Cholamandalam Investment and Finance Company Ltd Q4 FY22 Earnings Conference Call Insights

Key highlights from Cholamandalam Investment and Finance Company Ltd (CHOLAFIN) Q4 FY22 Earnings Concall

Management Update:

• CHOLAFIN said it delivered its best-ever disbursals, collections and profitability in Q4, aided by strong signs of recovery in both auto and the mortgage industry.

Q&A Highlights:

• Dhaval Gada of DSP asked about the drivers for disbursement of INR1,500 crores in 4Q22. Ravindra Kundu ED replied that whatever CHOLAFIN expected, it has come in that line, as far as the new business is concerned.

• Dhaval Gada of DSP asked about maintaining PBT-ROTA at about 3.9% for next year. Vellayan Subbiah MD replied that on the ROTA front, CHOLAFIN always internally target 0.5%. The company added that it’s optimistic that between 3.5-3.9% is going to be any number. So NIM impact will get offsetted by the reduction in the NPLs.

• Dhaval Gada of DSP also asked about the stock of standard restructured loan at the end of 4Q and how much of that is already in Stage 2. Arul Selvan CFO answered that INR3,800 crores was the total restructured book as of end of March, and there’s INR3,362 crores in Stage 2. But Stage 2 represents both Stage 1 and Stage 2, because CHOLAFIN present all the books in Stage 2 only. So only INR444 crores is in Stage 3.

• Rikin Shah from Credit Suisse asked about the drivers of opex coming in higher in 4Q and yield marginally declining sequentially. Arul Selvan CFO said that the reason is disbursements are higher and AUM growth is slower. So there is a denominator effect. And also investing on new businesses was an opex driver.

• Rikin Shah from Credit Suisse also asked about bank borrowings, the benchmark tool and how often it gets repriced. Vellayan Subbiah MD answered that on borrowings, almost 55% is bank borrowings, rest are all from the market as well as securitization, which are fixed rates, so they don’t change. On bank borrowings, almost 30% is benchmarked and 15% would be the MCLR and balance 5% would be fixed rate. The benchmark rate as well as MCLR tend to be repriced either quarterly, half-yearly or annually.

• Rikin Shah from Credit Suisse enquired about the total amount of ECLGS disbursements as of today. Vellayan Subbiah MD replied that for ECLGS, CHOLAFIN has not done any disbursement.

• Umang Shah of  Kotak Mutual Fund asked about the AUM growth outlook. Vellayan Subbiah MD said that the company is starting at this stage optimistic on AUM growth. However, there is enough volatility and it’s very difficult to predict about the real growth numbers, especially in core products and segments.

• Umang Shah of Kotak Mutual Fund asked about asset quality and if CHOLAFIN has any net NPA target in mind. Arul Selvan CFO answered that CHOLAFIN would like to keep it below 4%, considering the new norms. At least for the current year, that would be the target.

• Umang Shah of Kotak Mutual Fund also asked about the total write-off during 4Q22. Arul Selvan CFO replied that it’s around INR380 crores of which CHOLAFIN already carried around INR180 crores as a normally ECL provision and another INR190 crores for the incremental provision. And another INR50 crores impact on the interest line.

• Shubhranshu Mishra with Systematix Group asked about the cost of collections and how does it look like in FY23. Ravindra Kundu ED answered that it will remain at the same level in FY23 as it has, because CHOLAFIN will keep the collections intensity up to ensure it keeps the NPA levels down to below 4%.