Fundamental Analysis of Cholamandalam Investment and Finance Company – Future Plans
Fundamental Analysis of Cholamandalam Investment and Finance Company: Murugappa Group is one of India’s leading conglomerates. This group from southern India holds leadership positions across automotive components, abrasives, ceramics, power systems and other key industries. Today we will take a look at an important financial institution from the prestigious Murugappa Group.
Let’s learn more about the company, its operations, and its lending segment. You will also understand the amount of assets the company manages and use industry-specific ratios to better analyze the company.
Fundamental Analysis of Cholamandalam Investment and Finance Company – Company Overview
Founded in 1978, Cholamandalam Investment and Finance Company Limited (also known as Chola) is the financial services and lending arm of the Murugappa Group. Chola initially started its business as an equipment finance company but has now transformed into a full-service financial services provider.
The NBFC operates 1191 branches across India with Rs. Assets under management (AUM) worth 1.12 Lakh Cr. We provide auto finance, home loans, real estate loans, small business loans, secured business personal loans (SBPL), consumer and small business loans (CSEL) and various other financial services to our customers.
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In addition to its lending business, the company operates a used car market specializing in commercial vehicles. gadi bazaar. The platform has 7000+ sellers, 9000+ bidders, and 600,000+ listings on the platform. The platform is also optimized for cross-selling vehicle loans to individuals looking to purchase a vehicle.
Chola also operates subsidiaries. Cholamandalam Securities Limited (CSEC) A leading stockbroker with over 20 years of operational experience. The company provides stock broking and other DP services. Other products distributed on the platform include mutual funds, bonds and debentures, fixed deposits, insurance, PMS and initial public offerings (IPOs).
business division
- Vehicle financing: In business for over 30 years, the company is the largest segment of the company with assets under management worth Rs. 66,938 Cr or 63% of the total assets of the NBFC. It has a very diverse portfolio of vehicle loans, with 27% of its loans disbursed to used vehicles, followed by light commercial vehicles. 21%
- Real Estate Loans: In the LAP market, Chola is currently managing over Rs. Assets worth 21,588 Cr. 97% of LAP’s clients are self-employed non-professionals. Chola issues both business loans and microloans in the sector.
- Home loan: The home loan segment is the third largest segment with Rs. It manages assets worth 8451 Cr. It is also the fastest growing sector, with spending doubling since FY22. The target of this loan is still the lower middle class consisting of small and self-employed people.
- Other loans: Consumer and Small Business Lending focuses on providing loans directly to consumers. These are issued through Chola’s Fintech app or through partnerships with other Fintechs. Other loans include secured business and personal loans. small business loan.
Industry Overview
The Indian economy is showing broad-based recovery across sectors, from the pandemic-induced economic downturn to international geopolitical conflict and inflation, and is well-positioned to move up to its pre-pandemic growth path.
Inflation averaged about 6.8% from April to January 2023, compared to 5.3% in the same period last year. To control inflationary pressures, RBI increased the repo rate to 6.5%. As long as inflation is under RBI’s control, interest rates will remain below 4%.
Commercial vehicles, passenger vehicles and two-wheelers recorded double-digit growth in FY23, driven by improving economic activity, revival in construction/mining activities and improving semiconductor supply.
The commercial vehicle industry is expected to achieve double-digit growth in FY24, driven by freight demand, replacement demand, structural economic recovery and increased government spending. However, the increase in fuel prices and its impact on the viability of fleet operators will remain a major challenge in FY24.
The real estate loan industry portfolio is Rs. 8 Lakh Cr, according to CIBIL’s September 2022 report. In FY23, the bank recorded strong growth due to low cost of funds and adequate liquidity support. CRISIL expects the sector to grow by 9-11 per cent in FY24, driven by improving economic conditions supporting normalization of business activities.
The size of India’s housing finance market is estimated at approximately 100 billion won. 26 Lakh Cr with credit growth in banks outperforming HFCs/NBFCs. Analysts expect the housing sector to grow 11-16% in fiscal 2024, with affordable housing growing 18-22% during the same period. In terms of asset quality, GNPA is expected to decline further in FY24, driven by new controlled declines.
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Fundamental Analysis of Cholamandalam Investment and Finance Company – Finance
Net profit and net profit
In FY23, Cholamandalam earned a net interest income of Rs. 7229 Cr, up 24% from Rs. 5,840 Cr in FY 2022. Net interest margin (NIM) growth has been steadily growing at an average annual rate of 20% since fiscal 2021, and recorded a higher growth rate this year.
