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Centrum Wealth
Cholamandalam Investment (Buy)
CMP: ₹271.25
Target: ₹337
Cholamandalam Investment & Finance Co started FY20 with decent numbers — NII up about ~15 per cent, PPP and PAT up 10 per cent, respectively, while the growth was slower than the previous quarters. The assets under management (AUM) growth improved to 26.8 per cent y-o-y at ₹57,494 crore as on June 30, 2019, despite the stress across the automobile industry (which accounts for about 70 per cent of CIFCL’s business). Gross Stage 3 (GS3) accounts increased 30 bps q-o-q to 3 per cent, a usual trend in Q1 and remained controlled as compared to that in Q1 last year.
View: Post our last update (Q4FY19 on 3 May 2019 @ ₹263 — adj. for stock split), the stock has retained its level gaining about 4 per cent despite weak market sentiment, particularly in the NBFC space. The stock currently trades at 3.2x/2.6x its FY20E/21E ABV. With focus on used vehicles and smaller ticket loans in home equity, the loan growth is likely to remain healthy in the coming quarters. Also, the yields are expected to improve Q2 onwards by about 80-90 bps, which will aid margins. We maintain Buy from a long term perspective with a target price of ₹337, valuing the stock at 3.25x its FY21E ABV.
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