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Cholamandalam Investment Q3 AUM growth at 25%; key highlights from analysts call

February 27
15:32 2020

Cholamandalam Investment and Finance Company reported a profit of Rs 389.16 crore for the quarter ended December 2019, against Rs 319.16 crore in the same period last year.

Revenue from operations also increased sharply by 24.4 percent to Rs 2,289.06 crore during the quarter, against Rs 1,840.28 crore in the corresponding quarter last fiscal.

The company in its BSE filing on January 23 said total AUM grew by 25 percent year-on-year to Rs 65,992 crore, but disbursements degrew 2 percent YoY in Q3.

Here are the highlights from the Cholamandalam Investment and Finance Company’s earnings call as compiled by Narnolia Financial Advisors:

Management Participants: Arun Alagappan – MD, Arul Selvan – Executive VP & CFO, Ravindra Kundu – President & Business Head (Vehicle Finance), Rupinder Singh – Senior VP & Business Head (Home Equity & Corporate Finance)

GNPA in vehicle finance is 2.7 percent and GNPA in home equity is 6 percent. The commercial vehicle segment continues to remain under stress and management expects it to continue for 8 to 9 months.

The operating cost increased on account of increased focus on the collection thus more manpower is being recruited.

The company is looking to create a separate focus around the housing finance company and will look to create housing as a separate business unit within the group and separate license for HFC has been applied for.

The improvement in NIM on a sequential basis was on account of direct assignment of receivables done by the company and it booked some upfront profit on it and the impact of Product Mix change has not yet reflected yet.

There is no change in sourcing strategy for the two-wheelers and three-wheelers.

The disbursement in the used vehicle segment is expected to improve going forward on the back of ticket size improvement with BS-VI.

The marginal cost of borrowing was around 8.5 percent and it has come down to around 8.2-8.3 percent for now.

The slowdown in disbursement is on account of industry degrowth in the commercial vehicle segment. Dealers are planning to reduce their inventory with movement from BSIV to BSVI which might impact disbursement in Q4FY20 and Q1FY21.

The Ticket size in the Home equity business is expected to go down going forward from 54 to 55 lakhs to around 40-42 lakhs with the company moving from Tier 1 to tier 2 and tier 3 city. The growth is expected to improve as and when the economy improves.

Vehicles sales are falling short as the manufacturer focuses on the reduction of the inventory & finance company are not taking funding for cap chassis, only full built vehicles are being funded for which registration is not possible before 31st March.

The company has tied up with two OEM in regards to three-wheelers and has a loss-sharing agreement with them. In case losses go beyond a level, they will compensate for it.

The Tier 1 capital is around 15 percent and Tier 2 is around 5 percent after the recent QIP Raise. The given capital should be sufficient for 2 years. The board of directors has approved the issue of equity shares by way of a preferential issue to Cholamandalam Financial Holding Limited upto amount not exceeding Rs 300 crore in one or more tranches.

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