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CIFC delivered a robust performance in Q2FY24, with AUM at Rs1,242bn (~42% YoY, ~8% QoQ), PAT at Rs7.62bn and Asset Quality (GS3/GNPA at ~3.0%/~4.1%) coming broadly in line with Consensus and our estimates. GS3 reaching ~4.7% in partnership lending is a warning sign, albeit more of a niggling issue, as it currently constitutes ~2% of AUM, with the company also carrying FLDG arrangement on such loans. Overall, the management remains confident of ~25-30% AUM growth, NIM improvement—led by asset yield improvement, and of a stable credit cost delivering ~3.4% pre-tax RoA. Against the backdrop of an in-line Q2FY24 performance and unchanged management commentary, we reiterate our BUY rating on the stock, with unchanged Sep24E TP of Rs1,310/share.

Cholamandalam Investment: Financial Snapshot (Standalone)

In-line performance

CIFC posted a robust and in-line performance in Q2FY24, with AUM at Rs1.24trn (up 8% QoQ; 42% YoY), PAT at Rs7.62bn (up 35% YoY) and Asset Quality (GS3/GNPA at ~3.0%/4.1% vs ~3.1%/~4.3% in Q1FY24) coming broadly in line with Consensus and our estimates. The management expects H2 to be stronger, as overall demand for the vehicle segment improves, with continual contribution from the non-vehicle segment. On the profitability front, NIM remains stable sequentially at ~6.7% (NIM+Fee ~7.9% in Q2FY24) on account of marginal improvement in CoFs and the impact of rate hike passed-on to the fixed portfolio (mainly the vehicle segment); Opex-to-AUM rose to 3.2% (vs 2.8% in Q1FY24) owing to rise in employee expenses resulting in a flat PPoP. Credit cost stayed broadly stable and within the acceptable range, despite some increase in NPAs in the partnership business.

Confident outlook on growth and profitability

Given increase in product diversification, the management is confident of delivering ~25- 30% AUM growth even if there is market-growth volatility for some vehicle segments. On profitability, CIFC remains constructive, as improving asset yields will drive NIM expansion ahead and a stable credit cost will support RoA improvement, in our view. The asset-yield improvement will be driven by impact of the recent rate-hike on new disbursement kicking-in, and borrowing cost is likely to stabilize or moderate going forward, as the interest-rate cycle is likely to have peaked. As regards credit cost, despite the partnership business noting higher NPA, we expect overall credit cost to remain at ~1.2%, given the FLDG agreement and the ~70% PCR on the unsecured business.

We reiterate BUY, with unchanged estimates/Target Price

In context of the in-line Q2FY24 performance and unchanged management commentary on growth/profitability, we keep our FY24-26 estimates unchanged. We reiterate our BUY rating on the stock, with Sep-24E target price of Rs1,310/sh (implied FY25E P/B: 4.7x).

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