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Emkay Global
Cholamandalam Investment (Buy)
CMP: ₹142.9
Target: ₹240
Cholamandalam Investment and Finance Company (CIFC) reported weak momentum in disbursement growth for the vehicle finance business, which fell by about 36.3 per cent y-o-y (-20.9 per cent q-o-q) to ₹4,700 crore, whereas Home Equity disbursements fell about 43 per cent y-o-y (-35.1 per cent q-o-q) to ₹590 crore. Though Q4FY20 had merely 10 days of lockdown in March, the slowdown had been severe and is expected to continue in Q1FY21 as well.
In spite of such a sharp decline in disbursement growth, AUM growth remained steady at about 11.6 per cent y-o-y (flat q-o-q) to ₹60,550 crore, backed by lower repayments (due to moratorium). The moratorium is extended for 76 per cent of customers — expected to be leveraged by them for the second stage (June-Aug) also. However, the trend of weak disbursements should gradually be reflected in AUM growth as well.
On a full-year basis, FY20 disbursements registered a decline of about 4 per cent y-o-y, whereas AUM grew by about 16 per cent to ₹66,940 crore in FY20.
The stock trades at about 1.2x FY22E BV and 7.9x FY22E EPS. We currently have a ‘Buy’ rating on the stock, with a target price of ₹240.
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