Anand Rathi

Target: ₹1,425

CMP: ₹1,087

Marquee NBFC upping the ante in digital, SME and consumer finance. We believe Cholamandalam Investment and Finance Company Ltd (CIFC) is at an inflexion point with structural changes in its long-term RoA, which will reflect from FY25 onwards as the share of new businesses in disbursements improves (now over 20 per cent).

We believe the new businesses have been designed for a higher RoTA than the traditional businesses. Besides, this will make its higher loan growth moresustainable.

3C principles act as the guiding compass for the new businesses. Despite a large proportion of SENP borrowers, the company emerged unscathed from Covid on account of its strong underwriting skills and collection processes. The new businesses are being built in the same Culture, Credit underwriting standards and Collection first principles.

Valuation. We raise our target price to ₹1,425, at which the stock trades at 4.7x FY25e P/BV, a 33% discount to our multiple for BAF but at a premium to other NBFCs on account of its strong promoter group and sound processes and systems.

Key Risk. Higher than anticipated delinquencies in new businesses.