Buy Cholamandalam Investment & Finance Company, target Rs 1,553: HDFC Securities

HDFC Securities has a buy call on Cholamandalam Investment & Finance Company (CIFC) with a target price of Rs 1,553.

The current market price of Cholamandalam Investment & Finance Company is Rs 1,344.15.

Time period given by the brokerage is one year when Cholamandalam Investment & Finance Company price can reach the defined target.


View of the brokerage on the company:
CIFC’s 2Q performance was impressive with healthy growth and improving asset quality.

In the Vehicle Finance (VF) business, the pre-tax RoAA improved to 3.8 per cent, with healthy AUM growth, NIM improvement and lower provisioning cost.

The Home Equity (HE) segment showed signs of improvement. AUM grew 11 per cent (after <10 per cent growth over the last 6 quarters) with a drop in repayment rates and a steady rise in disbursals.

Improving Oplev and provision write back resulted in a pre-tax RoAA of 3.2 per cent in spite of sustained pressure on margins.

While 1H was encouraging across parameters, we have moderated our earnings estimates to factor in pressure on margins and slower disbursals growth.

Despite this, we expect CIFC to report an RoAA jump of nearly 12bps over FY19-21E to 2.85 per cent. Our conservative assumption on operating metrics (C-AA of nearly 2.4 per cent) and provisions (65bps) provide an upside risk.

Maintain BUY with a target price of Rs 1,553 (3.25x Sept-20E ABV of Rs 478).

Near-term outlook: With the robust performance the stock should do well in the near term. However, the liquidity issues will be keenly monitored.