Buy Cholamandalam Investment and Finance Company Ltd For Target Rs.598 - Emkay Global
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Elevated expenses/provisions drag down PAT; growth momentum healthy
* CIFC reported lower-than-expected PAT of Rs2.4bn (-40.5% qoq, +470% yoy) in Q4FY21 due to elevated employee charges (+68.2% yoy, +74.5% qoq) as well as an additional Covid-19-related management overlay of Rs3.5bn created during the quarter.
* Our channel checks had indicated that employee appraisal was already underway during Jan’21. The move was not only to support employees but also to avoid any unnecessary attrition.
* Disbursement momentum remained healthy at Rs80.7bn (+43% yoy, flat sequentially) during Q4FY21. FY21 disbursements stood at Rs260.4bn (-10% yoy) due to sluggish H1FY21 performance amid lockdowns (H1FY21 disbursements stood at Rs100.5bn).
* Vehicle Finance with Rs61.5bn in disbursements (+1.6% qoq, +31% yoy) continued to lead business growth; however, other segments also performed better. Home Loan registered growth of ~24% qoq (+99% yoy) at Rs538bn, while the LAP business declined by ~593bps qoq to Rs11.9bn (Rs12.65bn in Q3FY21).
* Total AUM grew by ~14% yoy to Rs765.3bn, which is likely to be the best among peers, considering the moratorium during H1FY21 and irregular repayments throughout the year.  The company continues to hold strong liquidity position with Rs64.3bn as cash balance at the end of Mar’21.
* On asset quality, Stage 3 assets inched up to ~3.96% vs. ~3.75% last quarter; however, the overall coverage has improved to ~44.3%. Similarly, Stage 1-2 assets also continued to surge but with improved coverage. The company holds an additional Covid-19-related management overlay of Rs11bn (~1.4% of AUM), which provides further comfort.
* The post-earnings conference call with management is scheduled on Monday, 10th May’21 at 10.00am. Call details: 022 66290000/ 022 71950000. We have a Buy rating on the stock with a TP of Rs598.
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