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