Cholamandalam ​Investment ​and Finance - Cementing itself through stronger financials?

The brokerage expects the company to transition into tougher prudential norms prescribed by the RBI well ahead of the given timeline and without much impairment to the earnings growth outlook over the medium term.

Nov 26, 2015 10:11 IST India Infoline News Service

Cholamandalam Investment
Buoyed by its strengthening financials, ​IIFL Institutional Equities has given a 'BUY' rating to ​Cholamandalam Investment and Finance Company’s (CIFC)​ and has raised its target price to Rs760. Strong cyclical rebound in the commercial vehicle segment has enhanced the disbursement and AUM growth prospects for the company. Strong earnings growth of 30% coupled with ROE expansion of 340bps make CIFC a preffered pick in IIFL's coverage universe, especially among non-bank financials.

The brokerage expects the company to transition into tougher prudential norms prescribed by the RBI well ahead of the given timeline and without much impairment to the earnings growth outlook over the medium term.

Despite stronger norms related to NPLs, the brokerage expects CIFC's profitability metrics to improve in the medium term on the back of strong lending margins. The brokerage envisages further upsides in the earnings outlook because of the continued improvement in lending margins, driven by a sharp decline in funding costs and a sustained decline in credit costs. IIFL sees CIFC sustaining its growth through FY17ii. It highlights augmentation of capital as a key determinant for sustenance of growth in FY18ii.

Growth in home equity loans (SME lending) will likely remain subdued in the near term because of an intensely competitive landscape. The brokerage expects vehicle finance to pick up slack from the SME lending segment. It has, however, factored in the transition and has not made any significant changes to  the EPS estimates of FY16ii and FY17ii, while raising FY18ii estimates by 5.6%.

Cholamandalam Investment & Finance Company Ltd ended at Rs. 641, up by Rs. 0.95 or 0.15% from its previous closing of Rs. 640.05 on the BSE.

The scrip opened at Rs. 645 and touched a high and low of Rs. 645 and Rs. 630.1 respectively. A total of 270728(NSE+BSE) shares were traded on the counter. The current market cap of the company is Rs. 9991.65 crore.

The BSE group 'B' stock of face value Rs. 10 touched a 52 week high of Rs. 739 on 07-Jul-2015 and a 52 week low of Rs. 433.7 on 09-Dec-2014. Last one week high and low of the scrip stood at Rs. 646.9 and Rs. 597.5 respectively.

The promoters holding in the company stood at 53.15 % while Institutions and Non-Institutions held 40.4 % and 6.45 % respectively.

The stock traded below its 100 DMA.

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