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Motilal Oswal
Cholamandalam
Investment (Buy)
Target: ₹245
CMP: ₹201.35
CIFC’s Q1-FY21 reported PAT was up 37 per cent y-o-y to ₹430 crore (est: ₹160 crore); the beat was largely driven by much lower provisioning of ₹56.20 crore Additionally, opex declined 14 per cent q-o-q to ₹390 crore, which led to a 12 per cent beat in PPoP to ₹630 crore.
Recovery in auto demand in Q1-FY21 is not only encouraging but also meaningfully ahead of our expectations. In our view, products linked to farm income, such as tractors, are likely to fare better given the strong monsoons and healthy rabi crop harvest. In other segments, while demand would recover gradually, we do not foresee it returning to normal this fiscal.
In our view, AUM is likely to grow at an approximately 10 per cent CAGR over the next two years.
On the asset quality front, the true picture should emerge only in H2-FY21 post the lifting of the moratorium. The company would have to meaningfully step up its provision buffer in H2-FY21.
We tweak our AUM and credit cost estimates for FY21/FY22 – as a result, our EPS is upgraded by 15–20 per cent off a low base.
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