Company Update : Cholamandalam Inv. & Finance Ltd by Motilal Oswal Financial Services Ltd
Earnings in line; asset quality deteriorates and credit costs elevated
AUM grew 21% YoY; disbursements flat QoQ and YoY
* CIFC’s 2QFY26 PAT grew ~20% YoY to INR11.5b (in line). NII grew ~25% YoY to ~INR33.8b (in line). Other income grew ~33% YoY to ~INR7b (~5% below est.). This was primarily driven by higher fee income and upfront assignment income of ~INR764m (PQ: INR1.5b).
* Opex rose ~23% YoY to ~INR16.2b (in line) and the cost-income ratio declined ~1pp QoQ to ~40% (PQ: 38% and PY: ~41%). The sequential increase in opex was potentially due to variable compensation, which is generally given in 2Q by the company. PPoP grew ~28% YoY to INR24.6b (in line).
* Yields (calc.) rose ~5bp QoQ to ~14.45%, while CoF (calc.) declined ~15bp QoQ to ~7.65%. NIM rose ~15bp QoQ to ~6.9%.
* 2Q credit costs stood at ~INR9b (~vs. MOFSLe of INR9.2b). This translated into annualized credit costs of ~1.85% (PY: 1.55% and PQ: ~1.9%).
AUM up 21% YoY; disbursements flat YoY and QoQ
* Business AUM grew 21% YoY/3.4% QoQ to INR1.99t, with newer businesses now forming ~12% of the AUM mix.
* Total disbursements were flat YoY and QoQ at ~INR244b. Newer lines of businesses contributed ~19% to the disbursement mix (PQ: ~17% and PY: ~24%). VF disbursements grew ~10% YoY.
Asset quality deteriorates across segments; GS3 up ~20bp QoQ
* GS3/NS3 deteriorated ~20bp/12bp QoQ to 3.15%/1.8%, while PCR on S3 declined ~50bp QoQ to ~43.2%. ECL/EAD rose to ~5bp QoQ to 2.05% (PQ: ~1.97%). GS3 in new businesses rose ~20bp QoQ to ~2.8% (PQ: 2.6% and PY: 1.6%).
* Stage 2 + Stage 3 (30+ dpd) rose ~25bp QoQ to ~6.45%. GNPA/NNPA (RBI IRAC) rose ~30bp/20bp QoQ to ~4.6%/3.1%. In 2Q, write-offs stood at ~INR6.4b, translating into ~1.6% of TTM AUM (PY: ~1.1% and PQ: 1.3%).
* CRAR stood at ~20% (Tier 1: ~14.6%) as of Sep'25.
Valuation and view
* CIFC delivered a soft quarter, with disbursements remaining largely flat YoY and QoQ and credit costs staying elevated. Asset quality weakened across product segments, driving higher credit costs during the quarter. An important offsetting positive was an improvement in margins, with NIMs expanding by ~15bp QoQ.
* Key monitorables include: 1) demand outlook for VF segment, 2) growth outlook for CSEL and SBPL and expectations on asset quality in these segments, and 3) the view on asset quality in VF and likely credit costs in this segment. We will revisit our estimates after the earnings call on 7 th Nov’25.
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