Cholamandalam Investment and Finance Company Limited — Q3 FY25 earnings call

Call held 31 Jan 2025

Management summary

Cholamandalam Investment and Finance reported strong Q3 FY25 results with robust growth in disbursements, AUM, and profitability. While asset quality saw a slight uptick in Stage 3 and GNPA, management expects improvements in the coming quarters, particularly as they exit certain partnership businesses. The company maintains healthy capital adequacy and liquidity, with a focus on sustained growth and operational efficiency, though opex to assets is expected to remain elevated in the near term due to strategic investments.

Highlights

  • Disbursements grew by 15% YoY to ₹25,806 crores in Q3 FY25, with YTD growth of 16% to ₹74,452 crores.

  • Total AUM increased significantly by 34% YoY, reaching ₹1,89,141 crores.

  • Net Income for Q3 FY25 was ₹3,541 crores, a 37% YoY increase, and YTD Net Income grew 39% to ₹9,812 crores.

  • PAT for Q3 FY25 rose by 24% YoY to ₹1,087 crores, with YTD PAT up 27% to ₹2,992 crores.

  • Capital Adequacy stood at a robust 19.76% (Tier 1 at 14.92%), comfortably exceeding the 15% regulatory requirement.

Concerns

  • Stage 3 assets (90+ DPD) increased slightly to 2.91% in Dec '24 from 2.83% in Sep '24, with GNPA rising to 4% from 3.78%.

  • NCL in CSEL is currently higher due to partnership business and small ticket size loans, though expected to improve as partnerships are exited.

  • Opex to assets ratio remains elevated at ~3% due to ongoing investments in new businesses and digital platforms, with reduction anticipated only after 2 years.

Key financials

3 periods

Headline

  • Total AUM
    ₹1.89L Cr
    YoY +34%
  • Stage 3 Assets
    2.9%
    QoQ +0.08%
  • GNPA
    4%
    QoQ +0.22%
  • NNPA
    2.7%
    QoQ +0.18%

Q3

  • Disbursements
    ₹25,806 Cr
    YoY +15%
  • Net Income
    ₹3,541 Cr
    YoY +37%
  • PAT
    ₹1,087 Cr
    YoY +24%
  • PBT ROA
    3.2%
  • ROE
    19.6%

YTD

  • Disbursements
    ₹74,452 Cr
    YoY +16%

What they filed

Q1 FY27: revenue up 21.9%, net profit up 45.5% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue6,255 6,733 7,046 7,267 7,491 +20%7,898 +17%8,417 +19%8,856 +22%
Net profit968 1,088 1,260 1,138 1,160 +20%1,290 +19%1,645 +31%1,656 +46%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of Disbursements (Q3)
₹25,806 Cr Total
  • Vehicle Finance ₹14,390 Cr 55.8%
  • Loan Against Property ₹4,205 Cr 16.3%
  • CSEL ₹3,149 Cr 12.2%
  • SME ₹1,911 Cr 7.4%
  • Home Loans ₹1,820 Cr 7.1%
  • Secured Business & Personal Loans ₹331 Cr 1.3%

Capital allocation

high confidence
  • Dividend ₹1.3/share (interim)
    In terms of dividend, the Board of Directors approved the payment of an interim dividend of 65% being INR1.30 per share on the equity shares of the company for the year ending March 31, 2025.
  • M&A Financial Instruments Divestment · Closed · Consideration ₹[object Object] (undisclosed)

    Opportunity to do assignment

    Net gain on derecognition of financial instruments of INR65 crores.

