales have been strong for the past few months primarily due to demand from large fleet operators. Market sources said small operators were probably buying new CVs during December due to higher cash flows after the large reduction in diesel prices and withdrawal of duty drawback from January 2015. The diesel price reduction has recently been passed on by operators to some extent and hence collections will likely be marginally weak in the coming months. Chola has also made concerted efforts to improve recoveries; these include (1) strong follow-up on early bucket delinquencies, (2) dealer support for loans delinquent between 3 and 6 months and (3) aggressive follow-up by the legal team on NPLs. Retain ADD with target price of `560 We are cutting our earnings estimates by 4-6% for FY2015-17E primarily to factor in higher operating expenses and tax rate. Operating expenses will likely be higher as Chola invests in recoveries as well as growth, even as the management has guided improvement in cost ratios. Lower share of loan securitization, after the recent change in regulations on PSL for banks, will lead to higher tax rate for Chola and other NBFCs. We are increasing our target price to `560 (from `500) on the back of higher medium-term growth and rollover to December 2016. At our target price, Chola will trade at 2.2X reported book. We expect Chola to outperform Shriram Transport Finance and Mahindra Finance.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily29012015tg.pdf
Better collections drive superior performance. Focus on collections and early tailwinds in the sector have resulted in better-than-expected results for Chola. Despite having large exposures to LCVs, a segment that still remains weak, Chola’s superior performance as compared to its peers is encouraging, even as CV recovery remains challenging to forecast and will likely be slower than expected. We cut estimates by 4-6% for FY2015-17E; raise target price to `560 (from `500 earlier); retain ADD rating.
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
Early signs of improvement Chola reported PAT of `11.1 bn, up 21% yoy and 17% above estimates. High income on recoveries (interest income including penal charges) drove NII and led to higher-than-expected earnings. However, credit cost were high as well, at `997 mn, up 16% qoq. Chola’s management indicated delinquency resolution in early buckets (0-4 months) was strong and substantially lower yoy but delinquencies in the past two months slipped into the NPL category. If the current collection trend continues, Chola’s NPLs will be substantially lower over the next two quarters. Chola will remain more measured in its business approach and has guided moderate disbursements in the next few quarters as current trends can still only be described as early signs of recovery. Sector tailwinds, focus on recoveries Chola has benefitted from early positive macro trends and its recovery efforts. HCV sales have been strong for the past few months primarily due to demand from large fleet operators. Market sources said small operators were probably buying new CVs during December due to higher cash flows after the large reduction in diesel prices and withdrawal of duty drawback from January 2015. The diesel price reduction has recently been passed on by operators to some extent and hence collections will likely be marginally weak in the coming months. Chola has also made concerted efforts to improve recoveries; these include (1) strong follow-up on early bucket delinquencies, (2) dealer support for loans delinquent between 3 and 6 months and (3) aggressive follow-up by the legal team on NPLs. Retain ADD with target price of `560 We are cutting our earnings estimates by 4-6% for FY2015-17E primarily to factor in higher operating expenses and tax rate. Operating expenses will likely be higher as Chola invests in recoveries as well as growth, even as the management has guided improvement in cost ratios. Lower share of loan securitization, after the recent change in regulations on PSL for banks, will lead to higher tax rate for Chola and other NBFCs. We are increasing our target price to `560 (from `500) on the back of higher medium-term growth and rollover to December 2016. At our target price, Chola will trade at 2.2X reported book. We expect Chola to outperform Shriram Transport Finance and Mahindra Finance.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily29012015tg.pdf
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