Buy Cholamandalam Inv. and financial; target of Rs 1130: Motilal Oswal

Finance


Motilal Oswal is bullish on Cholamandalam Inv. Finance has recommended a buy rating for the shares with a target price of Rs 1130 in a research report dated May 5, 2023.

Research report on Motilal Oswal’s Cholamandalam Inv.and finance

CIFC’s PAT increased by 24% year-on-year to INR 8.5 billion and NII increased by 29% to INR 17.6 billion in Q4 FY2023. PAT for 2023 increased by 24% year-on-year to approximately INR26.7b. Operating costs increased by 21% year-on-year to Rs 7.9 billion (5% lower than estimated) and the cost to income ratio decreased by 340bp year-on-year to around 38%. PPoP increased 40% year-on-year to INR 12.7b (+14%). NIM/core spreads remained stable QoQ at 7.0%/6.7% as higher borrowing costs were offset by higher yields. GS3/NS3 improved QoQ by about 50bp/45bp to 3.0%/1.7%. PCR for S3 increased ~5pp to ~46%. Credit costs were 0.5% (annualized), 0.7% sequentially and -0.1% year-over-year. New business contributed approximately 21% to the FY23 spending mix. New business generated by CIFC will continue to improve execution rates and contribute approximately 12% to the AUM mix by the end of FY24. CIFC will continue to invest in expanding its team and distributing to new businesses, which we expect will increase RoA and help CIFC sustainably deliver his 3.5% guided pre-tax RoTA doing.

Outlook

While we estimate margin compression of around 10bp in FY24, CIFC leverages its cost ratio and business AUM growth to deliver a healthy RoA/RoE profile of 2.7%/22% in FY25 repeat. We are very confident in delivering sustainable profitable growth with this franchise. Keep BUY at TP of INR1,130 (based on 4.3x FY25 BVPS).

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Cholamandalam Investment and Finance Company – 05 -05 – 2023 – moti




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