IGI Logo

Healthy execution with strong AUM growth and moderation in cost ratios

* CIFC’s PAT grew 24% YoY to INR8.5b, while NII grew 29% YoY to INR17.6b in 4QFY23. FY23 PAT rose 24% YoY to ~INR26.7b.

* Opex increased 21% YoY to INR7.9b (5% lower than estimates) and the costto-income ratio declined 340bp YoY to ~38%. PPoP grew 40% YoY to INR12.7b (14% beat).

* NIM/core spreads were sequentially stable at 7.0%/6.7%, with an increase in borrowing costs offset by an expansion in yields.

* GS3/NS3 improved ~50bp/45bp QoQ to 3.0%/1.7%. PCR on S3 rose ~5pp to ~46%. Credit costs stood at 0.5% (annualized) v/s 0.7% QoQ and -0.1% YoY.

* New businesses contributed ~21% to the disbursement mix in FY23. New businesses spawned by CIFC will continue to see an improvement in the disbursement run rate and contribute ~12% to the AUM mix by end-FY24. While CIFC will continue to invest in expanding the team and the distribution in new businesses, we expect these businesses to be RoA accretive and help CIFC sustainably deliver the guided pre-tax RoTA of 3.5%.

* We believe that CIFC will be able to offset any significant NIM compression in FY24, driven by its ability to change the product mix in Vehicle Finance toward high-yielding used vehicles and transmit the interest rate increases to customers in non-vehicle segments like Home Loans, LAP and SME.

* We model a disbursement/AUM/PAT CAGR of 18%/23%/26% over FY23- FY25. We increase our FY24E/FY25E EPS by ~13%/10% to factor in high loan growth, low NIM compression and credit costs. Management has guided for an equity capital raise in FY24 but we have not yet built this in our estimates.

* While we estimate a margin compression of ~10bp in FY24, we reiterate that CIFC has levers on cost ratios and business AUM growth to deliver a healthy RoA/RoE profile of 2.7%/22% in FY25. We have strong conviction in sustained delivery of profitable growth in this franchise. Maintain BUY with a TP of INR1,130 (based on 4.3x FY25 BVPS).

* Key Risks: 1) Deep cyclicality in the Vehicle Finance business even though the management is making efforts to reduce this cyclicality; and 2) Any adverse asset quality outcome in Home Loans or new businesses

Strong disbursements lead to 39% YoY AUM growth

* CIFC’s business AUM grew 39% YoY to INR1.07t. Within vehicle finance, MUV/Cars/LCV/CE posted sequential growth of 12%/ 10%/ 10%/ 13%.

* 4QFY23 disbursements surged 65% YoY to ~INR210b. Vehicle Finance contributed ~63% to the disbursement mix in 4QFY23. FY23 disbursements grew ~88% YoY to INR665b.

* CIFC sounded confident about sustaining the strong loan growth trajectory, supported by the expansion into Tier III/IV cities. With more secular growth across non-vehicle product segments, the company is now better equipped to weather any cyclical downturns in the vehicle finance industry.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer