Cholamandalam Investment share price surges over 9% to hit 52-week high; should you buy?

Cholamandalam Investment and Finance Company's share price surged over 9 per cent to hit its 52-week high of ₹970.20 in morning trade on BSE on May 4, boosted by the company's better-than-expected March quarter (Q4FY23) scorecard.

The non-banking financial company (NBFC), post-market hours on May 3, reported a 23.68 per cent year-on-year (YoY) rise in the standalone profit at ₹852.84 crore for the quarter ending March 31, 2023, against ₹689.58 crore in the same quarter of the previous financial year.

The standalone total income for the quarter under review rose 44.17 per cent YoY to ₹3,794.26 crore from ₹2,631.75 crore registered in the same quarter of last year.

The company said the disbursements during the March quarter grew by 65 per cent YoY to ₹21,020 crore while for the financial year 2022-23 (Fy23), it grew 87 per cent YoY to ₹66,532 crore.

Assets under management (AUM) as of March 31, 2023, stood at ₹1,12,782 crore as compared to ₹82,904 crore as of March 31, 2022, up 36 per cent YoY, the company said in a BSE filing.

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What analysts say

Analysts and brokerage firms cheered the company's strong quarterly numbers, however, they highlighted the stock has limited upside due to its rich valuation.

Akshay Ashok, a research analyst at the brokerage firm Prabhudas Lilladher pointed out that at first look, Cholamandalam Investment's result was very good as AUM growth beat the brokerage's lofty expectations which is a positive.

He has a 'hold' rating on the stock with a target price of ₹820.

Ashok further said that the strong traction seen in new business is also a strong positive. He said the stock is richly valued at 4.7 times FY24 P/ABV.

Brokerage firm Elara Capital has downgraded the stock to an 'accumulate' from a 'buy', pegging the target price of ₹930.

"Cholamandalam Investment recorded strong earnings set led by lower provisions (down 28 per cent QoQ) with continued improvement in asset quality and healthy net interest income (NII) (up 11 per cent QoQ) on asset repricing and improving share of high yielding book offsetting funding cost spike (up 100bps in the past 12 months)," said Elara.

Elara said Cholamandalam Investment has been a consistent outperformer striking a fine balance between healthy growth and NIM management. The brokerage expects a 25 per cent AUM and 22 per cent earnings CAGR with an average NIM of 7 per cent and a resultant robust return profile (2.6 per cent return on assets and 20 per cent return on equity) in FY23-25E.

"Led by its establishment as a diversified play, Cholamandalam Investment will now be reckoned as a steady-state compounder story, commanding rich multiple. Subsequently, from a valuation standpoint, we downgrade to an 'accumulate' from a 'buy', now valuing the stock at 4.5 times as we roll forward to 25E P/ABV with a new target price of ₹930," said the brokerage firm.

Disclaimer: The views and recommendations given in this article are those of the brokerage firms. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.