Q3FY24 Review: CIFC: Decent quarter with in-line NIM and AQ trends

30 Jan 2024 , 12:16 PM

CIFC’s underlying results were in line with the AUM growth of 40% YoY and flat NIMs QoQ. GNPA declined 15bps QoQ despite the steady net slippages due to higher write-offs (+35bps QoQ), primarily in the new businesses (100% PCR). As guided, CIFC scaled back Fintech partnerships with unsecured disb. declining 3% QoQ. NIMs have bottomed out and should gradually recover as the share of higher rate VF book and new businesses increases. Analysts of IIFL Capital Services expect AUM growth to moderate to 25% Cagr over FY24-26, as low base wanes off; but it still places CIFC amongst the fastest growing NBFC at scale. Retain BUY with TP of Rs1,450 for 21% ROEs and 30% EPS Cagr. 

Strong growth with in-line underlying results: 

CIFC’s headline Q3FY24 numbers beat analysts of IIFL Capital Services/consensus estimates by 8%/5%, led by lower credit costs and strong non-II, as the company started booking insurance distribution commission along with the associated opex in the standalone entity (earlier booked in subsidiary). Adjusted for higher non-II (and associated cost), numbers were broadly in line with analysts of IIFL Capital Services estimates with AUM growth of 40% YoY (+7.7% QoQ) and flat NIMs QoQ (endowment effect). Credit costs declined 30bps QoQ, led by 200bps decline in stage 3 PCR, as the company wrote off 100% provided NPAs in new businesses. Underlying AQ was steady with net slippages of 1.3% (ann; +8bps QoQ). 

Growth to moderate on base effect; NIMs bottoming out: 

Going ahead, analysts of IIFL Capital Services expect AUM growth for CIFC to moderate to 25% Cagr over FY24-26, as low base wanes off and as the pace of incremental distribution expansion moderates with the backlog of Covid period expansion plan now largely achieved. However, this still places CIFC amongst the fastest growing NBFCs at scale with medium-term growth drivers in place: 1) Continued distribution expansion for HL and LAP (45% / 60% penetration in VF branches). 2) Scaleup of new businesses that are ROA-accretive, on a steady state basis. Analysts of IIFL Capital Services believe CIFC’s NIMs have bottomed out and should gradually recover as the share of higher rate VF book (incremental yields 100bps higher) and new businesses increase. 

Retain BUY with TP of ₹1,450: 

Analysts of IIFL Capital Services raise their estimates by 2-3% incorporating higher fee income. While absolute valuations seem rich at 4x FY26 P/B, the same are reasonable adjusted for profitability and growth (0.7x FY25 PEG). Retain BUY with TP of ₹1,450 for ROAs/ROEs of 2.7%/21% and 30% EPS Cagr.