Maintain ‘buy’ on Chola with target price of Rs 1,767

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New Delhi | Published: April 25, 2018 2:11:08 AM

CIFC ended FY18 on a high, with a strong beat in 4Q. The 18% sequential acceleration in disbursals (especially in the Vehicle Finance slice), coupled with the steady NIM uptick led to a core earnings beat of 6%.

CIFC ended FY18 on a high, with a strong beat in 4Q. CIFC ended FY18 on a high, with a strong beat in 4Q.

By HDFC Securities

CIFC ended FY18 on a high, with a strong beat in 4Q. The 18% sequential acceleration in disbursals (especially in the Vehicle Finance slice), coupled with the steady NIM uptick led to a core earnings beat of 6%. Though costs were at a multi-qtr high, justification was visible in the stark reduction in GNPAs to 2.94% (higher incentives paid for collection) and the rapid expansion in reach (170 in the past 12 months). PCR is now at 43.5% despite lower provisions, indicative of a vastly improved healing trajectory.

With the CV cycle on the cusp of growth, CIFC is geared up to capitalise on the opportunity given its well capitalized B/S, strong accruals, wide presence and motivated workforce. RoAAs are set to expand 15bps over FY18-20E as benefits flow in. With best-in-class return ratios, premium valuations are justified. Maintain BUY with a TP of Rs 1,767.

After a stellar 3Q, CIFC delivered dazzling growth as disbursements jumped ~54/18% YoY/QoQ to R8,000 crore. This was led by broad based growth across the VF slice with HCVs, Cars & 3W (+61%) and LCVs (+55%) leading the pack. Though HE disbursements were flat sequentially, the management’s improving outlook is encouraging. Given the strong show in FY18, we have factored in growth of 20% over FY18-20E – which provide upside risk.

Improvement in asset quality trends sustained as GNPAs continued to tread downwards. This was owing to a steady reduction in VF GNPAs and some progress in the HE segment. With sequential jump in calc PCR, NNPAs dipped 68bps QoQ to 1.66%.

Though we have conservatively factored in LLPs of 65bps over FY18-20E, faster than expected healing in the HE provides an upside risk. Growth in the HE AUM remained subdued at 4/2% YoY/QoQ while other segments grew 46/10% YoY/QoQ. Overall repayments dipped to 10.8% of the opening AUM. Despite lower repayments in the HE segment AUM growth was restricted to 4/2% YoY/QoQ as disbursements growth remained flat sequentially. After being cautious for over 2 years, the mgt expects uptick in disbursals in HE business with expansion in distribution network and gradual healing in asset quality.

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