report (6)

RESULTS REVIEW 2QFY16 27 OCT 2015

Cholamandalam Investment & Finance BUY

Revving up on the tarmacCIFC’s 2Q results beat estimates despite the shift to 120DPD — six quarters ahead of the regulatory deadline. This impacted profits by Rs 536mn (44% of reported PAT) and added Rs 2.7bn (~1%) to GNPA. The headroom was provided by one-time benefits worth Rs 210mn from income release in the securitisation pool (Rs 170mn) and reversal of standard asset provisions (Rs 40mn) from securitisation.

Disbursements were at a nine-quarter high (+21% YoY), driven by the vehicle finance (VF) segment. AUM growth was <10% with muted performance in VF. Even after the shift, NIM improved ~80bps YoY to 7.6%.Opex growth was muted, hence C-AA declined ~15bps QoQ to 3.15%.

CIFC has cushioned its asset quality and earnings over the next year with the move to 120DPD. With improving growth in the cyclical VF business, steady momentum in Home Equity (HE), NIM tailwinds and improving operational efficiency, CIFC is well placed

to achieve our est RoAA of 2.21% by FY18 (from 1.92% in FY15). Maintain BUY with a TP of Rs 718 (3x 1-yr fwd ABV of Rs 239).

Highlights of the quarter CIFC shifted to 120DPD with the one-time

benefits, which resulted in Rs 2.7bn (~1%) increase in GNPA, income reversals of Rs 170mn and additional provisions of Rs 270mn.

AUM growth of 10% and 80bps NIM improvement led to NI (Rs 5bn, +22%) beat of 3%. Further, with controlled opex (10%), C-AA declined ~15bps QoQ to 3.15%. Despite higher provisions, net earnings at Rs 1.2bn were 9% higher than estimates.

While the HE disbursements increased <8%, a healthy 28% growth in the VF segment led to growth in overall disbursements (21%). We believe the VF disbursements are likely to sustain given improving collection efficiency, while the HE disbursements are expected to remain steady.

Financial Summary (Rs mn) 2QFY16 2QFY15 YoY (%) 1QFY16 QoQ (%) FY15 FY16E FY17E FY18E Net Interest Income 5,028 4,113 22.2 4863.3 3.4 13,762 15,902 18,507 21,556 PPOP 2,979 2,305 29.3 2,774 7.4 9,818 11,503 13,747 16,333 PAT 1,205 951 26.6 1,103 9.3 4,350 5,222 6,442 7,736 EPS (Rs) 7.7 6.6 16.5 7.7 0.6 30.3 33.5 41.3 49.6 ROAE (%)

17.5 16.6 16.6 17.3

ROAA (%)

1.92 2.05 2.18 2.21 Adj. BVPS (Rs)

162.9 186.5 219.6 259.0

P/ABV (x) 3.69 3.23 2.74 2.32 P/E (x) 21.2 18.0 14.6 12.1 Source: Company, HDFC sec Inst Research

INDUSTRY NBFCs

CMP (as on 26 Oct 2015) Rs 602

Target Price Rs 718 Nifty 8,261

Sensex 27,362

KEY STOCK DATA

Bloomberg CIFC IN

No. of Shares (mn) 156

MCap (Rsbn) / ($ mn) 94 / 1,447

6m avg traded value (Rsmn) 46

STOCK PERFORMANCE (%)

52 Week high / low Rs 744/433

3M 6M 12M

Absolute (%) (12.8) 2.4 24.0

Relative (%) (10.1) 2.7 22.1

SHAREHOLDING PATTERN (%)

Promoters 53.16

FIs & Local MFs 24.74

FIIs 15.57

Public & Others 6.53

Source : BSE

Darpin Shah [email protected] +91-22-6171-7328

Siji Philip [email protected] +91-22-6171-7324

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters

CIFC : RESULTS REVIEW 2QFY16

Better performance despite 120DPD shift Core earnings at Rs 5bn (+22% YoY and 3% QoQ)

were 3% ahead of estimates. Interest reversal of Rs 170mn was neutralised with income release of the same amount in the securitised portfolio.

Despite the shift to 120DPD, calculated yields (15.3%) were higher ~30bps YoY. Yields were cushioned by the VF segment (16.8%, +40bps YoY). However, competition led to HE yields dropping ~55bps to 13.9%. CIFC stands to benefit with higher growth in the fixed-rate high-yielding VF segment. Further, the risk of higher interest reversals recedes with the shift to 120DPD.

