Cholamandalam Investment and Finance Company reported its September quarter earnings on November 1 after market hours. It reported a fall in net profit but the market cheered the financial player’s Q2FY23 scorecard as the stock jumped 5% the next day on November 2.
The company’s consolidated PAT for Q2FY23 came at ₹562.82 crore against ₹610.51 crore in the same quarter last year.
Total revenue from operations came at ₹3,016.84 crore for Q2FY23 against ₹2,496.66 crore in the same quarter last year.
Brokerage firms retained their views on the stock after the Q2 numbers; some of them even raised their target prices. Here’s what they said:
Brokerage firm Motilal Oswal Financial Services maintained a buy call on the stock with a target price of ₹910, terming it as its top pick in the NBFC sector.
The brokerage firm pointed out that the stock trades at 3.6 times FY24E P/BV (price-to-book value ratio) and believes there will be a further expansion in multiples once investors gain more confidence in its execution capability in newer product lines.
“We model disbursement, AUM (assets under management) and PAT (profit after tax) CAGR (compound annual growth rate) of 32%, 23% and 19%, respectively, over FY22-FY25, respectively. We cut our FY23E and FY24E earnings per share (EPS) by nearly 3% each to factor in the margin compression and higher opex ratio,” said Motilal Oswal.
“While we estimate a margin compression of about 60bp and 20bp in FY23 and FY24, respectively, we reiterate that it has levers on credit costs and business AUM growth to deliver a healthy RoA (return on assets) and RoE (return on equity) profile of 2.7% and 20%, respectively, over FY23-FY24,” said Motilal Oswal.
Brokerage firm Kotak Institutional Equities (Kotak Securities) has maintained an ‘add’ view on the stock and raised the fair value (target price) to ₹825 from ₹790.
The brokerage firm said Chola’s earnings missed its estimates due to higher expenses (investments in new businesses) and marginally lower-than-expected net interest margin (NIM).
“Loan growth, augmented by new businesses, continues to surprise positively and remains the single-most earnings driver. While this business is nascent with asset quality performance untested, we take some comfort from Chola’s historic execution track record,” said Kotak.
“Chola remains our favoured business in the sector. A sharp upgrade in loan growth is absorbing NIM pressure while the higher operating expense ratios forecast leads to -3% to +4% revision in our estimates. The company will likely continue to deliver 18-20% RoE and 19% core PBT (profit before tax) CAGR during FY2023-25E, commanding rich valuations,” said Kotak.
Brokerage firm Emkay Global Financial Services, too, has maintained a buy call on the stock and raised the target price to ₹860 from ₹835.
“We have increased our disbursement and AUM growth expectations for FY23E to 64.2%/27.7% versus 49.8%/24.6% earlier on account of robust second half of the financial year (H2FY23) growth prospects highlighted by the management driven by a strong Rabi season, and increasing construction and mining activity expected,” said Emkay.
“We factor in higher contribution from the consumer/SME segment by revising our estimates upwards for net interest income (NII), opex, and credit costs. We have increased our NII estimates for FY23E, FY24E and FY25E by 1%, 4.4% and 5.7% respectively,” Emkay said.
The brokerage firm has raised its opex-to-AUM for FY23E, FY24E and FY25E by 9bps, 19bps and 21bps. It has also revised its credit cost estimates for the forecast period by 27bps, 7bps and 16bps for FY23E, FY24E and FY25E, respectively, to factor in the higher credit risk carried by SME/Consumer loan products.
Brokerage firm Prabhudas Lilladher has maintained a buy call on the stock with a target price of ₹792.
The brokerage firm expects a 22% AUM CAGR between FY22-24 along with improvement in asset quality with GNPA at 3.2% and 2.7% for FY24 and FY25, respectively.
Prabhudas Lilladher believes NIMs may be at 7.1% and 6.8% for FY23 and FY24, respectively, however, they may moderate marginally due to the rising cost of funds.
“The company is expected to deliver a strong return profile for FY24 (19.7%/2.9% RoE/RoA) and hence would continue to command rich valuations. We maintain our estimates,” said the brokerage firm.
Elara Securities (India) maintains a buy call on the stock with a target price of ₹876, citing the worst is behind for the stock.
The brokerage firm expects an earnings CAGR of 18% over FY22-25E with robust growth prospects and receding credit cost acting as mitigating factors on NIM and opex pressures.
Elara expects a 19% AUM CAGR, with an average NIM of 6.7% and the resultant rich returns profile (2.7% ROA & 19% ROE) over FY22-25E.
“Diversified product mix curbing cyclical pressures and expansion into new business verticals place the company favourably in the commercial vehicle financing space while retaining superior valuation. As we roll forward to September 2024E, we value the stock at 4.3 times Sep’24E P/ABV with a target price of ₹876,” said Elara.
Brokerage firm Nirmal Bang Equities has a buy call on the stock with a target price of ₹904. The brokerage firm expects Cholamandalam’s AUM growth to remain strong and profitability to be affected by NIM contraction and higher operating costs.
According to a MintGenie poll, an average of 30 analysts have a ‘buy’ call on the stock.
Disclaimer: The views and recommendations given in this article are those of broking firms. These do not represent the views of MintGenie.