Cholamandalam Securities -2016 top stock picks

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Cholamandalam Investment Limited - Tailwinds ahead; Result Update Q3FY15 :: Edelweiss, report

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Cholamandalam: Better collections drive superior performance :: Kotak Sec, report

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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.


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

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Cholamandalam Investment - Tailwinds Ahead :: Edelweiss, PDF link

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We met Mr. Vellayan Subbiah, MD, Cholamandalam Investment and Finance Ltd. (CFL). Please find below the key takeaways from our discussion.

Recovery sometime away

Post the change in the government at the centre, there has been change in the sentiment but the actual recover at sometime away. Without commenting on the exact timeline of recovery, the company do not see pick-up in demand in short term. Utilization will depend on production side of economy not the consumption side. For the demand to pick up, the manufacturing sector has to pick up.

Asset quality to stabilize in coming quarters

The volume of repossessed vehicle has peaked out in Q4FY14. Pricing levels in case of repossessed vehicles not picked up yet. The pace of asset quality deterioration is slowing down. The accretion to higher level NPA buckets is coming down. In addition, as a strategy the company is not focusing on gaining market share. The focus is on quality of growth.

NIM’ expected to improve

The rise in NPA is recent quarters led to interest income reversal. This led to pressure in NIM’s. The improvement is asset quality will have positive impact on NIM’s. Currently bulk of customers is buying in second hand vehicle market due to pricing pressure in repossessed market. Repossessed vehicles yield is higher than new vehicles. In addition, the securitization will help in maintaining the margins. 

Home equity business doing well

Currently home equity segment constitutes 25.7% of the loan book. In this segment around 85% of the loans are given to self employed individuals against self occupied residential property. The company provides loan to value of 50-52% and that too on distress sale valuation. The company is not seeing any asset quality pressure in this segment. Currently these loans are disbursed through around 67 branches (total 540 branches). In addition, MSME and home loan are disbursed through ~20 branches only.

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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.

Cholamandalam Investment and Finance --Strong growth prospects post consolidation; Buy :: :: Anand Rathi Research

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Cholamandalam Investment and Finance
Strong growth prospects post consolidation; Buy
Cholamandalam Investment and Finance (CIF) has embarked on
significant branch addition after having consolidated its personal loan
portfolio over FY08-10. About 90% of its branches are in tier-2 & tier-3
cities, where rising rural disposable income acts as a hedge against
the tough macro-economic environment. This, coupled with the
introduction of high-yielding new products, is likely to result in robust
loan growth. We expect strong loan growth, better NIM and lower
provisioning to drive RoA to 1.6% by FY14 (from 0.7% in FY11). We
initiate coverage on CIF with a Buy rating and a price target of `181.
 Focus on bottom of pyramid to drive robust loan growth. With ~90%
of branches in tier-2 and tier-3 cities, CIF’s focus is on the middle- and
lower-income segment in rural India. Post consolidation of its personal
loan portfolio over FY09-10, CIF has widened its branch network by 45%
to 342 branches in the last six months. It also plans to diversify its product
mix – commercial vehicle financing constitutes 67% of its credit portfolio –
by introducing gold loan and tractor finance. We expect branch expansion
and new products to drive 34% CAGR in loan book over FY11-14.
 High-yield products to improve NIM. CIF plans to raise exposure to
high-yield secured retail products such as used-vehicle and gold-loan
financing. Together with the expected easing of interest rates, this is
likely to aid NIM improvement to 6.5% by FY14, from 6% in 1HFY12.
 Improving asset quality. Provisions rose to over 3.7% of advances over
FY08-11 on significant write-offs in personal loans. With limited exposure
to personal loans and stable levels of gross NPAs in the vehicle & mortgage
businesses (0.6% & 1.3%, respectively), credit cost is estimated to improve
to 0.9% of loans, and drive 70.3% CAGR in earnings over FY11-14.
 Valuation. At our target price, CIF is estimated to trade at a PBV of
1.8x FY12e and 1.5x FY13e. Risk: Slower-than-expected rural
economic growth could impact loan growth

Cholamandalam (CHLA.BO, Buy, PT Rs 215, 42% upside) UBS: India Mid-Caps TOP PICKS - September 2011

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• Turnaround story – exited from unsecured personal finance,
focus back on asset/secured financing
• CV financing focus (67% of book): FY11-13E book CAGR 28%.
Within this, focus on LCVs (less cyclical than MHCVs) and
profitable niche with low-cost model, focus on rural/semi-urban
and micro / small enterprises, nationwide distribution with 90%
of its 226 branches in growing tier II and tier III Indian cities
• Home Equity and Business Finance: secured book with low NPL
- HE: 24% of book, FY10 NPL 1%, FY11-13E book CAGR 19%
- BF: 9% of book, 0% NPL, FY11-13E book CAGR 10%
• Strong earnings growth outlook for FY12 - provisioning for
personal finance done and strong underlying numbers of asset
finance businesses now gets reflected. FY11-13E earnings
CAGR of 76% and ROE of 20% in FY13E
• Market Cap US$445mn, ADV
Promoter 69%, IFC 10%
• Valuation: 1.8x FY13E P/BV and 9.8x FY13E PE


We derive our price target from a residual income model which is the sum of BVPS for FY13E and the present value of
income generated over and above the cost of equity . We assume a discount rate of 13.5% (a risk-free rate of 8%, beta of
1.1x and a risk premium of 5%) and terminal growth of 7.5%.