As ~49% of its total borrowings are from banks, CIFC will benefit from the recent base rate cut. But despite several positives, we conservatively factor calculated NIM expansion of avg. 15bps over FY15-18E to 5.8%

Operating expenses were controlled with a mere 10% YoY growth (2% QoQ decline), led by slower growth in business origination expenses (+5% YoY). Further, with improving collection efficiency, the other opex, too, grew a mere 6% YoY. However, staff cost increased by 25/20% YoY/QoQ, as CIFC made additional provisions towards the new incentives programmes (branch-led profitability). With improving collection and growth trends, we expect C-AA to decline ~20bps over FY15-18E to 3.1%.

Additional provisions of Rs 270mn and incremental standard asset provisions of Rs 100mn (5bps impact) pushed up total provisions to Rs 1.15bn (+33/7% YoY/QoQ), i.e.

1.73% ann. As it is ahead of the regulatory deadline, we believe CIFC has lowered the risk of higher provisions cost. However, we conservatively factor LLP of average 1.23% over FY15-18E while considering PCR improvement.

The company’s disbursements (Rs 36.7bn) grew at 21% (+5% QoQ) and were at a nine-quarter high, led by 28% growth in the VF segment (Rs 28bn). The strong growth was driven by HCV (2x YoY) and 17-28% growth in other segments (except tractors, which grew at ~2%). With steep competition, HE disbursements were <8%. With improving macros and collection trends, we expect VF disbursements to sustain and HE to improve gradually.

AUM grew ~10% YoY to Rs 269bn; driven by ~25% growth in the HE business (Rs 81bn, 30.1% of AUM) and ~4% growth in the VF segment (Rs 182bn, 67.7% of AUM). With improving disbursements trends, we have factored AUM growth of 17% CAGR over FY15-18E.

At 120DPD, GNPAs (Rs 11.8bn; 4.4%) grew ~38% QoQ, including the shift impact of Rs 2.7bn (1%). The management hinted that a move to 90DPD would lead to further addition of ~1-1.2%. With <30% decline in PCR (-740bps QoQ), NNPAs jumped to 3.1%. Being six quarters ahead of the regulatory guidelines, coupled with improving macros and increasing proportion of the low-risk HE business, CIFC’s asset quality is expected to remain stable. However, we have factored GNPAs at 4.2-4.7% over FY16-18E.

Page | 2


Five Quarters At A Glance (Rsmn) 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 YoY Growth QoQ Growth Net Interest Income 4,113 4,584 4,498 4,863 5,028 22.2% 3.4% Non Interest Income 90 65 21 39 37 -59.1% -6.2% Total Income 4,203 4,650 4,519 4,902 5,064 20.5% 3.3% Expenses 1,898 1,965 1,904 2,128 2,085 9.9% -2.0% Operating Profits 2,305 2,684 2,615 2,774 2,979 29.3% 7.4% Provisions 863 997 581 1,069 1,147 32.9% 7.3% PBT 1,441 1,687 2,034 1,705 1,832 27.1% 7.4% TAX 490 574 677 603 627 27.9% 4.0% PAT 951 1,113 1,356 1,103 1,205 26.6% 9.3% Other details Disbursements (Rs bn) 30.3 30.8 35.1 35.1 36.7 21.2% 4.7%

VF 21.9 22.9 25.6 25.9 27.9 27.5% 7.8% HE 7.2 7.5 8.6 8.3 7.7 7.3% -7.4%

AUM (Rs bn) 244.7 247.4 254.5 260.6 268.6 9.8% 3.1% VF 174.7 174.1 176.4 178.3 181.9 4.1% 2.0% HE 64.9 68.3 72.8 76.8 80.9 24.7% 5.3% On books 212.2 217.4 219.0 231.3 231.4 9.1% 0.1% Off books 32.5 29.9 35.5 29.3 37.2 14.6% 27.0%

Borrowings (Rs bn) 199.6 202.6 194.8 206.1 206.4 3.4% 0.1% Bank Borrowings 96.5 116.7 102.0 100.8 101.1 4.8% 0.2%