    I just had a couple of data questions. So one is in your P&L you have this net gain on derecognition of financial instruments of INR65 crores. Is this assignment? I just wanted to confirm that. Yes, it is an assignment. We have an opportunity to do. Normally, we have not been doing, but this time there was a request from one of the banks so we thought we'll do it.
  • Liquidity Cash ₹15,159 Cr Total liquidity position of INR15,677 crores, including undrawn sanction lines. ALM is comfortable with no negative cumulative mismatches.
    The company continues to hold a strong liquidity position with INR15,159 crores as cash balance at the end of December 2024, (including INR3,421 crores invested in GSEC and SDL and INR1,694 crores invested in T-Bills and INR758 crores invested in Strips which is shown under investments), with a total liquidity position of INR15,677 crores, (including undrawn sanction lines). The ALM is comfortable with no negative cumulative mismatches across all-time buckets.

Guidance & targets

Overall Growth

  • AUM Growth Overall Growth · next financial year · High confidence 25%
    No, we are holding on it. That 25% growth we are going to deliver that even next financial year.

    — Ravindra Kundu

  • AUM Growth (with disbursement) Overall Growth · High confidence 25% (with 18% disbursement growth)
    If we disburse at the rate of 18% our growth can be 25% can be achieved in terms of AUM.

    — Ravindra Kundu

Asset Quality

  • CSEL NCL Asset Quality · initially · Medium confidence below 5%

    From ~5.75% today

    But obviously, when it will start coming down, the significant amount of NCL, which is showing up like it is 5.75, initially, it will come down below 5, and then it will start coming down further.

    — Ravindra Kundu

  • SME NCL Asset Quality · steady state · High confidence 0.5%
    So 0.5% is the NCL, you can take it as a steady state for the SME business.

    — Ravindra Kundu

  • Vehicle Finance Net Credit Cost Asset Quality · from quarter 4 onwards · Medium confidence start coming down
    From Chola's point of view, since our exposure are less in HCV, our net credit cost should start coming down from quarter 4 onwards.

    — Ravindra Kundu

  • Overall Credit Cost Asset Quality · FY · High confidence 1.4%
    As of now, 1.4%. We are expecting quarter 4 to be better, but let's take 1.4% as our target.

    — Ravindra Kundu

  • Overall Credit Cost Asset Quality · next financial year · High confidence lower

    From 1.4% today

    Yes. That's correct. Absolutely. Next year it will be better than this financial year.

    — Ravindra Kundu

LAP Growth

  • Disbursement Growth LAP Growth · steady state · High confidence 25%
    So you can take 25% of disbursement growth and 35% to 40% of the AUM growth for LAP.

    — Suresh

  • AUM Growth LAP Growth · steady state · High confidence 35-40%

    — Suresh

Home Loan Growth

  • Disbursement Growth Home Loan Growth · next 2-3 years · High confidence 15%
    For HL, I have already answered, we are looking at 15% disbursement growth and 25% to 30% book growth for next at least 2 to 3 years.

    — Prashant

  • Book Growth Home Loan Growth · next 2-3 years · High confidence 25-30%

    — Prashant

Home Loan Yields

  • Yields Home Loan Yields · High confidence 15.9-15.7%
    So this 15.9% to 15.7% is the income we are quite comfortable and we are hoping that this will be maintained.

    — Ravindra Kundu

Operational Efficiency

  • Opex to Assets Ratio Operational Efficiency · currently · High confidence 3%
    So therefore, we mention that currently, we are expecting our opex to be there at a 3% level.

    — Ravindra Kundu

  • Opex to Assets Ratio Operational Efficiency · for some time · Medium confidence flat
    Opex to asset is going to be flat for some time.

    — Ravindra Kundu

  • Opex to Assets Ratio Operational Efficiency · after 2 years · Medium confidence reduce
    And then definitely, we will be reducing the opex, which is going to be after 2 years, not year-on-year immediate.

    — Ravindra Kundu

What to watch in Q4 FY25

CSEL NCL reduction

Next quarter/year
Current ~5.75% (with partnerships)
Target Below 5%

Why it matters

Indicates success of strategy to exit partnerships and improve asset quality in new businesses.