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UBS:: Cholamandalam Investment & Finance- 1 QFY12 – positive set of results

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UBS Investment Research
Cholamandalam Investment & Finance
1 QFY12 – positive set of results
􀂄 1Q reassuring on turnaround and strong asset finance business growth
Chola’s 1QFY12 pre-exceptional PAT grew by 224% YoY to Rs511m, marginally
above our estimates. This was primarily led by strong disbursements growth of
34% YoY. Key highlights for the quarter include 1) Strong AUM growth of 37%
YoY, 2) NIM declined 90bps QoQ to 4.8%, 3) Improved CAR at 16.77%, 4) stable
asset quality with net NPL for vehicle finance (VF) and home equity (HE) <1%,
and 5) the company received Asset Financing Company (AFC) status, which
should aid in lower funding costs for the company on new loans.
􀂄 Tractor and gold financing business plans on track
Chola recently launched tractor financing (TF) business and plans to launch gold
financing (GF) this September. The management’s strategy is to leverage its good
brand name, strong rural exposure (bottom of the pyramid focus) and relationship
with corporate group to establish these businesses. It estimates GF/TF book size of
Rs2bn/3bn in FY12 and LTV of 70-80%. The GF/TF business yield is estimated at
20-22%/18%, higher than LCV yield at 14.5%. We currently don’t build these in
our estimates and will wait to look for growth trends in these businesses.
􀂄 Maintain estimates, mgmt. confident of strong FY12 growth outlook
The management gave strong overall disbursements growth guidance of 15-20%
with 30%/20-23% in VF/HE business. We expect strong earnings growth from
FY12, on strong underlying nos. of asset finance businesses now getting reflected.
􀂄 Valuation: Maintain Buy with a price target of Rs215
Our residual income based price target of Rs215 implies FY13E P/BV and PE of
1.8x/9.8x.


􀁑 Cholamandalam Investment & Finance
Cholamandalam Investment and Finance Company Limited (CIFCL), a nonbank
financial company, was established in 1978 and is part of the Chennaibased
US$3bn revenue Murugappa Group. The company initiated its business as
a vehicle financing company and later diversified into business finance, home
equity loans and consumer finance. As at 30 September 2010 CIFC had AUM of
Rs77bn, with vehicle financing representing 62% of its assets. CIFC exited its
consumer finance business in 2008. The company has three subsidiaries and
offers insurance products and stock broking services through two of them.
􀁑 Statement of Risk
We believe the key risks facing Cholamandalam are an economic slowdown,
interest rate risk, liquidity risk, increased competition and regulatory change.

UBS:: Cholamandalam Investment & Finance - Turnaround done, now ready to grow

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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.

Cholamandalam: Buy; PT Rs252 �� :: UBS India Mid-Cap Premier League - Season 1

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Cholamandalam: Buy; PT Rs252
�� The company plans to start gold financing business as a pilot in FY12.
�� The company made a NI spread of 6% in FY11 and estimates it to be 5.5%
for FY12.
�� Chola also plans to increase its branches to 345 by FY12.
�� The company will run down its entire personal loan book by September this
year and will also not book any securitization income from this year
onwards.
�� The company will gain an AFC (Asset financing company) status in this
year, potentially aiding lower borrowing costs.

�� Chola will now have no Priority sector loans (PSL) benefit on any fresh
borrowing, thus the cost of lending for the company will increase by 50-
60bps.

UBS: Buy Cholamandalam Investment & Finance 3QFY11 – positive set of results

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UBS Investment Research
Cholamandalam Investment & Finance
3QFY11 – positive set of results
􀂄 Pre-exceptional PAT grew 236% YoY to Rs252mn
Key highlights for the quarter include 1) Strong disbursements growth of 46%
YoY, 2) NIM improved 76bps QoQ to 7.2%, 3) Improved CAR at 18.8%, 4)
Return on total assets (without securitisation gain) for non personal loan (PL)
business improved 90bps QoQ to 4.1%, 5) No securitisation income was booked in
this quarter, 6) Owned PL book reduced to Rs 950mn (-64% YoY) and 7) Stable
asset quality for non personal business (Net NPL for Vehicle Finance (VF) and
Home equity (HE) <1%).

Cholamandalam Investment & Finance- Turnaround story:: UBS

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UBS Investment Research
Cholamandalam Investment & Finance
Turnaround story

􀂄 Niche asset financing company
Cholamandalam Investment & Finance (CIFC) is a leading non-bank financial
company focused on asset financing; its key growth driver is commercial vehicle
financing (62% of loan book as at Q2 FY11). The company focusses on new light
commercial vehicle financing (14% market share), which is less cyclical than
medium and heavy commercial vehicle financing and has a stronger growth
outlook. Its home equity (23% of book at Q2 FY11) and business finance (8% of
book) divisions are characterised by strong operations and low NPLs.