CIFC : AR analysis: Building D2C digital platforms; gaining market share while maintaining AQ

13 Jul 2023 , 10:18 AM

Recommendation: Buy; Target price: Rs 1330

CIFC’s FY23 AR highlights its focus on building D2C digital platforms that deliver frictionless customer experience and aid new customer acquisitions. To this end, it has built a used and new vehicle digital marketplace (Gaadi Bazaar) and a digital PL app (Chola One). For its existing business, analysts of IIFL Capital Services market share analysis shows that CIFC has maintained the share in VF, and gained 50-90bps in HL and LAP over last 4 years. Granular AQ disclosures show that it had net slippages of only 0.4% in FY23 thanks to lower gross slippages and strong recoveries. NPAs in the new businesses are low (0.6-0.8%) but should increase as book seasons. Analysts of IIFL Capital Services raise their TP to Rs1,330 on roll forward, and retain BUY rating for 21% ROEs and 32% earnings growth.

Chola’s tech initiatives: 

Chola has built two D2C digital platforms: 1) Gaadi Bazaar (new and used vehicle marketplace embedding Chola VF loans) and Chola One (end-to-end digital personal loan app for new and existing customers). Gaadi Bazaar has already garnered 0.9mn MAU and delivered 7x growth in online disbursements. Chola will also be transitioning its digital and tech solutions to cloud.

Gaining market share in LAP and affordable HL, stable in VF: 

Analysts of IIFL Capital Services product level market share analysis for Chola indicate that its market share in vehicle financing has been broadly stable. However, it has gained 50- 90bps market share in affordable HL and LAP over the last 4Y. Despite this, its low market share of 0.7% and 3.5% respectively (on AUM basis) coupled with good distribution expansion strategy, means there is adequate headroom to grow over the medium term.

Retain BUY with TP of Rs1,330: 

Analysts of IIFL Capital Services continue to like Chola for its sector leading growth on back of new businesses and distribution expansion for existing products. With 14.8% Tier 1 and Chola continuing to consume capital, we have built Rs30bn capital raise. While absolute valuations are expensive at 5x 1Y fwd P/B, they appear reasonable adj. for superior profitability, growth (bottom 1/3rd on PEG basis across banks and NBFCs) and capital raise. They raise TP to Rs1,330 on roll-forward and retain BUY rating.