New Year Buy: This Murugappa Group Stock Gave 178.13% In 5 Years, Axis Securities Says Buy

Axis Securities has picks Cholamandalam Investment & Finance Company Limited (CIFC), a midcap company that operates in the Financial Sector, as its top buy for 2023. The brokerage has given a "Buy" to the stock with a target price of Rs 845 apiece. According to the given target price, the brokerage sees a potential upside of 17% in the share price from its current level.

Stock Outlook & Returns

The current market price (CMP) of CIFC stood at Rs 722.90 apiece, 1.10% up from the previous close. On 6 September 2022, the stock touched its 52-week high at Rs 817.75 apiece, and on 30 December 2021, it hit its 52-week low at Rs 504.25 apiece, respectively. It has a market capitalisation of Rs 59,386.01 crore. 

It has given 3.38% positive returns in a week. The stock in 1 month gave 1.13% positive return, and in 3 months it gave 1.27% negative returns, respectively. Over a year, it gave 42.11% positive return. In 3 years, it gave 136.51% multibagger returns and in 5 years it gave 178.13% multibagger returns.

Robust disbursement momentum

The company's disbursements in Q2FY23 stood strong at Rs 146.2 Bn, up 68% YoY. The said growth was led by vehicle book (up 38% YoY, 58% share) and LAP and SME book (up 38% YoY, 15% share). In the Housing business, its disbursements grew by 23% YoY. The growth momentum in the commercial vehicle segment, too, is expected to remain strong supported by the recovery in the macroeconomic environment as well as improved freight availability. Furthermore, the management expects the Passenger Vehicle (PV; Car and MUV) segment to post all-time high sales numbers in this fiscal. This would be aided by improved consumer sentiments, festive demand, and the easing semiconductor supply. We expect the company to exhibit a robust set of disbursement performance in the coming quarters.

 

High yield products to support NIMs

The management expects the cost of funding to increase by ~60-70bps in FY23 as compared to FY22, thereby moderating NIMs in the next 2-3 quarters. However, the company will carry out changes in the product mix would, depending on the demand in the geography, which would aid in increasing the company's NIMs. On the NIMs sustainability front, the management highlighted that the LAP and housing finance segment have floating rates and thus the management can pass the rate hike in such segments. We believe with the focus on growing high-yield new business segments (~5% of the total AUM), the company would be able to maintain NIMs over the medium term.

Strong Balance Sheet to support growth

CIFC remains well capitalized with CAR at 18.4% in Q2FY23 with Tier 1 capital at 15.8%, creating enough room to support strong growth momentum in FY23. The management indicated that CIFC will continue to depend on banks for funding and doesn't foresee any changes in the liability mix given its strong credit rating profile. The share of debentures in overall borrowings has gone up to 18% from 14% YoY on account of SEBI's norm of maintaining 25% of incremental borrowings from market borrowings. Furthermore, as long as CIFC continues to touch CAR of 13%, it won't need to raise capital.

Strong Outlook, Buy for Rs 845 target price

CIFC is witnessing increasing disbursements which would help grow its AUM moving forward. The management commented in the Q2FY23 result conference call that the company is outpacing the industry growth rates on account of value growth in terms of inflation and cost of the vehicle as well as growth in the market share. This has been an encouraging sign. CIFC with its conservative management, comfortable liquidity position, and diversified portfolio mix is wellplaced to ride on the expected demand recovery. "We maintain a BUY rating on the stock with a target price of Rs 845/share, implying an upside of 17% from the CMP," the brokerage has said.

About The Company

Cholamandalam Investment & Finance Company (CIFC) - part of the prestigious Murugappa Group, is one of the premier diversified non-banking finance companies in India, engaged in providing vehicle finance, home loans, and loans against property. The company has a strong network of 1,151 branches spread across the country with an employee strength of over 38,000. 

Disclaimer

The stock has been picked from the brokerage report of Axis Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.