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    Cholaman.Inv.&Fn

    CHOLAFIN
    Financial Services·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

    5
    • 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

    3
    • 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.

    What Changed1

    vs Q4 FY25

    Guidance items14 → 15 (+1)
    Key financials

    Metrics

    10

    Periods

    3

    Headline

    4
    • Total AUM
      ₹1.89L Cr
      YoY+34%
    • Stage 3 Assets
      2.9%
      QoQ+0.1%
    • GNPA
      4%
      QoQ+0.2%
    • NNPA
      2.7%
      QoQ+0.2%

    Q3

    5
    • 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

    1
    • Disbursements
      ₹74,452 Cr
      YoY+16%

    Segment breakdown

    • Vehicle Finance₹14,390 Cr55.8%
    • Loan Against Property₹4,205 Cr16.3%
    • Home Loans₹1,820 Cr7.1%
    • SME₹1,911 Cr7.4%
    • CSEL₹3,149 Cr12.2%
    • Secured Business & Personal Loans₹331 Cr1.3%
    Donut· Share of Disbursements (Q3)

    Capital allocation

    3
    high confidence
    CategoryHeadline
    Dividend

    ₹1.3/share (interim)

    M&A

    Financial Instruments

    divestment · closed · Consideration ₹NaN (undisclosed)

    Liquidity

    Cash ₹15,159 crores

    Total liquidity position of INR15,677 crores, including undrawn sanction lines. ALM is comfortable with no negative cumulative mismatches.

    Guidance & targets

    15
    CategoryTargetPriority
    Overall Growth
    AUM Growth
    25%
    High
    Overall Growth
    AUM Growth (with disbursement)
    25% (with 18% disbursement growth)
    High
    Asset Quality
    CSEL NCL
    below 5%
    Medium
    Asset Quality
    SME NCL
    0.5%
    High
    Asset Quality
    Vehicle Finance Net Credit Cost
    start coming down
    Medium
    Asset Quality
    Overall Credit Cost
    1.4%
    High
    Asset Quality
    Overall Credit Cost
    lower
    High
    LAP Growth
    Disbursement Growth
    25%
    High
    LAP Growth
    AUM Growth
    35-40%
    High
    Home Loan Growth
    Disbursement Growth
    15%
    High
    Home Loan Growth
    Book Growth
    25-30%
    High
    Home Loan Yields
    Yields
    15.9-15.7%
    High
    Operational Efficiency
    Opex to Assets Ratio
    3%
    High
    Operational Efficiency
    Opex to Assets Ratio
    flat
    Medium
    Operational Efficiency
    Opex to Assets Ratio
    reduce
    Medium

    CSEL NCL reduction

    Next quarter/year
    Current~5.75% (with partnerships)
    TargetBelow 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.

    How to verify

    key_financials.metrics[label='NNPA%']

    Risks & concerns

    4
    RiskSeverity

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

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

    medium

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

    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

    medium

    Elevated credit costs due to LAP normalization and new business seasoning

    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

    medium

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

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

    medium

    Q&A highlights

    8

    “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

    2 min read5 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.