CRAR (%) 19.8 20.9 21.2 20.6 20.8 102 bps 24 bps Tier I (%) 12.6 12.7 13.0 13.4 13.8 116 bps 35 bps Profitability Yield on Advances (%) (calc.) 15.1 15.6 14.9 15.3 15.3 27 bps 7 bps Cost of Funds (%) (calc.) 10.2 9.9 9.8 9.9 9.9 -31 bps 2 bps Spreads 4.8 5.6 5.1 5.4 5.4 58 bps 5 bps NIM (calc.) (%) 6.8 7.5 7.2 7.6 7.6 80 bps 5 bps Cost-Income ratio (%) 45.2 42.3 42.1 43.4 41.2 -399 bps -223 bps Tax rate (%) 34.0 34.0 33.3 35.3 34.2 23 bps -112 bps Asset Quality Gross NPA (Rs mn) 6,362 6,926 7,890 8,600 11,820 85.8% 37.5% Net NPA (Rs mn) 3,426 3,710 5,091 5,420 8,328 143.1% 53.6% Gross NPAs (%) 2.6 2.8 3.1 3.3 4.4 180 bps 110 bps Net NPAs (%) 1.4 1.5 2.0 2.1 3.1 170 bps 102 bps Coverage Ratio (%) 46.2 46.4 35.5 37.0 29.5 -1661 bps -742 bps Gross NPAs VF (%) 3.0 3.2 3.7 3.8 5.0 201 bps 116 bps Gross NPAs HE (%) 1.4 1.6 1.9 2.3 3.2 179 bps 92 bps

Source: HDFC sec Inst Research

Driven by shift to 120 DPD and additional standard asset provisions

HCV grew 2x, while LCV, used and cars grew ~17-28%; tractors growth was flat YoY

Bank borrowings stable YoY and QoQ at ~49%

Led by shift to 120DPD; at 150DPD, GNPA grew ~6% QoQ to form 3.39%

NIM stable QoQ, yet to witness benefits of decline in CoF

Staff cost jumped 25/20% YoY/QoQ

Home equity portfolio stood at ~30% vs. ~27% YoY

Interest reversal of Rs 170mn was neutralised with income release of the same amount in the securitised portfolio.

Securitisation of Rs 15bn during the qtr

Page | 3


Disbursements: Gradual Pickup Continues Disbursements Business-wise

VF Disbursements: HCV Drives Growth Segment-wise VF Disbursements

HE Disbursements: Sub 8% Growth AUM: Moderate Growth Cushioned By HE

Source : Company, HDFC sec Inst Research

Disbursements jumped 5% QoQ and 21% YoY (nine-quarter high) led by ~8% QoQ and 28% YoY growth in the VF segment Surprisingly, HE disbursements grew just 7% YoY In the VF segment, HCV grew ~2x YoY, while LCV and used cars grew in the range of 17-28% Tractors disbursements were flat YoY With improving macros and collection trends, we expect VF disbursements to sustain and HE to improve gradually. HE disbursements were slowest in the past four quarters; declined QoQ for the second consecutive quarter AUM growth of 10/3% YoY/QoQ was driven by HE portfolio With improving disbursements trends, we have factored AUM growth of 17% CAGR over FY15-18E.

-20

-

20

40

60

-

10.0

20.0

30.0

40.0

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

Vehicle Finance Disbursement Rs bn (LHS) Growth (YoY %)

-10.0

10.0

30.0

50.0

70.0

0.0

10.0

20.0

30.0

40.0

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

Disbursements Rs bn - RHS YoY Growth (%)

