Buy Cholamandalam Investment & Finance For Target Rs.630 - Yes Securities
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‘Strong execution on growth and asset quality; H2 FY22 looks even better’
Our view
CIFC delivered a decent earnings beat on our expectations underpinned by a) stronger disbursements recovery (up 2.4x qoq/35% yoy) across business segments, b) AUM accretion of 3% over June level notwithstanding higher portfolio run-off (stronger collections), c) NIM increase of 10 bps qoq aided by material CoF decline and partial absorption of buffer liquidity and d) marginal credit cost driven by absolute material reduction in Stage-2 and Stage-3 assets (Covid buffer was maintained at Rs7bn).
Overall, the 30+ delinquent pool sequentially declined by 2 ppt to 19% of the gross loan assets. The collection efficiency in Sept was at 115% and it was even better in October leading to further reduction in Stage 2 & 3 assets. The management remains confident about continuation of 30+ dpd bucket improvement till March 2022, and thus anticipate benign-to-normal credit cost in H2 FY22. OTR 2.0 book increased from 3.9% to 5.6%, representing not so substantial incremental restructuring in Q2 FY22. Total OTR (1.0 + 2.0) stood at Rs47.5bn, constituting nearly 7% of loan assets. CIFC continues to classify even the non-overdue OTR pool (Rs39.2bn) as Stage-2 assets. In most restructuring cases, moratorium has been offered for only a couple of months.
Vehicle Finance disbursements were up 2.2x qoq/29% yoy, while AUM growth was just 2% qoq due to shorter tenor and sharper collection recovery. Disbursements in Home Equity segment were up 3.6x qoq/58% yoy and Home Loans were up 2.5x qoq/30% yoy, and these portfolios grew by significant 6-8% qoq despite collections improvement due to longer loan tenors. The disbursement trend has further strengthened in October and thus AUM accretion in likely to remain healthy in rest of the fiscal.
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