04/11/2016 Motilal Oswal Financial Services

3 November 2016

2QFY17 Result Update | Sector: NBFC

Cholamandalam Invst. & Fin.

BSE SENSEX S&P CNX
27430 8485
CMP: INR1136 TP: INR1320 (+16%) Accumulate
BLOOMBERG CIFC:IN YEAR NET INC PAT EPS EPS PE ABV P/BV P/ABV ROAA ROAE
END (INRCr) (INRCr) (INRCr) Gr.(%) (X) (INR) (X) (X) (%) (%)
Equity Shares (cr) 15.6

52-Week Range (Rs) 1243/590 FY16 2142 567 36 31 31.2 221 4.8 5.1 2.3 16.7

1,6,12 Abs.Perf.(%) -2/36/84 FY17E 2511 762 49 34 23.2 266 4.1 4.3 2.3 17.5

M.Cap. (Rs cr) 16,264 FY18E 2989 1003 64 32 17.6 331 3.3 3.4 2.6 18.9

Result Highlights: In-line; AUM growth continues, lower provisioning drives PAT growth of 42%
Chola's Net Income grew by 17% to INR 593cr backed by AUM growth of 19% to INR 31,832cr. PAT has grown by
42% YoY to INR 171cr aided by lower provisioning (decline of 33% YoY) and is in line with our estimate of INR 172cr.
A recovery in the CV industry (50% of Chola's AUM) translated into resumption of growth for Chola over the last four
quarters. Disbursement growth was strong during the quarter at 21%. Consequently AUM growth was at a 10 quarter
high of 19%. The LCV/SCV loan book (32% of AUM) witnessed a recovery in growth to 8% while the HCV segment
(18% of AUM) witnessed 47% growth. Home finance (30% of AUM) grew at 18%. We expect the turnaround in AUM
growth for LCV/SCV book to sustain going forward as the industry comes out of a three year downturn combined with
transport operators witnessing highest capacity utilisation since FY12.
GNPAs were stable QoQ at 3.5% against 3.6% on 4 month basis.

INRCr 2QFY16 1QFY17 2QFY17 YoY QoQ FY16 FY17E YoY

Net Income 506 560 593 17 6 2,142 2,511 17

Operating Expenses 208 226 252 21 11 845 1,033 22
Operating Profit 298 334 341 14 2 1,296 1,478 14
Provisions 115 80 77 (33) (4) 427 309 (28)
Profit Before Tax 183 254 263 44 4 869 1,169 34
Tax Provisions 63 89 92 47 4 302 406 34
Net Profit 120 165 171 42 4 567 762 34
Loan Growth (%) 10 18 19 24 18

Disbursements (%) 21 30 21 21 24
NIMs (%) 8.5 8.4 8.4 8.7 8.4
C/I Ratio (%) 41 40 43 39 41
Gross NPAs (%) - 4m4.4 3.6 3.5 3.5 3.4

ROA (%) 2.0 2.5 2.4 2.3 2.3

ROE (%) 14.3 17.8 17.7 16.7 17.5

Valuation and view

Chola's branch netw ork (637) has gone up over 4x since FY10 and is up 70% since FY12 w hereas, peers have increased
their branches by just 20% over the same period. This is reflected in Chola's higher cost/income ratio at 43% vs peer
group average of 32%. How ever, w ith the recovery in the CV cycle (especially LCVs), Chola shall enjoy significant operating
leverage w hich w ould enable it to grow its profits at 30% CAGR over FY16-18E.
The management expects home loans business to grow aggressively in coming years and reach the size of its Home
Equity business (LAP) over a five year period, thereby low ering Chola's dependence on the vehicle finance business.
Diversification of loan book tow ards home loans, sustained recovery in the CV cycle and a decline in credit costs should
transform the business to 3.0% ROA from the current ROA of 2.4% in coming years. We value the company at 3.5x its Sep
2018 ABV and arrive at a target of INR 1,320 (earlier INR 1,160 at 3.5x FY18 ABV). We maintain our "Accumulate" rating on
the stock, as it has w itnessed a steep run up over the last six months and now trades at a premium to its vehicle financing
peers.

Jehan Bhadha (jehan.bhadha@MotilalOswal.com); Tel: +91 22 33124915 Dharmesh Kant (Dharmesh.Kant@motilaloswal.com); l:+912230102470

Investors are advised to refer through important disclosures made at the last page of the Research Report.

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Disclosure of Interest Statement Cholamandalam Inv st. & Fin.

1.Analyst ownership of the stocks mentioned above No
2.Served as an officer, director or employee No
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