80%

80%

83%

82%

80%

76%

78%

76%

73%

72%

74%

73%

74%

76%

19%

19%

17%

17%

20%

24%

21%

21%

22%

24%

24%

24%

24%

21%

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

Vehicle Finance Home Equity Others

32 31 31 31 29 27 25 24 23 22 21 21 24 22

32 33 32 32 27 35 35 34 31 34 34 34 31 32

11 11 11 11 9 8 8 9 8 10 11 13 14 16

18 19 19 19 25 20 21 23 26 24 24 23 23 22

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

LCV Used CV HCV Tractors Car & 3 wheelers%

-

20.0

40.0

60.0

-

2.5

5.0

7.5

10.0

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

Home Equity Disbursement (Rs bn) Growth YoY (%) - RHS

01020304050

0

100

200

300

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

AUM (Rs bn) Growth (YoY %) RHS

Page | 4


AUM Break-up: HE Proportion Rises VF AUM: Muted Growth

Segment-wise VF AUM State-wise VF AUM

Home Equity AUM: Steady Growth Continues Bank Borrowings Form 49%


HE AUM proportion continues to rise and now stands at ~30% Despite strong growth, VF AUM growth remains muted at 4% In the VF segment, proportion of HCV (13%) and used vehicles (28%) saw marginal increase QoQ Share of tractors remains stable YoY and QoQ at ~10% Vehicle finance portfolio remains well diversified across geographies Home equity AUM continue to grow at a healthy rate of 25/5% YoY/QoQ As ~49% of its total borrowings are from banks, CIFC will benefit from the recent base rate cut.

74 74 75 76 76 75 74 73 72 71 70 69 68 68

23 23 23 23 23 24 25 25 26 27 28 29 29 30

0%

20%

40%

60%

80%

100%

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

Vehicle finance Home equity Others

-

20.0

40.0

60.0

80.0

-

50

100

150

200

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

Vehicle AUM Rs bn YoY (%, RHS)

0%

20%

40%

60%

80%

100%

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

LCV Used CV HCV Tractors Car & 3WTN 9%AP (incl.

Telangana) 7%

Mah 12%

Chattisgarh 8%

Raj 10%Guj 6%Punjab 5%

Kerala 4%

MP 6%

WB 5%

Delhi 3%

UP 5%

Orissa 4%

KTK 5%

Haryana 3%

Other states 8%

-

10.0

20.0

30.0

40.0

50.0

-

20.0

40.0

60.0

80.0

100.0

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

Home Equity AUM (Rs bn) YoY % (RHS)

0%

20%

40%

60%

80%

100%

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

Bank loans Debentures CPs Sub debt CC/WCDL

Page | 5


NIM: Sequentially Stable Steady Yields And NIM In HE Business

Efficiency Ratio: Scope For Improvement Segmental Expenses Ratio: HE Trending Down

Asset Quality Deteriorates Segmental Asset Quality: VF Remains Stressed


One-time benefit of Rs 170mn cushioned NIM (stable QoQ at 7.6%) Home equity NIM continues to remains steady at 5.1% Vehicle finance NIM has gradually improved, despite asset quality stress Staff cost jumped 25/20% YoY/QoQ due to one-time bonus payment Expenses ratio in HE remains steady QoQ, while that for VF is elevated With improving growth trends and controlled opex we expect C-AA to decline to 3.1% by FY18E In 2Q, CIFC shifted to 120DPD NPA recognition At 150DPD, GNPAs were stable QoQ at 3.39% PCR falls +700bps QoQ to <30%; VF GNPA stood at 5%; HE GNPA stands at 3.2%

2.5

3.0

3.5

4.0

35.0

40.0

45.0

50.0

55.0

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

C-I (%, LHS) Cost to AUM (%, ann.)

-

1.0

2.0

3.0

3.0

3.5

4.0

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

Vehicle Finance (% RHS) Home Equity Finance (% LHS)

-

2.0

4.0

6.0

-

2.0

4.0

6.0

8.0

10.0

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

Vehicle Finance (LHS) Home Equity (LHS)Vehicle Finance (%) Home Equity (%)

Rs bn

30.0

40.0

50.0

60.0

70.0

80.0

90.0

-

1.0

2.0

3.0

4.0

5.0

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

GNPA % NNPA % PCR (%. RHS)

5.0

6.0

7.0

8.0

9.0

10.0

11.0

14.0

14.5

15.0

15.5

16.0

16.5

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

Yields - LHS Cost NIMs % %

3.0

5.0

7.0

9.0

10.0

12.0

14.0

16.0

18.0

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

VH Yields - RHS HE Yields - RHSVH NIMs HE NIMs

% %

Page | 6


Provisions Remain Elevated Segmental Provisions: HE Providing Cushion

VF: GNPA And Pre-tax RoAA HE: GNPA And Pre-tax RoAA

RoAA: Higher Provisions Remains Drag


Provisions continue to rise as CIFC shifted to120 DPD and made additional standard assets provisions

HE provisions at 70bps includes 20bps towards 120 DPD

As it is ahead of the regulatory deadline, we believe CIFC has lowered the risk of higher provisions cost. However, we conservatively factor LLP of average 1.23% over FY15-18E while considering PCR improvement.

