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Informist, Monday, Oct. 28, 2024

 

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--Cholamandalam Invest: Pdts except commercial vehicle loans doing well Oct
--CONTEXT: Cholamandalam Invest mgmt's comments in post-earnings analyst call
--Cholamandalam Invest: Will continue skew towards bk borrowings for funding
--Cholamandalam Invest: Oct-Dec credit costs to remain flat from prev qtr
--Cholamandalam Invest: Credit costs to fall in Jan-Mar from Jul-Sept level
--Cholamandalam Invest: AUM growth to fall in Oct-Mar from 33% pace Apr-Sept
--Cholamandalam Invest: Return on assets to improve from 3.1% Apr-Sept

 

By Aaryan Khanna

 

NEW DELHI – Cholamandalam Investment and Finance Co. Ltd.'s asset growth is set to fall in what remains of this financial year to near its medium-term guidance of 25%, the company's management said in a conference call with analysts post its Jul-Sept earnings. In Apr-Sept, the company's assets under management grew 33% on year to INR 1.77 trillion.

 

While disbursements are set to remain robust, a strong base is likely to affect asset growth, executives, including Managing Director Ravindra Kumar Kundu, said. In Jul-Sept, the vehicle finance segment's assets under management grew only 22%. This segment makes up 56% of Cholamandalam Investment's total assets under management.

 

Over time, the company also aims to diversify from its core vehicle finance lending, which has helped it maintain its profitability even with the segment slowing, the management said. In results declared Friday, the non-banking financier posted a net profit of INR 9.63 billion for Jul-Sept, up 26.3% on year. In post-earnings notes, analysts had flagged slower loan growth in the core vehicle finance segment. 

 

Even as asset growth may decrease, Cholamandalam Investment's return on assets before tax is likely to grow in Oct-Mar and beyond from 3.1% in Apr-Sept, the management said. The company stuck to its guidance of 3.5% return on assets over a business cycle, but the management said it would not be able to achieve that figure in Oct-Mar – most likely an uptick to 3.2-3.3%.  

 

The company's credit cost is likely to remain flat in Oct-Dec from the previous quarter, before declining in Jan-Mar, the management said. Loan losses and provisions may fall to 1.3% in FY25 from 1.5% in Apr-Sept.

 

"The reduction would be driven by reduction in stage-II and stage-III assets," Kundu said in response to a question, referring to various categories of stressed loans. "It is not a reduction – if you're indicating that – it is not a reduction in terms of methodology." The management also expects its legal processes to lead to some recoveries of bad loans in Oct-Mar.

 

As for its funding costs, the company will continue its skew to bank borrowings, which it can secure at a lower cost than the market rates, the management said. With the Reserve Bank of India expected to cut interest rates in FY25, analysts were curious about the interest expenses that may accrue to the non-bank financier. The management said about half of its loans are linked to external benchmarks, 10% are fixed rates, and the rest are tied to the bank's marginal-cost-of-funds-based lending rate.

 

Even with any rate cuts, Cholamandalam Investment does not expect yields on its home loan portfolio to fall drastically. This is because the company is expanding its portfolio into new geographies, with delinquencies unlikely to show up immediately, and that could protect yields on those portfolios, the management said.

 

This expansion is being done through raising the company's headcount, a cause of concern for multiple analysts. The company was expanding its collections team at a rapid pace and does not have an immediate goal to focus on productivity, as it seeks to expand market share in the vehicle finance segment, the management said. In Jul-Sept, Cholamandalam Investment's employee benefits expense grew nearly 40% on year to INR 7.95 billion.

 

"We continue to focus on retail customers, especially in smaller towns and rural areas. The key focus is to increase market share backed by consistent disbursement growth and collections," the company said in its investor presentation for Jul-Sept.

 

When asked to provide an outlook for the upcoming festival season, the management said all segments of its loan portfolio except commercial vehicles were doing relatively better in October, compared to the reporting quarter ended September. In addition, the management said fee income should continue to rise in line with disbursements.

 

At 1339 IST, shares of Cholamandalam Investment and Finance were trading 7.1% lower at INR 1,275.10 on the National Stock Exchange.  End

 

Edited by Deepshikha Bhardwaj

 

 

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