Buy Cholamandalam Investment and Finance Company Ltd For Target Rs.598 - Emkay Global
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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