Add Cholamandalam Investment ltd For Target Rs. 27,500 By Emkay Global Financial Services Ltd
CIFC reported a strong Q4FY26 performance, with profitability supported by a healthy operating metrics and improving margins, partly offset by a management overlay of Rs2bn in credit costs. Disbursements grew ~25% YoY, with AUM expanding ~21% to Rs2.24trn, reflecting strong traction across vehicle finance, MSME, and consumer businesses. Asset quality trends also improved, driven by better collections and repayment behavior. NIM expanded ~40bps YoY, led by lower CoFs, and is expected to sustain at ~8% levels. Opex was stable at ~3–3.1% despite continued investments in branch expansion. Management remained confident of delivering AUM growth of 20-23%, with vehicle finance likely to grow ~18%, mortgage segments (HL/LAP) at ~25– 30%, and newer businesses scaling faster on a low base, aided by branch expansion and improving underwriting tools. The management reiterated its guidance of 1.5% credit costs, with pre-tax RoA expected to improve to ~3.5% over the medium term, driven by normalization in credit costs and stable operating metrics. We maintain ADD on CIFC, while revising our Mar-27E TP upwards by ~12% to Rs1,800 (Rs1,600 earlier), implying a FY28E P/B of 3.5x.
All-round strong quarter with improving metrics
CIFC reported a strong Q4FY26, with PAT rising to ~Rs16.4bn (+30% YoY), ahead of ours and consensus estimates, despite being partly impacted by a Rs2bn management overlay in credit costs. Disbursements grew ~25% YoY to ~Rs329bn, while AUM increased ~21% YoY to ~Rs2.43trn, driven by broad-based growth across vehicle finance (~18% YoY), LAP (~26% YoY), and SME/SBPL (~30–45% YoY). CSEL growth remained modest (~4% YoY AUM) due to continued rundown of legacy partnership books, though disbursements picked up sharply (~39% YoY). NIM (reported) improved ~40bps YoY to ~8.4%, aided by lower CoF, and is expected to sustain near ~8% levels. Credit costs moderated ~20bps QoQ to ~1.6%, with overall trends improving across buckets, driven by better collection efficiency and lower early delinquencies. Asset quality improved significantly, with GS3 at ~3.05% and a healthy PCR of ~47.3%.
Reiterates outlook on growth and asset quality
The management reiterated confidence in sustaining AUM growth of ~20–23%, driven by broad-based momentum across segments, aided by branch expansion and improving productivity. On-ground demand remains strong across CV and PV segments, with no visible impact from ongoing geopolitical tensions, while freight/demand indicators held steady into April. Margins are expected to be stable at ~8%, with benefits from higheryielding segments offsetting any marginal pressure on funding costs. Credit costs are expected to moderate further to ~1.5% on better underwriting, lower early delinquencies, and improving collections, particularly in vehicle finance and CSEL. While the company has built ~Rs2bn overlay as a precaution against potential macro shocks (fuel price volatility, supply disruptions), the management sees no incremental stress and expects RoTA to improve toward ~3.5% over the medium term.
Maintain ADD, while revising Mar-27E TP to Rs1,800
To factor in Q4FY26 trends and management commentary, we raise our FY27-28E EPS by 2-4%; retain ADD with a revised Mar-27E TP of Rs1,800, implying FY28E P/B of 3.5x.
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