Cholamandalam Investment Finance share price: IDBI Capital downgrades it to ‘ACCUMULATE’, target price of Rs 610

IDBI Capital says that Cholamandalam Investment Finance asset quality deteriorated slightly as gross stage 3 assets stood at 3.96% vs 3.75% QoQ (3.8% YoY). However, restructured assets stood at 2% of the loan book; lower than guided in the range of 3-5% is the key positive. Further, Covid-19 related provisions increased to 1.6% of assets vs 1.13% (Q3FY21) due to the unexpected second wave of Covid-19; earlier management guided for reversal of Covid-19 provisions. NIMs declined by 20bps QoQ led by change in product mix resulted in lower yields. AUM growth improved further to 16% YoY (13% Q3FY21) led by growth in disbursements (up 43% YoY). NII grew by 32% YoY led by improvement in NIMs; PPoP grew by 35% YoY.

IDBI Capital believes that Cholamandalam Investment Finance with lower dependency on single vehicle product (LCV highest at 15% of AUM) and lower dependency on single state (Maharashtra state highest at 12%) should augur well through tough times. IDBI Capital largely retained the estimates, however downgrade to ‘ACCUMULATE’ with a new target price of Rs 610 (earlier Rs 515) based on P/BV of 3.5x FY23E (earlier 3.1x) as navigated through tough times (first wave of Covid-19) better.

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Cholamandalam Investment Finance AUM growth improved further to 16% YoY as against 13% YoY (9MFY21). Vehicle Finance (72% of AUM) growth improved further to 14% YoY (12% 9MFY21) while Home Equity (HE) portfolio (22% AUM) grew by 14% YoY (11% 9MFY21). Disbursements grew by 43% YoY (better than pre Covid levels) on lower base as vehicle sales remain strong. Better than estimated disbursements was led by slight market share gains. Among its peers, Cholamandalam Investment Finance continues to report much higher AUM growth at 16% (SHTF at 7%; MMFS at -8%), explains IDBI Capital.

IDBI Capital says NIMs declined by 20bps QoQ due to decline in yields by 30bps QoQ although cost of funds declined 20bps QoQ. Vehicle Finance / Home Equity portfolio NIMs improved sequentially by 30bps QoQ each. Cholamandalam Investment Finance has maintained higher liquidity on the balance sheet which resulted in negative carry on the balance sheet. Management guided for higher liquidity to be maintained in the near term.

IDBI Capital concluded by saying asset quality of Cholamandalam Investment Finance deteriorated as Stage 3 assets increased by 21bps QoQ to 3.96%; PCR declined by 60bps QoQ to 44.3%. Restructured assets stood at 2% of the loan book. Collection efficiency declined to 95% in April month as against 99% in March due to lockdowns in several states. IDBI Capital would be watchful of slippages from restructured assets in FY22.