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CIFC put up a good show in Q1FY25 in terms of AUM growth, asset quality, and opex, albeit credit cost was elevated on account of seasonality and pressure on collections due to the elections. The management indicated that Q1 performance has been better than expected, and maintains its AUM growth guidance to 25-30% for coming 5 years, given with higher growth rate in the HL and LAP segments compared with the Vehicle segment. The management aspires to achieve pre-tax ROA of 4% in the medium-to-long term, and guided to pre-tax ROA of 3.5% in the near term on the back of better margins, improved efficiency, and stable credit cost of ~1.2%. CIFC will intensify focus on building a more granular book and increasing its mix of high-yield product which would lead to better profitability. Factoring in the recent performance and management commentary, we revise up our FY25-27 estimates and reiterate our ADD rating, raising Jun-25E TP to Rs1,550/sh (from Rs1,450 earlier), implying FY26E P/B of 4.4x. (Exhibits 2 & 3).

Good performance overall; elevated credit cost affects profitability

CIFC posted a good performance, with PAT at Rs9.4bn coming in line with our estimates; AUM continues to grow, at 7% sequentially, while disbursement for the quarter was moderate on account of seasonality. NIMs+Fees for the quarter witnessed a sequential contraction of~27bps owing to lower fee income, whereas opex remains sequentially flat, with opex-to-AUM at 3.14% (vs 3.68% QoQ; 2.84% YoY). Asset quality was broadly stable, with GS3/NS3 at 2.6%/1.4% (vs 2.5%/1.3%), whereas credit cost for the quarter was elevated due to seasonality and impact of the elections in May. ROA/ROE for the quarter stood at 2.4%/18.9% (vs 2.5%/19.9% in Q1FY24). (Exhibits 1 & 4)

Unhindered growth trajectory, with granular book and improved profitability

The management indicated that CIFC’s Q1 performance was better than expected, on account of a lower than estimated impact of the elections; going forward, it expects its book to keep tracking the growth path, at 25-30%, with strong focus on profitability. To achieve it aspirational growth and ROA (pre-tax) of 3.5%, the management highlighted that focus will be on building a more granular book and increasing the disbursement share of high-yield products on a risk adjusted basis (unsecured book restricted at ~8%). The management expects its opex-to-AUM to moderate on account of improved efficiency, while it guided to overall credit cost to log in the 1-1.2% range. In terms of capital adequacy, the management does not expect any capital raise in the next 3 years and see any improvement in Tier 1 capital, due to conversion of CCD in FY27. However, to sustain the ~25-30% AUM growth over the next 5 years, external capital infusion in the next five years is likely

Minor upward revision to our FY25-27 estimates; reiterate ADD

Considering CIFC’s Q1FY25 performance and Management commentary on growth and profitability, we adjust our FY25-27 estimates which leads to a few key changes to our estimates: i) AUM and disbursement growing 1-4%. ii) NIMs+fees expanding by 10- 15bps. iii) Opex-to-AUM moderating by ~10bps. iv) EPS/PAT increasing ~3-6%, resulting in ROE expanding by ~15-90bps. We reiterate ADD on the stock, raising Jun-25E TP to Rs1,550/sh (from Rs1,450 earlier), implying FY26E P/B of 4.4x (Exhibits 2 & 3). Currently trading at FY26E P/BV of 4.0x, valuations appear expensive, but the product and geographical diversification-led strong growth and profitability path warrants a premium.

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