Target: ₹740
CMP: ₹635.15
Cholamandalam Invest. & Finance delivered earnings beat of 14 per cent on the back of significant asset quality improvement and part utilisation of management overlay which underpinned a net positive credit cost (though marginal).
AUM growth was marginally higher-than expectation at 6 per cent qoq/10 per cent yoy with growth picking-up in mainstay vehicle finance and swift scaling-up of new businesses/products (disbursement share at 12 per cent).
Adjusted for Rs 50 crore one-off interest reversals related to certain write-offs, the NII growth was slightly ahead of estimates while PPOP was in-line due to higher opex (related to higher disbursements/collections).
The co. was able to reduce its Stage-2 and Stage-3 assets by 21-23 per cent qoq, and the 30+ dpd (days past due) portfolio fell from 16 per cent to 12 per cent. Net credit cost was positive with this sharp reduction in higher delinquency buckets and utilisation of management overlay for completing 100 per cent provision on write-offs (₹380 crore) and for meeting ECL model changes.
Our earnings estimates remain largely intact and our Add rating stays with a 12 month price target of ₹740. We see 20 per cent AUM growth, 2.7-3 per cent RoA and around 20 per cent RoE delivery (without a capital raise) over FY22-24.