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This NBFC Stock Can Fetch You 23% Return, Building Robust Newer Product Lines: Motilal Oswal

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Reputed brokerage firm Motilal Oswal suggests buying the stocks of Cholamandalam Inv & Fin (CIFC). The company is at a pivotal point in its evolution towards Chola 3.0 as it is building out newer product segments in Consumer, Small Enterprises, Secured, and Personal loans.

 

Target Price, Current Market Price

Target Price, Current Market Price

The Current Market Price (CMP) of Cholamandalam Investment and Fin Co. Ltd. (CIFC) is Rs. 634. Motilal Oswal has estimated a Target Price for the stock at Rs. 780. This stock has the potential to give a 23% return, in the upcoming 1 year. This is a large-cap company with a market capitalization of around Rs. 52,641 crore.

Stock Outlook 
Current Market Price (CMP)Rs. 634
Target PriceRs. 780
Potential 1 year return23.00%
52 week high share priceRs. 768.00
52 week low share priceRs. 469.25



CIFC has demonstrated a healthy improvement in asset quality in the last nine months of FY22 on the back of much lower write-offs and repossession costs relative to its peers. It will exhibit higher delinquencies in 1HFY23 as customers report lower earnings on higher fuel prices (despite an improvement in freight rates).

CIFC is offering a dividend yield of 0.31%.

Stock advantages and risks: Motilal Oswal
 

Stock advantages and risks: Motilal Oswal

About the stock's advantages, Motilal Oswal said, "We expect a strong 2HFY23, with the 30+dpd reverting back to ~7% by FY23 (v/s 12% in Mar'22). If there are no more severe COVID waves in India, we expect the company to utilize the management overlay as asset quality risks recede. We estimate higher credit costs (~200bp) in newer business lines and ~100bp for traditional businesses for a blended credit cost of 110bp (on loans) in FY23-24."

"The management's endeavor will be to gradually reduce cyclicality, which is inherent in its core Vehicle Finance business, by building a fairly diversified loan book, which can withstand the test of economic and credit cycles from a growth and asset quality paradigm. We model an AUM/PAT CAGR of 21%/15% over FY22-24, with an RoA/RoE of 2.6%/19% in FY24. CIFC is our high conviction idea within our NBFC coverage universe. We reiterate our Buy rating," Motilal Oswal added.

Company profile

Company profile

Chola was incorporated in 1978 as the financial services arm of the Murugappa Group. Chola commenced business as an equipment financing company and has now emerged as a comprehensive financial services provider offering vehicle finance, home loans, home equity loans, SME loans, investment advisory services, stock broking, and a variety of other financial services to customers. Chola operates from 1145 branches across India with assets under management above Rs. 76,907 Crores. The subsidiaries of Chola are Cholamandalam Securities Limited (CSEC) and Cholamandalam Home Finance Limited (CHFL). CIFC has a clear 'right to win' in the Vehicle Finance business as it has delivered industry-leading growth in various cycles, with a relatively superior asset quality as compared to its peers.

Disclaimer

Disclaimer

The above stock was picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.

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Story first published: Tuesday, June 28, 2022, 16:46 [IST]
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