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Buy Cholamandalam Investment & Finance, target price Rs 200: Motilal Oswal

Motilal Oswal gave a buy rating to Cholamandalam Investment and also the Finance with a revised target price of Rs 200 based on 1.7 times FY22E BVPS. The share price of the company moved up by 1.51 percent from its previous close of Rs 142.60. The last traded stock price is Rs 144.75.

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In accordance with the brokerage, disbursements declined 36 percent year on year to around Rs 57 billion, that driven by a similar decline in vehicle finance (i.e. VF) and loan against property (i.e. LAP). The muted performance was due to (a) underlying weakness in CV demand, despite the migration to BS6, and (b) the lack of vehicle supply at the dealer level. Hence, AUM was a flat quarter on quarter (up 12 percent year on year) at Rs 606 billion. Whereas the company benefited from the lower cost of funds that down 30bp quarter on quarter to 8.3 percent, as it also witnessed some yield pressure that down 60 bp quarter on quarter to 14.4 percent. This coupled with lower assignment income that Rs 330 million against brokerage estimate of Rs 660 million that caused the 7 percent, miss, on total income against brokerage estimates.

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Cholamandalam
Cholamandalam Investment – In accordance with the brokerage, demand recovery in FY21 is expected to be divergent, with the tractor segment being the first to recover while M&HCVs should be the last. Hence, the brokerage has assumed flattish AUM in FY21 and 7-8 percent CAGR thereafter. Whereas most clients have availed moratorium, the allover collection efficiency would be a key monitorable. The given the bleak but the gradually improving outlook, as the brokerage expects credit costs to jump to around 2.6 percent or 2.1 percent in FY21/22E with the NNPL ratio increasing to 4 percent from 2.3 percent . As a result, it has cut its estimates by 15 percent for FY21/22E.

Financials

For the quarter ended December 31, 2019, the company reported consolidated sales of Rs 2289.06 crore, up 3.47 percent from last quarter sales of Rs 2212.27 crore and up 24.39 percent from last year’s same quarter sales of Rs 1840.28 crore. The company has reported net profit after the tax of Rs 389.15 crore in the latest quarter.

 

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