With stable NIM and marginal drop in provisions, VF pre-tax RoAA was steady at 2.2%

In the HE business, pre-tax RoAA dropped 30bps QoQ, led by sharp QoQ rise in provisions

Stable NIM and provisions coupled with controlled opex led to 10bps rise in RoAA

Over FY15-18E, we expect RoAA to inch up to 2.21% driven by improvement in efficiency coupled with stable NIM

-

0.5

1.0

1.5

2.0

0

500

1,000

1,500

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

Provisions Rs mn - RHS % of AUM (annu.)

-

0.5

1.0

1.5

2.0

2.5

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

Vehicle Finance Home Equity %

-

1.0

2.0

3.0

4.0

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

Pre-tax RoAA % GNPA (%)

-

1.0

2.0

3.0

4.0

5.0

6.0

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

Pre-tax RoAA % GNPA (%)

1.4

1.9

2.4

2.9

-10.0

-5.0

-

5.0

10.0

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16NII Other income OpexProvisions Tax RoA (RHS)

Page | 7


Change In Estimates

Rs mn FY16E FY17E FY18E

Old New Change Old New Change Old New Change NII 15,902 15,902 0% 18,469 18,507 0% 21,511 21,556 0% PPOP 11,503 11,503 0% 13,621 13,747 1% 16,057 16,333 2% PAT 5,258 5,222 -1% 6,576 6,442 -2% 7,840 7,736 -1% Adj. BVPS (Rs) 194.3 187 -4% 225 220 -3% 260 259 0%

Source: Company, HDFC sec Inst Research

Peer Valuations

NBFC CMP (Rs)

Mcap (Rs bn)

Rating TP

(Rs) ABV (Rs) P/E (x) P/ABV (x) ROAE (%) ROAA (%)

FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E CIFC 602 94 BUY 718 163 187 220 19.9 18.0 14.6 3.69 3.23 2.74 17.5 16.6 16.6 1.92 2.05 2.18 LICHF 489 247 BUY 569 150 179 211 17.8 14.2 12.3 3.26 2.73 2.32 18.1 20.5 20.1 1.43 1.54 1.51 MMFS* 232 131 NEU 289 86 87 97 15.2 16.3 13.0 2.61 2.59 2.30 15.5 13.1 14.9 2.49 2.09 2.32 SCUF 1,865 123 BUY 1,976 606 688 790 22.0 18.0 15.0 3.07 2.71 2.36 15.9 15.5 16.2 3.24 3.49 3.56 SHTF 945 214 BUY 1,065 390 423 484 17.3 16.0 13.4 2.42 2.23 1.95 14.1 13.7 14.5 2.41 2.22 2.40

Source: Company, HDFC sec Inst Research; * Adjusted for subsidiary

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MMFS : RESULTS REVIEW 2QFY16

Income Statement (Rs mn) FY13 FY14 FY15 FY16E FY17E FY18E Interest Earned 22,329 28,997 33,366 37,126 42,570 49,712 Interest Expended 14,110 17,711 19,604 21,223 24,063 28,156 Net Interest Income 8,219 11,286 13,762 15,902 18,507 21,556 Other Income 3,228 3,632 3,545 4,099 4,852 5,582 Total Income 11,447 14,918 17,307 20,001 23,359 27,138 Total Operating Exp 5,696 6,582 7,489 8,498 9,612 10,805 PPOP 5,751 8,336 9,818 11,503 13,747 16,333 Provisions & Contingencies 1,243 2,834 3,247 3,650 4,061 4,957 PBT 4,508 5,502 6,571 7,853 9,687 11,377 Provision for Tax 1,444 1,862 2,221 2,631 3,245 3,641 PAT 3,065 3,640 4,350 5,222 6,442 7,736


Balance Sheet (Rs mn) FY13 FY14 FY15 FY16E FY17E FY18E

SOURCES OF FUNDS

Share Capital 1,432 1,433 1,437 1,560 1,560 1,560 Reserves and surplus 18,216 21,514 25,289 34,564 39,988 46,366 Shareholders’ funds 19,648 22,947 26,727 36,124 41,548 47,926 Borrowings 152,890 180,932 194,752 219,358 257,141 311,673 Other Liabilities 9,310 11,589 12,247 16,369 19,233 21,837 Total liabilities 181,848 215,468 233,726 271,851 317,923 381,436

