Cholamandalam Investment and Finance Company Ltd Q3 FY23 Earnings Conference Call Insights

Key highlights from Cholamandalam Investment and Finance Company Ltd (CHOLAFIN) Q3 FY23 Earnings Concall

Q&A Highlights:

• [00:11:08] Abhijit Tibrewal of Motilal Oswal asked about new business disbursement trajectory improving and if it will continue going forward. Vellayan Subbiah Chairman said that the delinquency seen in new business are significantly lower than the market trends. However, it’s only one year and the company needs to wait for that.

• [00:14:22] Umang Shah with Kotak Mahindra enquired about the home equity business outlook for the next 2-3 years in terms of growth and profitability. Vellayan Subbiah Chairman said that business growth in Tier 3, Tier 4 cities is good and will continue going forward. In disbursement also expansion is expected.

• [00:21:21] Umang Shah with Kotak Mahindra asked about reason for bounce rate in new business lower than peers. Vellayan Subbiah Chairman answered that in the credit modal, underwriting is fully digitized and credit score deviations are strictly monitored. Also efficiency is 99.72% on the current bucket with bounce rates being sub 5%.

• [00:23:37] Shweta Daptardar at Elara queried about AUM growth surpassing 22% and if the guidance has changed. Arul Selvan CFO answered that the company is currently looking at growth in the range of 27-30% for FY23.

• [00:25:05] Shweta Daptardar at Elara enquired if going forward CHOLAFIN expects the NIMs to remain steady or better. Arul Selvan CFO said that the company is monitoring the NIMs and it expects it to hold. It also added that there will be a hit of 40-50 bp on account of cost of funds YonY.

• [00:29:49] Nidhesh Jain from Investec enquired that on the new initiatives on the unsecured side, what’s CHOLAFIN’s comfort level on AUM mix over medium term. Arul Selvan CFO replied that CHOLAFIN currently is not doing any flexi loans, 80% is term loan. The company said it is comfortable the way things are going now.

• [00:36:06] Chandra Shekhar with Fidelity asked about the cost to assets on the home loan business. Arul Selvan CFO said that for home loan CHOLAFIN is expanding in all directions and this is yielding in net growth on book value. Across India, CHOLAFIN is present at 462 branches across India. Currently the marginal increase in cost is due to branch expansion and manpower.

• [00:36:28] Chandra Shekhar with Fidelity also asked that on the new business, how much is CHOLAFIN sourcing from traditional vs. partnership channels. Vellayan Subbiah Chairman said that two-third of the business is coming from traditional and one-third from partnership. In the growth phase also, CHOLAFIN intends to keep that level.

• [00:42:38] Param Subramanian of Macquarie asked about recoveries from the repo sale of INR50 crore for 3Q23 and if it’s sustainable. Vellayan Subbiah Chairman answered that it’s going to be in line with the disbursement growth and income growth and it’s also amortized.

• [00:47:08] Anurag Mantri of East Bridge Advisors asked about the credit cost trends from now on in the vehicle finance P&L that declined from 2% to sub 1% and if it’s the new normal.  Arul Selvan CFO said that 3Q and 4Q have been good qtr. for vehicle finance. However, 4Q will be better than 3Q. And current level is the full year normalized level going forward.

• [00:48:39] Rikin Shah with Credit Suisse asked about employee headcount, the plans to add headcount to roll out all the new businesses. Arul Selvan CFO said new business is in the pilot phase, so it will grow and headcounts will be added accordingly. However, the exact numbers cannot be disclosed.

• [00:49:02] Rikin Shah  with Credit Suisse also asked about the split of restructured loan book as on Dec. between Stage 1,2 and 3. Arul Selvan CFO replied that the restructured book is around INR2,800 and at peak it was around INR5,000 crores. About INR259 crore is in Stage 1, INR2,000 crores in Stage 2 and about INR500 crores in Stage 3.