Broker’s call: Cholamandalam Investment and Finance (Add)

ICICI Securities

CIFC (Add)

CMP: 285.65

Target: 305

Cholamandalam Investment and Finance Company (CIFC) is a diversified non-banking finance company. The company provides vehicle finance, home loans and corporate mortgage loans, small and medium enterprises (SME) loans, investment advisory services, stock broking and a range of other financial services.

We recently met the management of Cholamandalam Investment and Finance Company (CIFC) and came back reassured. In addition to the broader slowdown in the auto OEMs (original equipment manufacturers), the recent headwinds in the NBFC (non-banking finance company) space and the consequent tight liquidity have forced most vehicle financing NBFCs to go slow on growth, but not CIFC.

We feel, given CIFC’s franchise, it will be a disproportionate beneficiary of the distortion that has plagued NBFCs in the last nine months. With a diversified bouquet of products in the vehicle financing space and a much improved home equity (HE) franchise, it can use the levers to improve its NIMs while keeping the operating cost ratios stable. We expect it to contain credit costs within 80 bps for FY20E resulting in a healthy RoA of 2.3 per cent (with improvement bias). Maintain ‘Add’ with a target price of 305 (from 300 earlier).

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