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Healthy start to the fiscal year indicates strong profitability in FY27 Business AUM rises ~22% YoY; seasonal deterioration in asset quality

* Cholamandalam Inv. & Finance’s (CIFC) 1QFY27 PAT grew ~46% YoY to INR16.5b (~14% beat). NII in 1QFY27 grew ~27% YoY to ~INR40.4b (in line). Other income grew ~31% YoY to ~INR8.9b. Opex rose ~23% YoY to ~INR17.9b (in line), and the cost-to-income ratio declined ~140bp QoQ to ~36.3% (PQ: 37.7% and PY: 37.6%).

* PPoP grew ~30% YoY to INR31.4b (~7% beat). Credit costs in 1QFY27 stood at ~INR9.2b (~8% lower than MOFSLe). This translated into annualized credit costs of ~160bp (PY: 185bp and PQ: 155bp).

* CIFC remains confident of sustaining its growth momentum, with management reiterating its FY27 loan growth guidance of ~20-23%. Growth is expected to be driven by continued traction across VF, MSME, consumer finance, and gold loans, supported by healthy demand, deeper market penetration, and incremental market share gains.

* The company is witnessing strong customer acquisition in MSME and consumer businesses, while the gold loan segment is gaining scale through branch expansion and improving productivity. Management also sees potential to leverage its expanding customer base for cross-selling opportunities over time, providing additional growth avenues.

* CIFC attributed the sequential increase in GNPA during 1QFY27 to normal seasonal trends, rather than any underlying portfolio stress. The company has not witnessed any adverse impact from monsoon conditions or external geopolitical conditions, and it remains positive on credit cost trends. However, given the macroeconomic uncertainties, management retained its FY27 credit cost guidance of ~1.5%, with scope for moderation in the coming quarters.

* CIFC is well positioned to sustain its growth trajectory, driven by a strong franchise, diversified product portfolio, and expanding customer reach. The company’s focus on scaling newer growth engines such as gold loans, while deepening its presence across core segments, provides multiple avenues for sustained expansion. Healthy profitability, supported by operating leverage and benign credit trends, coupled with a strong capital position, should enable CIFC to capitalize on the favorable lending environment while maintaining a disciplined risk framework. * We increase our FY27/FY28 estimates by 9%/4% to factor in lower credit costs and higher other income. The stock currently trades at ~3.9x FY27 P/B. We model a CAGR of ~20%/~21%/~27% in disbursement/AUM/PAT over FY26- 28E. We estimate an RoA/RoE of ~2.7%/20% in FY28E. We reiterate our BUY rating with a TP of INR2,140 (premised on 4x Mar’28E BVPS).

AUM up ~22% YoY; new business lines contribute ~22% to the disbursement mix

* Business AUM grew 22% YoY to INR2.34t. Total disbursements grew ~22% YoY and declined ~10% QoQ to ~INR296b. The newer lines of business contributed ~22% to the disbursement mix (PQ: ~21% and PY: ~17%). VF disbursements grew ~21% YoY.

* The company plans to open 360 gold loan branches during FY27 to support business expansion. We expect CIFC to deliver a disbursement/AUM CAGR of ~20%/~21% over FY26-28.

Valuation and View

* CIFC delivered a strong operating performance, supported by healthy disbursement momentum, ~22% YoY AUM growth, and steady margins. While asset quality witnessed some sequential deterioration, management attributed it to normal seasonal trends rather than any underlying portfolio stress and remains confident of asset quality improvement going forward.

* The stock currently trades at ~3.9x FY27 P/B. We model a CAGR of 20%/21%/ 27% in disbursement/AUM/PAT over FY26-28E. We estimate an RoA/RoE of ~2.7%/20% in FY28E. We reiterate our BUY rating with a TP of INR2,140 (premised on 4x Mar’28E BVPS).

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