Vehicle loans put Chola Investment in top gear; disbursement surges 55%

The stock price of Cholamandalam Investment and Finance Company (Chola Investment) scaled to its new 52-week high in Monday’s intra-day trades at Rs 1,714.85 (up 9.4 per cent), before closing the day with net gains of over six per cent. 

A strong set of numbers for the January-March 2018 quarter (Q4) reported by the company triggered the surge. A robust performance by the company’s vehicle finance business, which accounted for 73 per cent of its total assets under management (AUM; size of the loan book), as of March 2018 and over 85 per cent of total disbursements in Q4, mainly boosted the overall performance.

During Q4, Chola Investment’s vehicle finance disbursement surged 54.8 per cent year-on-year, owing to a strong performance by the commercial vehicle sector. “HCV (heavy commercial vehicles) and LCV (Light commercial vehicles) continued to show strong growth, complemented by used vehicles. The vehicle finance business has recorded the highest disbursement volume during the quarter,” noted the company. The sales volumes of auto companies such as Tata Motors and Ashok Leyland are proof of strong demand for commercial vehicles.

Even on the asset quality front, the vehicle business played well in Q4 with gross non-performing asset (NPA) and net NPA from this segment contracting by 74 and 54 basis points, respectively, sequentially. Overall, gross NPA of the company stood at 2.9 per cent (76 basis points down sequentially) and net NPA stood at 1.7 per cent (down 68 basis points sequentially) as of March 2018. 

Q4 is a strong quarter for the rural-focused companies such as Chola Investment in terms of recoveries. The firm has around 79 per cent exposure, in terms of branch network, in the rural areas as of March 2018. Though not strictly comparable, these numbers are soothing when considered with reference to the overall weak environment in the banking industry.
 

The aggregate disbursements during the quarter marched northward by 53.6 per cent. The overall AUM grew by 25.5 per cent as of March 2018 year-on-year. On a standalone basis, the firm’s net interest income (difference between interest earned and interest expended) surged 34 per cent year on year and net profit by 32.4 per cent during Q4.

Disbursements in the home equity business rose over 48 per cent year-on-year.

And the segment’s NPA ratios contracting 60-90 basis points, sequentially.
 

With the overall numbers in line with expectations and the improvement in asset quality, analysts are bullish on the stock. 

“Overall, Q4 results are satisfactory and in-line with expectations. But, the main surprising element is in terms of the improved asset quality because many other non-banking finance companies are grappling with the bad assets. So, we are positive on the stock,” says Rajesh Gupta, AVP-retail research at SBICAP Securities.