Cholamandalam Investment surges 9% after March quarter earnings beat projections

Murugappa Group firm Cholamandalam Investment and Finance Company surged nearly 9 percent on May 4 after the company reported higher than expected earnings

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Shares of Murugappa Group firm Cholamandalam Investment and Finance Company surged nearly 9 percent on May 4 after the company reported higher-than-expected earnings. The strong growth in disbursals and collections contributed greatly to this success.

At 9.30am on Thursday, Cholamandalam Investment was trading at Rs 960 on the BSE, up 8.3 percent from its previous close, while benchmark Sensex edged up 0.11 percent to 61,262.39 points.

After strong earnings, brokerage firm JP Morgan has double upgraded the stock to ‘overweight’ from ‘underweight’ and raised its target price to Rs 1,020 from Rs 700 a share. Macquarie has given an ‘outperform’ rating on the stock and increased the target price to Rs 860 a share. CLSA has given the ‘buy’ rating and raised its price target to Rs 1,070 a share from current market price. Jefferies India said Cholamandalam Investment is their top pick and kept a target price of Rs 900 a share from its current market price.

But Elara Securities downgraded the stock to ‘accumulate’ from ‘buy’ rating and kept a target price of Rs 930 a share, up 5 percent from its current market price.

The firm reported a 24 percent increase in standalone net profit, amounting to Rs 853 crore, during the March quarter, compared to Rs 690 crore a year ago. The total standalone revenue from operations witnessed a year-on-year growth of 43 percent, reaching Rs3,701 crore, compared to Rs2,580 crore.

Cholamandalam Investment reported that it had its best-ever performance in terms of disbursals, collections, and profitability in Q4FY23, with disbursals increasing 65 percent YoY to Rs 21,020 crore from Rs 12,718 crore. It also reported that it had gained market share in both vehicle finance and other business units.

The company recorded a growth of 36 percent in total assets under management, which increased to Rs 112,782 crore in FY23 from Rs 82,904 crore. The YoY growth of vehicle loans was 27 percent, and new business accounted for 9 percent of the total assets under management (AUM). Brokerage firm Elara said given macro tailwinds and new growth engines in place, expect a 25 percent AUM CAGR in FY23-25.

Net interest margin (NIM) remained flat QoQ but was positively surprised due to better yields, which offset the higher cost of funds (CoF) of more than 10 bps QoQ. The ratio of Stage 3 (S3) assets fell by 50 basis points (bps) QoQ, reaching 3.0 percent, while the Gross Non-Performing Assets (GNPA) ratio (based on Income Recognition and Asset Classification or IRAC) decreased by 74 bps, reaching 4.6 percent. Additionally, credit costs decreased by 25 bps QoQ.

“Riding on macro tailwinds, CIFC has been a consistent outperformer striking a fine balance between healthy growth and NIM management. We raise estimates 7 percent/11 percent for FY24/25. Expect 25 percent AUM and 22 percent earnings CAGR with an average NIM of 7 percent and resultant robust return profile (2.6 percent ROA/20 percent ROE) in FY23-25. Led by its establishment as a diversified play, CIFC will now be reckoned as a steady-state compounder story, commanding a rich multiple”, said Elara Securities in its recent note.