Cholamandalam Investment share price: Sharekhan says it is one of the best players in vehicle financing space | know key risks

Sharekhan Initiates coverage with a Buy on Cholamandalam Investment and Finance Company. It has price target of Rs 430 for Cholamandalam Investment. The company is a well-run vehicle financier with attractive return ratios, steady NIMs and strong operating metrics. Improving asset quality outlook, as reflected in better collection efficiency, is encouraging; management expects less than 5% of portfolios to be restructured, which is positive. At current market price, stock is available at 3.6x / 3.0x FY2022E / FY2023E ABVPS which is reasonable; lowering of ‘AAA’ and ‘AA-rated’ NBFC spreads has led to re-rating, but upside potential remains as valuations are still below long period average. Diversified products, renowned parentage, strong underwriting record and ample liquidity make the company among the best players in the vehicle financing space.

The Cholamandalam Investment stock is available at 3.6x / 3.0x FY2022E / FY2023E ABVPS which is reasonable given the improved growth and resumption of economic activity, and support from a resilient rural segment. Sharekhan expects disbursements to grow yoy second half of FY21 and expect an AUM growth of 25% for FY2022E & FY2023E. Asset quality outlook is improving, with October collection efficiency surging to 103% (from 95% in Q2); November number too has seen m-o-m improvement trend continuing. re

Sharekhan expects Cholamandalam Investment operating expenses to AUM ratio to be 2.1-2.4% range and ROEs improving to 16% and 17% respectively for FY2022E and FY2023E. The buoyancy in rural markets augurs well for CV financiers, and coupled with business benefits from a strong parentage, well-capitalised balance sheet and rigorous risk management practices (provides long-term visibility) provide scope for improving operating leverage and Return ratios, which provides additional comfort. 

Sharekhan has initiated Cholamandalam Investment with a Buy rating with a price target of Rs 430.

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Key Risks:

Delayed recovery in economic activity will affect Cholamandalam Investment growth and profitability, further; it has exposure to the SME segments which may be vulnerable if economic recovery is delayed.