Buy Cholamandalam Investment and Finance; target of Rs 319: HDFC Securities

HDFC Securities' research report on Cholamandalam Investment and Finance

CIFC’s 2QFY21 PPOP was significantly ahead of our estimates, aided by strong margin expansion and controlled operating expenditure growth. The management prudently chose to insulate the balance sheet by creating further COVID-19 related provisions, which is always welcome. Business traction improved as disbursals reached ~88% of 2QFY20 levels and YoY AUM growth accelerated slightly. Even as CIFC witnessed a sustained improvement in collection efficiency, which is heartening, we conservatively factor in a rise in GNPAs in FY21E. We have upgraded our earnings estimates on the back of strong operating performance, as we build in an improvement in margins and operating efficiency.

Outlook

CIFC remains our top pick amongst the NBFCs within our coverage due to its demonstrated superior performance on multiple business parameters. Maintain BUY with a revised target price of Rs 319.

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