Buy Cholamandalam Inv and Fin; target of Rs 700: Motilal Oswal

Motilal Oswal is bullish on Cholamandalam Inv and Fin recommended buy rating on the stock with a target price of Rs 700 in its research report dated December 08, 2021.

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Motilal Oswal’s research report on Cholamandalam Inv and Fin

Cholamandalam Investment & Finance (CIFC) is a franchise we have always felt very strongly about owing to its ability to play different credit cycles better than its peers. We particularly like that even within Vehicle Finance, it very tactically turns Underweight/Overweight in different product segments to deliver industry-leading growth and the most benign credit costs. Understandably, CIFC’s disbursements in the recent quarter (2Q) were propped up by strong disbursements in the LAP segment. However, one also needs to understand that the LAP franchise has been strengthened significantly in the last two years. Its performance in disbursements (including LAP and Home Loans) has been superior v/s peers, while collection efficiency (CE) has consistently been 100%+ for the past few months. Macro indicators, such as e-way bills (despite the seasonal decline seen in Nov’21 post the festive season) and GST collections, also indicate strong recovery.

Outlook

Given CIFC’s ability to deliver industry-leading growth in the loan book (CAGR of 13% over FY22–24E) – coupled with its strong asset quality (expected credit cost of ~1% over FY23–24E) and consequently healthy RoE of ~19% – we believe it would continue to command premium valuations relative to its listed peers in Vehicle Finance. Maintain Buy, with TP of INR700 (3.9x Sep’23E BVPS).

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