Nirmal bang Cholamandalam investment and finance target 717 cmp 585

Nirmal bang Cholamandalam investment and finance target 717 cmp 585


Lower provisions boosts bottom line performance
Cholamandalam Investment and Finance (CIFC) reported results broadly in line
with expectations led by moderate growth in net interest income and . However
lower provisions resulted in strong bottom line performance and PAT came at Rs
135.6 cr up 21.9% QoQ and 49.5% YoY. For FY15, PAT stood at Rs 435 cr up
19.5% YoY.
 AUM growth moderated further at 9.5% YoY (the lowest in history) and 2.9%
QoQ led by slowdown in growth witnessed in both vehicle finance and home
equity business. Vehicle finance growth moderated to single digit 3.4% YoY
(7.0% growth last quarter) while home equity business grew 24.2% YoY. On a
lower base, new business loans increased 62.6% YoY.
 Disbursement declined 4.5% YoY and increased 13.9% QoQ led by seasonal
phenomenon. Decline was more prominent in the vehicle finance category
while slowdown was witnessed in home equity as well. We expect
disbursement growth to be at 16.9% CAGR over FY15-FY17E on the back of
improvement in customer sentiments albeit at a slower pace.
 The share of Home Equity has increased from 23% in FY12 to 29% in FY15.
Within vehicle finance segment the share of HCV increased from 22% in
FY14 to 29% in FY15 while the share of LCV came down from 61% to 54%
during the same period.
 Margins witnessed improvement on YoY basis. There was an interest
reversal of Rs 14.6 cr on NPA falling between 150‐180 day bucket which
resulted in decline in margins on QoQ basis. Adjusting for the interest
reversal NII growth would have been at 20%+ YoY and flat QoQ. Going
forward, margins are expected to remain broadly stable at current levels
aided by change in product mix (high-yielding tractors and used CV finance).
 CIFC shifted to 150 days past due NPA recognition norms which resulted in
increase in Gross NPA by 70bps to 3.1%. On comparable basis (180dpd)
Gross NPA improved from 2.8% in Q3FY15 to 2.4% in Q4FY15. Gross NPA
witnessed improvement on account of improved performance across
geographies; primarily southern and western India witnessed improvement
during the quarter.
 The capital adequacy ratio stands at 21.2% and Tier-I ratio of 13.02% which
would aid in growth.
 CIFC declared final dividend of Rs 1 per share (Rs 2.5 interim dividend).
An uptick in the overall CV industry should lead to higher growth for the
company as major stress seems to be bottoming out. Moreover, diversification
of loan book towards new business segments reduces cyclicality in loan book
growth. Improving productivity will lead to an improvement in cost to income
ratio. We expect PAT to witness CAGR of 29.5% over FY15-FY17E. We expect RoE
to be at 18.3% in FY17E and RoA (PAT) to be at 2.4% in FY17E. At CMP the stock
is trading at 2.6x FY16E and 2.2x FY17E ABV and 16.33x FY16E and 12.47x
FY17E EPS respectively. We maintain our BUY rating on the stock with a target
price of Rs 717 an upside of 22.6% from current levels.