Cholamandalam Finance Q3 Results Review - Operating Performance On Expected Lines: Systematix

Systematix Research Report

Cholamandalam Investment and Finance Company Ltd.’s reported in-line net interest income/operating profit aided by steady NIMs at 7.4% and strong assets under management growth of 40% YoY.

However, lower than expected credit cost of 1% led to higher profit after tax at Rs 8.8 billion versus estimate of Rs 8.0 billion. AUM growth was aided by healthy growth across product segments viz vehicle finance, loan against property, home loan, new business segments.

Opex/ AUM ratio increased marginally to 3.3% (versus 3.2% in Q2) due to branch expansion and IT related costs. In terms of asset quality, gross stage-III assets ratio improved by 14 bps QoQ to 2.82% largely led by write offs. Stage-III provision cover dropped to 45.2% (as wrote off fully provided accounts for tax benefit) versus 47.3% in Q2.

We continue to remain positive on-

1. growth in vehicle finance segment driven by strong demand for new and used vehicles and

2. increasing share of new business segments (high yielding).

However, we believe the stock is fairly valued at 3.5 times FY26 book value with return on asset/return on equity of 2.5%/ 19.0%. Hence, we retain our 'Hold' rating, though increase our target price to Rs 1,325 (from Rs 1,100) as we rollover to March-26, valuing the company at ~3.75 times FY26E book value.

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