Cholamandalam Investment surges 11% on robust June quarter result

Shares of Cholamandalam Investment and Finance Company (CIFC) moved higher by 11 per cent to Rs 529 on the BSE in the intra-day trade on Monday on the back of heavy volumes after the non-banking finance company (NBFC) reported a good set of numbers for the quarter ended June 2021 (Q1FY22).

Trading volumes on the counter jumped nearly three-fold with a combined 15.85 million equity shares changing hands on the NSE and BSE till 03:10 pm. In comparison, the S&P BSE Sensex was up 0.70 per cent, or 369 points, at 52,955.55 points.

In Q1FY22, CIFC reported profit after tax (PAT) of Rs 330 crore, up 34 per cent on quarter on quarter (QoQ) and down 24 per cent year on year (YoY). This was on account of a strong control over opex and despite elevated credit costs, which were up 10 per cent QoQ.

Total asset under management (AUM), meanwhile, grew 7 per cent YoY at Rs 75,763 crore. Disbursements were up 1 per cent YoY at Rs 3,589 crore during the quarter as purchase of vehicles were predominantly deferred. Collections also suffered, resulting in increase in Stage 3 assets from 3.96 per cent to 6.79 per cent.

"Many of the borrowers and the staff of CIFCL were impacted by the pandemic in the second Covid wave, whereby the priority shifted from business to protecting the well-being of the affected persons. This resulted in a setback in performance in Q1 on the disbursements and collections front," the company said.

That said, it has witnessed a recovery in disbursements and collections during the latter part of June 2021, post relaxation of state wise lockdowns. The company expects a gradual revival in subsequent quarters in FY 22 with normalization and rollbacks of accounts which moved to higher buckets.

Brokerage firm Motilal Oswal Financial Services believes the blip in disbursements in Q1FY22 is only transitory and could be a function of the widespread lockdowns and CIFC’s core customer segment’s inability to make a purchase decision. Given the strong demand improvement since the relaxation of the lockdowns and improvement in business activity, the brokerage firm expects a strong pickup in disbursements from Q2FY22.

"In our view, most of the asset quality deterioration in Q1FY22 could be a result of its ‘earn and pay’ CV customer’s inability to earn in Apr/May’21 and to make repayments. This could have led to forward flows into Stage2/3. Collection efficiencies improved MoM in Jun’21; we should see a gradual improvement in asset quality over the remainder of FY22," it said.

“We expect strong recovery in disbursements from Q2FY22. Also, we expect asset quality to show gradual recovery – given the pickup in business activity and improvement in collections in the second half of Jun’21. Recovery in asset quality may be quicker if states such as Kerala, West Bengal, and Odisha (which are still reeling under relatively stringent lockdowns) start showing an improvement in business activity,” the brokerage said in a result update.