Cholamandalam - Loan Growth Moderation To Test Sector Leadership: HDFC Securities

HDFC Securities Report

Cholamandalam Investment and Finance Company Ltd. portfolio diversification beyond vehicle finance has yielded results with the share of vehicle finance at ~58% as of March 2024 (FY18: 73%), which is poised to fall further to ~50% over the next three years.

With the new engines gradually approaching their maturity curves, we expect Cholamandalam to sustain its profitability at current levels. With increased investments (increased branch penetration of these products, scale-up of channel partners, tie-ups with corporates, etc.), we expect strong efficiency gains to kick in over the next couple of years, offsetting the uptick in credit costs, given the likely normalisation of the benign credit environment.

Cholamandalam has emerged as a highquality franchise, offering a potent combination of high growth and strong and consistent profitability, driving premium valuations to Bajaj Finance Ltd.

However, loan growth is likely to moderate on the back of a softening personal vehicle and commercial vehicle cycle, despite higher growth in the new businesses.

We maintain 'Add' with a revised RIbased target price of Rs 1,500 (implied 4.6 times March 2026 adjusted book value per share).

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