But obviously, when it will start coming down, the significant amount of NCL, which is showing up like it is 5.75, initially, it will come down below 5, and then it will start coming down further.

Risks & concerns

  • Higher NCL in CSEL due to partnerships and small ticket size loans

    medium

    CSEL NCL is higher due to partnership business, which the company is exiting over the next year, and small ticket size loans.

    Management acknowledged

  • Slower improvement in asset quality for vehicle finance due to macro factors

    medium

    Capacity utilization for vehicles (especially heavy commercial) and IIP are still not at last year's levels, leading to slower asset quality improvement than expected.

    Management acknowledged

  • Elevated credit costs due to LAP normalization and new business seasoning

    medium

    Credit costs are impacted by the cessation of LAP reversals and seasoning of new business loans, leading to a 1.4% FY target.

    Management acknowledged

  • Opex to assets remaining elevated due to new investments and growth phase

    medium

    Investments in new businesses, digital platforms, and branch expansion are keeping opex to assets at ~3%, with reduction expected after 2 years.

    Management acknowledged

Q&A highlights

8 direct
Asset quality in new businesses (CSEL, SME) and expected improvement. Direct
At the same time, the CSEL is actually showing a little higher NCL. That is because of the partnership is actually showing higher NCL. ... And as we come out of the small ticket size loan where the NCLs are high, you will see that the NCL of CSEL will start coming down.

Management clarified the drivers of higher NCL in CSEL and outlined the strategy to improve it by exiting partnerships and reducing small ticket loans.

Asked by Dhaval Gada

Credit cost normalization and steady-state credit cost for CSEL/SME. Direct
So 0.5% is the NCL, you can take it as a steady state for the SME business. ... But obviously, when it will start coming down, the significant amount of NCL, which is showing up like it is 5.75, initially, it will come down below 5, and then it will start coming down further.

Provided specific steady-state NCL targets for SME and a clear trajectory for CSEL NCL improvement, offering clarity on future credit costs.

Asked by Dhaval Gada

Overall growth expectation (25%) for next year. Direct
No, we are holding on it. That 25% growth we are going to deliver that even next financial year.

Reiterated the company's commitment to a 25% growth target for the upcoming financial year, confirming consistency in guidance.

Asked by Dhaval Gada

Asset quality trend (Q4 better than Q3) and credit cost guidance. Direct
Yes. Yes, quarter 4 will be better than the quarter 3 and it has been like that. But if you see that in general, second half normally from quarter 3 onwards start doing better. ... So though it will happen definitely quarter 3 to quarter 4 improvement, it will not be to the level of the last year.

Management confirmed expected Q4 improvement in asset quality but cautioned that the pace might be slower than previous years due to prevailing macro conditions.

Asked by Akshay Jain

Elevated credit costs and new business stress, specifically SBPL. Direct
Yes, so first of all, before coming to vehicle finance, I'll tell you that it is not only the credit cost is basically coming up from the new business. It is also the reversal of the credit cost from the LAP, which was coming, which has now -stopped and then they started getting into the normalization of the credit cost. ... Now coming to the SBPL. SBPL is delivering 6% plus ROA and their NCL is likely to be 1.5% to 2% in a steady-state situation.

Explained the sources of elevated credit costs (LAP normalization, new business seasoning) and provided specific performance metrics and NCL targets for the SBPL segment.

Asked by Akshay Jain

GNPA vs Stage 3 divergence. Direct
Yes. When the market becomes very good, then all the GNPA customers who have actually come back from Stage 3 will become normalized. But what is happening there, the things have just started improving. So some people would have come back, but it's still showing up GNPA because once you touch the GNPA and it has come down to, say, 30 from 60 or 60 from 90, still the customer will be in GNPA, where in the Stage 3, once customer is coming below 90 DPD, it is coming out of the Stage 3. So during this kind of situation where things have started improving, there is always a gap in Stage 3 and GNPA.

