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Cholamandalam Investment and Finance Q4FY14 results update

April 30, 2014, Wednesday, 10:33 GMT | 06:33 EST | 14:03 IST | 16:33 SGT
Contributed by Nirmal Bang

Cholamandalam Investment and Finance (CIFC) reported results broadly in line with expectations. Higher provisions impacted bottom line and PAT increased mere 5.4% YoY and declined 1.6% on QoQ basis.

- AUM increased 22.3% YoY and 5.6% QoQ led by growth in vehicle finance and home equity business. Vehicle finance growth moderated to 19% YoY while home equity business grew 35% YoY.

- Disbursement increased 10.1% QoQ. However it witnessed decline of 3.5% YoY reflecting overall slowdown in the vehicle financing segment (down 11% YoY). Home equity business continued to grow at a decent pace (23% YoY).

- Within the vehicle finance segment, CIFC continues to focus on tractors (10% of total disbursement) and used vehicles (18%) while the share of HCV (9% of total disbursement) and LCV (24%) is declining.

- Management has guided for continued traction in the home equity segment while expects vehicle financing segment to remain subdued. We expect loan growth to remain at 18-19% for FY15-16E considering the slowdown in the vehicle finance segment. Any recovery in the commercial vehicle segment will drive the loan growth further.

- Margins declined on YoY basis led by decline in yield on assets. Higher interest reversals also impacted margins. Going forward, margins are expected to remain broadly stable at current levels aided by change in product mix (high-yielding tractors and used CV finance).

- Gross NPA continued to increase on account of higher delinquencies in the vehicle finance portfolio. Portfolio quality in the home-equity segment remained relatively stable. We have increased our credit cost assumption to factor in the stress in CV finance.

- Provisions continued to remain higher in this quarter as well as a prudent step towards vehicle financing portfolio.

- Cost to income ratio improved both QoQ and YoY reflecting improved productivity. Management intends to open 40 new branches in FY15E however; with improving productivity management expects to continue to improve the cost to income ratio from current levels.

- CIFC securitized around Rs 6000 cr in FY14 mainly in Home equity segment.

Continued weakness in the CV industry is likely to impact the growth momentum. However, lower opex and improving productivity of existing branches will lead to an improvement in cost to income ratio. On the asset quality front, signs of improvement are not yet visible on the vehicle finance segment with more stress towards HCV segment. Tractor finance and car portfolio of the company are performing well. We expect PAT to witness CAGR of 20.6% over FY14-FY16E. We expect RoE to be at 18.3% in FY16E and RoA (PAT) to be at 1.9% in FY16E. At CMP the stock is trading at 1.62x FY15E and 1.39x FY16E ABV and 9.67x FY15E and 7.76x FY16E EPS respectively. We maintain our HOLD rating with TP of Rs 310; an upside of 8.1% from current levels.