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G. Madhan

THE fixed deposit programme of Cholamandalam Investment and Finance, a non-banking finance company, is open for investment. The interest rates are on a par with auto finance companies such as Sundaram Finance. Among the options, the three-year cumulative scheme is particularly attractive, as the annual yield is higher at 7.72 per cent. An investment in all the three years can be considered, given the company's strong fundamentals and firm growth trends in the auto sector.

Schemes and features: Cholamandalam offers non-cumulative and cumulative schemes. Under the former, the interest (see table) is paid at monthly, quarterly and annual rests.

The interest rates for the cumulative scheme are similar to monthly non-cumulative option. However, the annual yields for the cumulative scheme works out to 6.14 per cent, 6.89 per cent and 7.72 per cent respectively, as interest is compounded at monthly rests.

The minimum deposit for all the schemes is Rs 10,000. However, for the one- and two-year monthly payment options, it is Rs 25,000. Business prospects: A Murugappa group company, Cholamandalam has a sizeable portion of its assets in vehicle finance. The company's disbursements in heavy and light commercial vehicles, cars and multi-utility vehicles, registered double-digit growth. However, total disbursements during the year-ended March 2004 dropped by one per cent to Rs 998 crore. This has to be seen in light of the company's decision to exit tractor financing and lower disbursements in the two-wheeler segment. Given the uptrend in the auto sector, disbursements may rise in 2004-05. However, this may not necessarily improve the company's profitability, given the intense competition in the vehicle-financing segment.

Financials: Cholamandalam's revenue growth was flat during FY-04. The trend continued in the quarter ending June 2004, as net sales dropped 1.7 per cent to Rs 56.7 crore compared to the corresponding previous period in 2003. The operating margin dropped to 39.7 per cent (from 43.9 per cent in the corresponding previous period). Net profits, however, grew 22 per cent to Rs 9.4 crore.

The company's capital adequacy ratio, post-rights issue in May 2004, was 17 per cent as against the minimum requirement of 12 per cent. The increase in the net non-performing assets to 1.4 per cent (0.9 per cent) of the total assets will be a cause for concern.

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