Cholamandalam Investment & Finance stock rallies over 9% after Q4 net profit jumps 24%

Shares of Cholamandalam Investment and Finance, the financial services arm of Murugappa Group, a diversified conglomerate, saw a strong opening in Thursday's trading session at ₹920 apiece and continued to rise to ₹970, an increase of 9.40% compared to the previous closing price of ₹886.60.

This came after the company posted robust performance in Q4FY23, with its net standalone profit growing 23.67% YoY to ₹853 crore for the March quarter.

The company had registered a net profit of ₹690 crore during the same quarter of the last fiscal year. The company's standalone profit for the financial year ending March 31, 2023, increased to ₹2,666 crore from the ₹2,146 crore reported in the same period of the previous year.

The standalone total income for the quarter ending March 31, 2023, rose to ₹3,794 crore from the ₹2,631 crore recorded in Q4FY22. For the full fiscal year FY23, the total income increased to ₹12,977 crore from ₹10,138 crore in FY22.

Its net interest income during the quarter came in strongly at ₹2,006 crore, a jump of nearly 30.8% YoY. The aggregate disbursements in Q4 grew by 65% to ₹21,020 crore.

For the year ending March 31, 2023, the disbursements grew to ₹66,532 crore, up by 87% over the same period last year.

For the full fiscal year 2022-2023, the assets under management of the company stood at ₹1,12,782 crore, marking a growth of 36% YoY in comparison to the ₹82,904 crore recorded in FY22.

The company recorded strong earnings set. This was led by lower provisions (down 28% QoQ) with continued improvement in asset quality, healthy net interest income on asset repricing, and an improving share of high yielding book offsetting the funding cost spike, said brokerage firm Elara Capital.

Consequently, the net interest margins (NIMs) remained largely stable quarter-on-quarter (QoQ) at 7.8%. The steady NIMs of CIFC can also be attributed to effective liability management. This includes a greater focus on securitisation, followed by the commercial paper market and hard negotiations. Additionally, the cost-income ratio declined by 285 basis points (bps) QoQ to 38%, it said.

The company saw strong business growth in a seasonally robust quarter across its product range.

New business segments also showed impressive growth, with a QoQ increase of 38% to ₹95 billion (9% of total AUM). Home equity (20% of total AUM) remained steady at 8% QoQ growth, followed by home loans (8% of total AUM) with a QoQ growth of 16%. Given the macroeconomic tailwinds and new growth engines in place, the future looks bright for the company, the brokerage noted.

CIFC has been a consistent outperformer, striking a fine balance between healthy growth and NIM management. The brokerage expects 25% AUM and 22% earnings CAGR with an average NIM of 7% and a resultant robust return profile, with a projected return on assets (ROA) of 2.6% and a return on equity (ROE) of 20% in FY23–25E.

Led by the establishment as a diversified play, CIFC will now be reckoned as a steady-state compounder story, commanding a rich multiple. Subsequently, from a valuation standpoint, the brokerage has downgraded the stock to 'accumulate' from 'buy' with a new target price of ₹930 apiece.

31 analysts polled by MintGenie on an average have a 'buy' call on the stock.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.