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Motilal Oswal Financial
Cholamandalam Inv (Buy)
Target: ₹700
CMP: ₹579.30
Cholamandalam Investment & Finance (CIFC) is a franchise we have always felt very strongly about owing to its ability to play different credit cycles better than its peers. We particularly like that even within Vehicle Finance, it is very tactically turns Underweight/Overweight in different product segments to deliver industry-leading growth and the most benign credit costs.
Understandably, CIFC’s disbursements in the recent quarter (Q2) were propped up by strong disbursements in the LAP segment. However, one also needs to understand that the LAP franchise has been strengthened significantly in the last two years.
Its performance in disbursements (including LAP and Home Loans) has been superior v/s peers, while collection efficiency (CE) has consistently been 100 per cent+ for the past few months. Macro indicators, such as e-way bills (despite the seasonal decline seen in Nov’21 post the festive season) and GST collections, also indicate strong recovery.
The company, very strategically, keeps working on its product mix to ensure healthy blended yields. Going forward, while there would be only a minor benefit in cost of borrowings, coupled with the normalization of excess balance sheet liquidity, this would lead to stable margins.
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