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Systematix Research Report
Cholamandalam Investment and Finance Company Ltd.'s reported mixed Q1 FY24 results with miss in profit after tax, mainly due to higher cost of funds and provisions during the quarter.
Assets under management growth was strong at 40% YoY aided by healthy growth across product segments viz vehicle finance, loan against property, home loan, new business segments.
Cholamandalam's opex/ AUM ratio improved to 2.8% (versus 3.1% in Q4) benefiting from operating leverage. Increase in cost of funds dragged net interest margins by ~33 basis points QoQ at 6.7%.
The credit cost jumped to 1.3% (from 0.5% in Q4). In terms of asset quality, stage-III assets were largely steady at ~3.1% on QoQ basis. Stage-III provision cover stood at 45.4% vs 46.0% in Q4.
While we remain positive on the growth front, we will be watchfull of the asset quality in the new business portfolio, as that portfolio is yet to complete one full cycle.
We believe the stock is fairly valued at 3.7 times FY25 book value with return on asset/ return on equity of 2.7%/ 18.3%.
Hence, we maintain 'Hold' rating with a price target of Rs 1,100 (Rs 950 earlier), valuing it at 3.75 times 25 book value.
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