Clarified the reason for the persistent gap between GNPA and Stage 3 figures, attributing it to the slow pace of customer normalization even after moving out of the highest delinquency bucket.

Asked by Akshay Jain

Headcount increase and collection efficiency. Direct
At the same time, when it comes to the collection, the collection executives are given more number of accounts during this situation. And this time, we have hired around 55% people in the collection only and majorly people have actually gone to the collection. ... 31,000 is collection now.

Detailed the company's strategic investment in collection infrastructure, including a significant increase in dedicated collection staff and implementation of bucket-wise strategies.

Asked by Harshit Toshniwal

Used vehicle and two-wheeler stress. Direct
So two-wheeler, tractor and small commercial vehicle, light commercial vehicle and used commercial vehicles, all these five products the delinquency started or infant delinquency started moving up from the quarter 2 of the last financial year itself which is because of the consumption, because of the rural economy not doing well at that point in time, then consumption in urban also impacted, last mile transportation got impacted. And now we are seeing that all of these are actually started improving, especially from November and December.

Provided a comprehensive overview of asset quality trends across various vehicle segments, acknowledging past stress but highlighting recent improvements from November/December.

Asked by Abhijit Tibrewal

2 min read 5 chapters

Detailed narrative

Strong Financial Performance in Q3 FY25

Cholamandalam Investment and Finance Company Limited reported robust financial results for Q3 FY25, with disbursements reaching INR 25,806 crores, marking a 15% year-on-year growth. Year-to-date disbursements stood at INR 74,452 crores, up 16%. The total Assets Under Management (AUM) grew significantly by 34% year-on-year to INR 1,89,141 crores. Net Income for the quarter was INR 3,541 crores (up 37% YoY), contributing to a year-to-date Net Income of INR 9,812 crores (up 39% YoY). Profit After Tax (PAT) for Q3 FY25 was INR 1,087 crores, a 24% increase year-on-year.

Asset Quality Trends and Outlook

The company observed a slight increase in Stage 3 assets (90+ DPD) to 2.91% in December 2024 from 2.83% in September 2024, with GNPA (RBI norms) at 4% and NNPA at 2.66%. Management indicated that while vehicle finance asset quality is slowly improving, newer businesses like CSEL showed higher NCLs due to partnerships, which the company is exiting. SME NCL is expected to stabilize at 0.5% in the steady state, with overall credit costs targeted at 1.4% for the current fiscal year and expected to be lower next year.

Segmental Performance and Growth Drivers

Vehicle finance disbursements grew by 16% to INR 14,390 crores in Q3 FY25, with management noting improvements in early delinquencies for small and light commercial vehicles, used CVs, and tractors. Loan Against Property (LAP) disbursements increased by 23% to INR 4,205 crores, and Home Loans grew by 15% to INR 1,820 crores. SME disbursements saw a modest 1% year-to-date growth, while CSEL disbursements increased by 14% to INR 3,149 crores, despite higher NCLs in the partnership segment. Secured Business & Personal Loans disbursements grew 18% to INR 331 crores in Q3.

Operational Efficiency and Cost Management

The company's PBT ROA for Q3 FY25 was 3.2%, with ROE at 19.6%. Management highlighted efforts in collection, increasing manpower to 31,000 and implementing bucket-wise strategies. Opex to assets is currently around 3% and is expected to remain flat for some time due to ongoing investments in new businesses, digital platforms, and branch expansion. A reduction in opex to assets is anticipated after approximately two years, once these investments mature.

Liquidity and Capital Adequacy

Cholamandalam maintains a strong liquidity position, with a cash balance of INR 15,159 crores and a total liquidity position of INR 15,677 crores, including undrawn sanction lines. The capital adequacy ratio stood at a healthy 19.76% as of December 31, 2024, well above the regulatory requirement of 15%, with Tier 1 capital at 14.92%. The Board approved an interim dividend of INR 1.30 per share (65%) for the financial year ending March 31, 2025.

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