The share price of Cholamandalam Financial gained 3% intra-day after the company posted a clarification on the exchanges in response to the Cobrapost concerns. Motilal-Oswal reiterated its Buy rating on the NBFC stock and maintained a target price of Rs 2,000, indicating an upside of about 19% from current levels.
Motilal Oswal stated that the allegations with regards to governance do not affect the core operating performance, earnings trajectory, or balance sheet strength of the business.
#1. Motilal Oswal on Cholamandalam Financial Holdings: Management response calms concerns
According to Motilal Oswal, the company’s management has rejected the allegations and stated that the claims are based on selective reading of disclosures and retrospective application of rules that were not applicable in earlier years. The brokerage noted that management has confirmed there is no change in business strategy, lending focus, or financial guidance.
Motilal Oswal added that management has also indicated it will engage with regulators and legal advisers, while expressing confidence that any review will support the company’s position.
#2. Motilal Oswal on Cholamandalam Financial Holdings: Cash deposits seen as legacy issue, trend improving
One of the main concerns raised was the scale of cash deposits made by the company over several years. Motilal Oswal said this needs to be viewed in the context of the company’s presence in vehicle finance and MSME lending, where cash-based customer income was common in earlier years.
The brokerage highlighted that the share of cash collections has reduced sharply over time and now stands at around 15% of total collections, compared with nearly 50% in the past. This shift shows better formalisation of borrower income and improved collection practices. All cash collections are routed through banks and are subject to statutory audits, Motilal Oswal said.
#3. Motilal Oswal on Cholamandalam Financial Holdings: Insurance income and commissions explained
On the issue of insurance commission income, Motilal Oswal said the company provides accident and health insurance to borrowers as part of its loan offerings. The brokerage noted that the company works with multiple insurers, including third-party players, and does not restrict customers to group entities.
Pricing of insurance products is market-linked, and there is no evidence of forced selling or bundling, according to Motilal Oswal. The brokerage also said these arrangements are reviewed through regular audits.
#4. Motilal Oswal on Cholamandalam Financial Holdings: Related-party transactions not incremental
Related-party transactions formed another major part of the allegations. Motilal Oswal clarified that figures quoted, which cross Rs 1 lakh crore, are cumulative amounts added over several years and should not be interpreted as one-time transfers or recent activity.
The brokerage pointed out that accounting and disclosure norms for related-party transactions have changed over time. Transactions that were not classified as related-party earlier have been disclosed from FY22 onwards, following regulatory clarification. Motilal Oswal said this change in classification has inflated headline numbers without changing the underlying nature of the transactions.
#5. Motilal Oswal on Cholamandalam Financial Holdings: Capital position and liquidity remain comfortable
Motilal Oswal said the company’s capital position remains strong, with net worth expected to increase by around Rs 2,500 crore from FY25 levels. This is supported by Rs 300 crore already infused through conversion of convertible instruments and a further Rs 1,700 crore expected over the next few quarters.
The brokerage added that liquidity remains comfortable, asset-liability management is stable, and there has been no disruption in funding access following the recent developments.
Business momentum and earnings outlook
According to Motilal Oswal, loan disbursements have picked up in the current quarter across vehicle finance and home loans. The brokerage expects the quarter to mark a recovery, with the second half of the year usually stronger due to seasonality.
Over the medium term, Motilal Oswal expects the company to deliver around 20% annual growth in assets under management and close to 25% annual growth in profit. Return on equity is expected to remain near 20%, supported by stable margins, controlled costs, and gradual improvement in asset quality.