The share price of Cholamandalam Investment saw a bit of a rollercoaster week. From sliding nearly 5% on Monday to recovering 7% from the lows by Wednesday, it’s been a key stock in focus this week. The company’s management has rejected the allegations by Cobrapost and guided for good Q3 disbursement. Most brokerages have considered the news more of a noise and continued with positive recommendation on the stock. Jefferies too have recommended Buy with a target of Rs 1,980 per share. This implies an upside of nearly 18% from current levels.
Jefferies elaborated that Cholamandalam Investment is amongst their top picks in the segment They see 30%+ EPS growth in FY27, led by stabilisation/pickup in autos, revival of growth in MSME book, further NIM expansion & lower credit costs. According to estimates by Jefferies, Cholamandalam Investment is trading at 4.1x FY27 BV estimates and 21x FY27 PE estimates.
Jefferies on Cholamandalam Investment: Approach similar to peers
Jefferies, in its report on Chola, stated that “related party transactions disclosed & reflect normal business activities.” Chola cross-sells insurance (including Chola MS General Insurance). Premiums collected from borrowers are paid to Chola MS GI. Chola Business Services (CBSL) provides feet on the street for sales, collection activities, and the payments reflect the services. This, according to Jefferies, “is similar to the approach of many key peers, as it allows for greater operational flexibility (hiring, compensation).”
The report added that Cholamandalam Investment has been increasingly moving towards “higher on-roll employee mix with 61% of employee on-roll Vs 30% few years back. CIFC clarified MMS is a no profit group entity focused on strategy, HR, PR across the group and Group cos contributed to meet expense.” They added that “CIFC reiterated adequate disclosure as per the then prevailing regulations.”
Jefferies on Cholamandalam Investment: Cash deposits/collections part of business model
Cholamandalam Investment clarified that the cash deposits reflect cash EMI payments by part of its 5 million small truck operators & self-employed customers who earn and pay EMIs in cash. That said, Jefferies pointed out that “cash collections have declined to 15% of total Vs 50% a decade back. These cash transactions are subject to internal controls and statutory/regulatory scrutiny.”
Apart from that, Jefferies highlighted that Cholamanadalam’s payment to rating agencies reflect fees towards the rating of debt paper, securitisation deals. Payout to NGOs including related parties,reflect CSR spending. Cholamandalam Investent has clarified that it makes CSR contributions in form of work contracts to clearly monitor implementation progress. Al in all, Jefferies sees the concerns flagged in line with standard practices and stated that the “allegations seem to lack merit.”