Annual total revenue increased 28% due to increased interest income. Total revenue increased from KRW 10 billion. 10,231 Cr in FY22 to Rs. 13,105 Cr in FY23. The total profit growth rate is 16.6%, which is somewhat slower than the net interest income growth rate of 20%.
Net profit also increased by 24% from 2.4 billion won. 2158 Cr in FY22 to Rs. 2,677 Cr in FY 2023. As net interest margin increased, profit growth also increased. Since FY21, Cholamandalam has grown at a CAGR of 22%.
Spending and Assets Under Management (AUM)
The increase in interest income is coupled with a steady increase in payments. In FY23, there was an 87% increase in expenditure from Rs. 35,490 Cr in FY22 to Rs. 66,532 Cr in FY23. Since FY19, loan disbursements have grown at a CAGR of 21.6%, with most of the growth coming from the auto loan and home loan segments.
The assets under management of NBFCs increased by 36% in one year to over 1 Lakh Cr. AUM increased from Rs. 82,904 Cr in FY22 to Rs. 1.12 Lakh Cr in FY23. However, since FY19, asset growth has only grown at a CAGR of 18%, while expenditure growth has been ~22%.
profit
Being an NBFC Cholamandalam allows you to lend to much riskier borrowers or take out loans that charge high interest premiums. Because of this, the company always net interest margin More than 7% (excluding FY20), averaging 7.36% over the past five years. (Excluding FY20).
The net profit margin for NBFCs was 15.78% in FY23, an increase of 368 bps compared to 12.10% in FY22. Over the past five years, the average profit margin has hovered around 15.55%.
Non-performing assets (NPAs)
NPA is a loan in which interest or principal has not been paid for three consecutive months. Cholamandalam’s gross NPAs have been continuously increasing since the low of 2.7% in FY19 (currently around 4.6% in FY23).
Every bank or NBFC has to make provision (from its profits) for these NPAs. Assets for which no provisions have been created fall into the net NPA category. These net NPAs have steadily increased from 1.7% in FY19 to a high of 4.8% in FY22. Current net NPAs are at 3.1%, slightly higher than the five-year average of 2.80%.
Fundamental Analysis of Cholamandalam Investment and Finance Company – Key Indicators
key indicators Cholamandalam Investment and Finance Company They are listed below.
Fundamental Analysis of Cholamandalam Investment and Finance Company – Future Plans
- In the vehicle finance segment, the company will continue to advance towards the top of the pyramid customer segments through co-lending routes which will help it increase its market share and retain its existing customers.
- In the real estate lending segment, the NBFC will focus on achieving a loan mix comprising 80% of its residential real estate portfolio with an average ticket size of less than Rs. 50 lakhs.
- In the SME lending category, NBFCs are planning to launch loans with an average ticket size of Rs. 1.5 Cr with a loan to average value of underlying assets ratio of 60%-65%.
- In the secured corporate and personal loan category, Chola maintained an average ticket size of Rs. 4.42 Lakhs, with an average tenure of 69 months. The company has a strong presence in Tier II – Tier V cities and recently entered Haryana & Bihar last year.
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conclusion
Cholamandalam Investment & Finance Company (Chola) has established itself as a major player in the Indian NBFC sector. With over 40 years of experience and a diversified portfolio of vehicle finance, real estate loans, home loans and small business loans, Chola has established a strong presence across the country, managing an impressive asset base of Rs. 1.12 lakh crore.
Chola’s financial performance has been remarkable, with continued increases in net interest income, gross revenue, and net income. A company’s ability to maintain healthy net interest margins and profit margins while servicing riskier borrowers speaks volumes about its prudent risk management practices and operational efficiency.
However, the growing trend of non-performing assets (NPAs) is a concern that needs to be addressed. Chola’s focus on expanding its customer base, increasing market share and retaining existing customers through co-lending arrangements and customized product offerings across various segments is a strategic move that can help mitigate these risks. .
As the Indian economy has robust growth and favorable industry dynamics in sectors such as commercial vehicles, housing and small and medium-sized enterprises, Chola is well-positioned to capitalize on new opportunities. With its diversified portfolio, extensive branch network and innovative digital initiatives such as Gaadi Baazar marketplace and Fintech app, it has established itself as a strong player in the financial services landscape.
Overall, Cholamandalam Investment & Finance Company’s strong fundamental principles, growth-oriented strategy and commitment to customer-centric solutions make it a promising investment opportunity if it can effectively manage asset quality and navigate the challenges posed by the dynamic economic environment.
Written by Nasir Hussein
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