Cholamandalam Finance Q2 Results Review - Inline; Weak Asset Quality In New Portfolio Concerning: Systematix

Systematix Research Report

Cholamandalam Investment and Finance Company Ltd. reported in-line operational performance, aided by 10 basis points expansion in net interest margins to 7.4% and 42% YoY growth in assets under management.

AUM growth was aided by healthy growth across product segments viz vehicle finance, loan against property, home loan, new business segments. Opex/ AUM ratio increased to 3.2% (versus 2.8% in Q1) due to increments paid during the quarter.

In terms of asset quality, while overall stage-III assets improved marginally to 2.96% from 3.06% in Q1, stage-III assets in new business verticals increased sharply from 1.01% in Q1 to 1.42%, largely led by Consumer and Small Enterprises Loans partnership portfolio (4.7% gross stage-III) .

Stage III provision cover stood at 47.3% versus 45.4% in Q1. While we remain positive on Cholamandalam's growth front, we would be watchful on asset quality in the new business portfolio, as the portfolio is yet to complete one full cycle.

We believe the stock is fairly valued at 4.0 times FY25 book value with return on asset/return on equity of 2.5%/ 18.0%. Hence, we maintain 'Hold' rating with a price target of Rs 1,100 (unchanged), valuing it at 3.75 times 25 book value.

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