APPLICATION OF FUNDS

Advances 166,259 194,281 221,835 253,327 297,742 358,525 Investments 2,245 824 675 776 892 1,026 Fixed assets 707 729 683 786 904 1,039 Other Assets 12,637 19,634 15,539 16,962 18,384 20,845 Total assets 181,848 215,468 238,732 271,851 317,923 381,436


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Key Ratios

FY13 FY14 FY15 FY16E FY17E FY18E

Valuation Ratios

EPS 21.4 25.4 30.3 33.5 41.3 49.6 Earnings Growth (%) 64.5 18.7 19.1 10.6 23.3 20.1 BVPS 137.2 160.2 185.9 231.5 266.3 307.2 Adj. BVPS 134.2 148.0 162.9 186.5 219.6 259.0 ROAA (%) 1.9 1.8 1.9 2.0 2.2 2.2 ROAE (%) 18.1 17.1 17.5 16.6 16.6 17.3 P/E (x) 28.1 23.7 19.9 18.0 14.6 12.1 P/ABV (x) 4.5 4.1 3.7 3.2 2.7 2.3 P/PPOP (x) 15.0 10.3 8.8 8.2 6.8 5.8 Dividend Yield (%) 0.6 0.6 0.6 0.8 0.9 1.2 Profitability

Yield on Advances (%) 13.8 13.7 13.7 13.7 13.6 13.3 Cost of Funds (%) 10.6 10.6 10.4 10.3 10.1 9.9 Core Spread (%) 3.2 3.1 3.3 3.4 3.5 3.4 NIM (%) 5.1 5.3 5.7 5.9 5.9 5.8 Operating Efficiency

Cost/Avg. Asset Ratio (%) 3.6 3.3 3.3 3.3 3.3 3.1 Cost-Income Ratio 49.8 44.1 43.3 42.5 41.1 39.8 Balance Sheet Structure Ratios

Loan Growth (%) 41.1 22.4 9.5 13.1 17.5 20.4 Borrowing Growth (%) 33.6 18.3 7.6 12.6 17.2 21.2 Equity/Assets (%) 10.8 10.6 11.4 13.3 13.1 12.6 Equity/Loans (%) 10.3 9.9 10.5 12.5 12.3 11.8

FY13 FY14 FY15 FY16E FY17E FY18E

Asset Quality

Gross NPLs (Rs mn) 1,975.8 4,358.6 8,027.6 12,090.6 15,225.5 19,148.5 Net NPLs (Rs mn) 437.0 1,738.0 5,234.8 7,022.9 7,289.6 7,517.4 Gross NPLs (%) 1.0 1.9 3.1 4.2 4.5 4.7 Net NPLs (%) 0.2 0.8 2.0 2.4 2.2 1.8 Coverage Ratio (%) 77.9 59.7 34.9 41.9 52.1 60.7 Provision/Avg. Loans (%) 0.65 1.22 1.28 1.27 1.20 1.22 RoAA Tree

Net Interest Income 5.20% 5.68% 6.13% 6.29% 6.28% 6.16% Non Interest Income 2.04% 1.83% 1.58% 1.62% 1.65% 1.60% Operating Cost 3.60% 3.31% 3.33% 3.36% 3.26% 3.09% Provisions 0.79% 1.43% 1.45% 1.44% 1.38% 1.42% Tax 0.91% 0.94% 0.99% 1.04% 1.10% 1.04% ROAA 1.94% 1.83% 1.94% 2.07% 2.18% 2.21% Leverage (x) 9.35 9.33 9.04 8.04 7.59 7.82 ROAE 18.12% 17.09% 17.52% 16.62% 16.59% 17.29%


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RECOMMENDATION HISTORY

Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Date CMP Reco Target 07-Oct 641 BUY 728 27-Oct 602 BUY 718

400

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800

Oct

-14

Nov

-14

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-14

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15

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15

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-15

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-15

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-15

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15

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5

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-15

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-15

Cholamandalam Invest. TP

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Disclosure: We, Darpin Shah, MBA & Siji Philip, MBA authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in stock – No Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. 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In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HDFC Securities Ltd may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail and/or its attachments. HDFC Securities and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. HDFC Securities Ltd, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. HDFC Securities Ltd and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report. HDFC Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. HDFC Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction in the normal course of business. HDFC Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither HDFC Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. HDFC Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research Report.

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