Cholamandalam Investment & Finance – Getting future ready

Cholamandalam Investment and Finance Q1 FY25 Analysis: Key takeaways!!

𝐒𝐭𝐫𝐚𝐭𝐞𝐠𝐢𝐜 𝐢𝐧𝐢𝐭𝐢𝐚𝐭𝐢𝐯𝐞𝐬

• Diversification of product mix, with new businesses (CSEL, SBPL, SME) expected to contribute 15% of AUM in the future

• Expansion into rural markets, particularly in the Home Loan segment

• Focus on high-yield businesses and small ticket sizes in Vehicle Finance to improve yields

• Continued branch expansion, with plans to add 150-200 new branches this year

𝐓𝐫𝐞𝐧𝐝𝐬 𝐚𝐧𝐝 𝐓𝐡𝐞𝐦𝐞𝐬

• Shift towards used vehicles and smaller ticket sizes in Vehicle Finance

• Growing contribution from Home Loans and Loan Against Property (LAP) segments

• Increasing focus on unsecured lending through the CSEL business

• Emphasis on maintaining asset quality while pursuing growth

𝐈𝐧𝐝𝐮𝐬𝐭𝐫𝐲 𝐓𝐚𝐢𝐥𝐰𝐢𝐧𝐝𝐬

• Strong demand in vehicle retail segment, particularly used vehicles

• Robust growth potential in affordable housing finance

• Increasing credit penetration in Tier 2-4 cities and rural areas

𝐈𝐧𝐝𝐮𝐬𝐭𝐫𝐲 𝐇𝐞𝐚𝐝𝐰𝐢𝐧𝐝𝐬

• Potential moderation in wholesale vehicle sales

• Intensifying competition in the used vehicle finance space

• Concerns about unsecured lending segment overheating

𝐀𝐧𝐚𝐥𝐲𝐬𝐭 𝐜𝐨𝐧𝐜𝐞𝐫𝐧𝐬 𝐚𝐧𝐝 𝐌𝐚𝐧𝐚𝐠𝐞𝐦𝐞𝐧𝐭 𝐫𝐞𝐬𝐩𝐨𝐧𝐬𝐞

• Credit costs: Management expects credit costs to normalize to 1-1.2% levels by year-end

• Unsecured lending risks: Management highlighted strong credit profile of borrowers (97% with 700+ credit scores)

• Opex ratio: Expected to moderate as new businesses scale and productivity improves

𝐂𝐨𝐦𝐩𝐞𝐭𝐢𝐭𝐢𝐯𝐞 𝐥𝐚𝐧𝐝𝐬𝐜𝐚𝐩𝐞

Chola maintains a strong position in Vehicle Finance, particularly in used vehicles. The company faces increasing competition from banks and fintech players in unsecured lending and SME finance segments.

𝐆𝐮𝐢𝐝𝐚𝐧𝐜𝐞 𝐚𝐧𝐝 𝐎𝐮𝐭𝐥𝐨𝐨𝐤

• 25-30% AUM growth over next 5 years

• Aspiration to reach 4% ROA in 5 years

• Credit costs expected to remain in 1-1.2% range

• Opex ratio likely to moderate as businesses scale

𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐀𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐒𝐭𝐫𝐚𝐭𝐞𝐠𝐲

The company anticipates potential capital raising in the next 2-3 years to support growth plans. Currently comfortable with Tier 1 capital above 14%, supplemented by Tier 2 capital raised through subordinated and perpetual debt.

𝐎𝐩𝐩𝐨𝐫𝐭𝐮𝐧𝐢𝐭𝐢𝐞𝐬 & 𝐑𝐢𝐬𝐤

Opportunities:

• Expansion in rural markets

• Growth in used vehicle finance

• Scaling up of new business segments (CSEL, SBPL, SME)

Risks:

• Asset quality deterioration in unsecured lending

• Increased competition in core segments

• Potential economic slowdown impacting vehicle sale

𝐂𝐮𝐬𝐭𝐨𝐦𝐞𝐫 𝐒𝐞𝐧𝐭𝐢𝐦𝐞𝐧𝐭

Management indicated positive customer sentiment, particularly in vehicle retail and affordable housing segments. However, some caution noted due to upcoming elections and potential economic uncertainties.