Cholamandalam Investment and Finance: Growth Resilient, But Stock Looks Expensive Says Nuvama

Cholamandalam Investment and Finance Company continues to demonstrate strong profitability and above-average asset under management growth, said Nuvama in its note on Thursday.

Despite a sharp 24% stock price appreciation over the past two months—driven by the Reserve Bank of India’s rate cuts, the rollback of risk weights, and anticipation of a strong financial year 2025-2027E—Nuvama believes that at 4.1x BV financial year 2026E, Cholamandalam’s strong growth, solid corporate governance, strong parentage, and benefits from further rate cuts are already factored in.

As a result, it initiates a ‘Hold’ recommendation with a target price of Rs 1,600.

The company is projected to sustain a "best-in-class earnings growth" rate of 30% over the financial years 2025-2027E, with return on assets improving to 2.6% from 2.4% and credit cost declining to 1.3% from 1.6%, the brokerage said on Thursday.

Delinquencies increased in the first nine months of 2025, with GS3 rising to 2.9% from 2.5% in Mar-24. Credit costs also rose from 1% in fiscal 2024 to 1.6%, mainly due to vehicle finance and consumer and small enterprise loans. Cholamandalam is addressing this by exiting fintech-originated loans, Nuvama said in its note.

Cholamandalam is a top three vehicle financier alongside HDFC Bank and Shriram Finance. While vehicle finance remains its core segment (55% of AUM), it has diversified into home loans (22%), home equity (10%), and new businesses (13%). This diversification mitigates risks tied to cyclicality,' the brokerage pointed out.

The brokerage further added that Cholamandalam has reduced its reliance on medium and heavy commercial vehicles, with their share in vehicle finance AUM dropping from 17% in fiscal 2019 to 7% in December. Used vehicles now account for 28% of vehicle finance AUM, up from 13% in the financial year 2019.

The scrip fell as much as 2.33% to Rs 1,426.25 apiece, the lowest level since March 12. It pared losses to trade 1.24% lower at Rs 1,442.10 apiece, as of 2:46 p.m. This compares to a 0.37% decline in the NSE Nifty 50 Index.

It has risen 20.70% in the last 12 months and 21.75% year-to-date. The relative strength index was at 47.

Out of 40 analysts tracking the company, 28 maintain a 'buy' rating, eight recommend a 'hold', and four suggest 'sell', according to Bloomberg data. The average 12-month consensus price target implies an upside of 3.6%.