Q3FY23 Review: CIFC : Strong quarter, outlook positive

2 Feb 2023 , 10:32 AM

CIFC’s reported profit of Rs6.8bn in Q3FY23 was above estimate, driven mainly by lower-than-expected provisions (aided by a write-back of ~Rs0.3bn of management overlay provisions in the quarter). Strong AUM and disbursement growth, stable margins QoQ, healthy fee-income growth and improvement in asset quality were key positives in the quarter.

The quarter was characterized by: i) Strong AUM (9% QoQ / 31% YoY) and disbursement growth (20% QoQ / 68% YoY) ii) Stable NIM QoQ (7.6% reported) iii) Healthy fee-income growth (16% QoQ / 46% YoY) iv) Improvement in asset quality (GS3 ratio lower by 33bps QoQ to 3.5%). As per RBI IRAC norms, GNPA ratio stood at 5.37% (47bps lower QoQ). Credit cost for the quarter was 0.7% (1.3% in Q2FY23). PCR remained relatively stable at ~41%. Management overlay provisions stood at Rs5bn or 0.5% of AUM.

Analysts at IIFL Capital Services raise estimates by 6% for FY23, driven by stronger operating performance and lower credit costs. Overall, they expect CIFC to deliver RoA/RoE of ~2.6/20.2% by FY24. They increase AUM growth estimates to a ~23% Cagr over FY22-25 (~22% earlier), driving higher NII. They also build-in higher fee income and operating expenses. They build in lower credit cost for FY23, while increasing it slightly for FY24/25. Credit cost estimates now stand at ~110/100/100bps for FY23/24/25 versus ~130/90/90bps earlier. Earnings trajectory going forward would be supported by strong execution capabilities.

CIFC as a preferred pick within NBFCs. Analysts at IIFL Maintain BUY with target price of Rs 915.