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Growth sustains with improvement in credit cost

Q2 disbursements registered a strong growth of 47% YoY with broad-based growth across segments, resulting in an AUM growth of 25%. We expect growth momentum to sustain, supported by market share gains and distribution expansion and build AUM growth of 24%/ 23% for FY27/FY28E. NIM moderated in Q2 largely due to lower gains from DA transactions. We expect it to be stable at 7.1%/7.0% for FY27/FY28E, factoring in lower incremental funding requirements following the planned capital raise. Operating efficiencies aided improvement in opex ratio; branch expansion and productivity gains likely to support profitability. Asset quality remained stable with credit cost improving to 1.5%. We build a credit cost improvement of 20/4bps for FY27/FY28E. We revise our estimates upwards given the positive outlook on growth, credit cost and opex improvement. We value CIFC at a multiple of 3.4x Sep’28E P/ABV (vs. 3.5x earlier), arriving at a TP of INR2,000. Maintain ‘BUY’.

Robust disbursement growth; expect 24% growth in FY27E:

Q2 disbursements grew ~47% YoY to INR358.7bn with VF/ HL / LAP/ new business growing at 32%/ 39%/ 43%/ 101% YoY. AUM grew 25% YoY and 6% QoQ to INR2,480.5bn, supported by broad-based growth across business segments. Vehicle finance continues to gain market share through strong dealer relationships and disciplined execution, with Q3FY27 disbursement growth expected at 20-22% supported by an extended festive season. CIFC aims to reduce vehicle finance’s share in portfolio to below 50% (vs. 52% currently), while CSEL, consumer durables and gold loans are expected to gain share to ~15% of the portfolio. Consumer finance is emerging as an important growth and diversification driver with expansion into tier-3/ 4 markets. Gold loans are scaling up, with ~360 branches planned in FY27. Mortgage businesses are expected to sustain growth, supported by geographic expansion beyond South market and an increasing share of AUM over the next 3-4 years. Management reiterated FY27 growth guidance of ~25%, with growth outperformance expected in H2FY27. We build 24%/ 23% YoY growth for FY27/FY28E with a strong ramp-up in HL, LAP and consumer loans.

Capital raise to support growth; opex efficiency to improve:

NII grew 23.5% YoY/3.4% QoQ to INR41.7bn driven by healthy loan growth. Reported yield declined sequentially to 14.6% (~30bps QoQ) due to lower gains from loan assignments, while CoF increased by ~10bps QoQ to 6.8%. Consequently, reported NIM moderated by ~30bps QoQ to 7.9%. Management expects borrowing costs to rise by ~20bps, amid potential repo rate hikes. The proposed capital raise of INR50bn is expected to strengthen the capital base, support growth and moderate incremental borrowing requirements. Hence, we expect NIM (calc.) to remain range-bound at 7.1%/7.0% for FY27/FY28E. Consumer finance businesses are expected to exceed 4% pre-tax RoA while management expects unsecured business loan profitability to improve through lower credit costs. Cost-to-income ratio improved to 39.2% (vs. 39.7% YoY) aided by operating efficiencies. Management expects opex to AUM to remain at 3.0%/3.1% in the near-term before gradually improving to 2.8%, driven by operating leverage and efficiency gains in mature businesses. We build 15-40bps improvement in C/I ratio over FY27-FY29E.

Expect credit cost at 1.6% in FY27E:

Asset quality remained steady in Q2 with GS3/NS3 at 3.25%/ 1.78% vs. 3.29%/ 1.78% in Q1. CIFC maintains PCR of ~45%, while total provisions stood at ~2% of gross advances. Reported credit cost improved to 1.5% (vs. 1.7% QoQ/ 1.9% YoY). Commentary highlighted tractor financing and small-ticket used vehicle loans remain relatively vulnerable to irregular cash flows in smaller towns and droughtprone regions. However, management does not anticipate material asset quality stress, citing limited exposure to these regions. MSME asset quality remains healthy with residual stress in secured loans below INR0.5mn in select markets, although trend indicates an improvement. We build a credit cost of 1.6%/1.5% in FY27/ FY28E.

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