Buy Cholamandalam Investment and Finance; target of Rs 1671: HDFC Securities

Surprisingly AUMs grew ~27/8% to ~Rs 543bn, led by a ~29/8% growth in the VF segment. The HE book grew ~16/4%, highest in the last 10 qtrs. Disbursals grew ~11/16% to ~Rs 89bn. VF disbursals grew ~8/18% while HE (incl. others) disbursals grew ~28/4%. CIFC’s growth is contextually impressive, given the liquidity tightness faced by NBFCs (albeit easing). The auto industry, too, is reeling under a slowdown. Further, disbursal growth sustained (+54% YoY) on the high 4QFY18 base of Rs 80 bn. We have baked in AUM CAGR of 16% over FY19-21E (vs. 18% earlier). G/NNPAs dipped ~40bps each QoQ to ~2.3/1.1% (VF GNPAs 1.7%, HE 3.8%). The qtr saw recoveries of ~Rs 1bn in the HE segment, which has been a pain point. CIFC’s VF asset quality is the best among asset financiers, a key driver for our multiple upgrade. We have factored in GNPAs of 2.6% over FY19-21E.


CIFC outperformed peers on growth and asset quality in 4QFY19, meriting an upgrade in our valuation multiple. Maintain BUY with a TP of Rs 1,671 (3.5x Mar-21E ABV).