The auto industry will be back in full form in FY22E – Chola FinanceAbhishek Salunke
Update on Indian equity market:
Markets bounced back to erase Monday’s steep loss as Nifty closed the day 138 points higher at 13,466. Within the index, ADANIPORTS (5.6%), HCLTECH (5.4%) and TECHM (4.1%) led the index higher while KOTAKBANK (-1.0%), HDFC (-0.7%) and BAJFINANCE (-0.6%) were the highest losers. All the sectoral indices closed the day in green led by IT (3.4%), PHARMA (2.2%), and METAL (1.4%).
Excerpts of an interview with Mr. Arulselvan D., Executive Vice-President & CFO, Cholamandalam Investment & Finance Company (Chola finance) published on CNBC-TV18 dated 21st December 2020:
The impact of COVID-19 impact is behind now. The disbursements, collections, and profitability is expected to reach the pre-pandemic level in one or two quarters.
Demand in the auto segment surged ahead of the festive season. The auto industry will be back in full form in FY22E. The company will look to catch up with lost business during the COVID period in FY22E.
Post moratorium, there are certain segments that are not out of its COVID-19 pressure like the school bus segment, employee transport buses, and to some extent heavy commercial vehicles.
The company is witnessing improvement in the collection on a month-on-month basis and good traction from moratorium customers.
The rural segment especially is doing well because of good monsoon. More than 85% of the company’s branches are in the rural area and the company is confident of growth in the rural parts of the country.
Net interest margin will show a slight improvement from hereon. The cost of funds has reduced further with improvement in yields.
Consensus Estimate: (Source: market screener website)
The closing price of Chola finance was ₹ 360/- as of 21-Dec-2020. It traded at 3.1x/ 2.7x/ 2.3x the consensus Book Value estimate of ₹ 116/ 135/ 160 for FY21E/ FY22E/ FY23E respectively.
The consensus target price of ₹ 380/- implies a P/B multiple of 2.4x on FY23E BV of ₹ 160.
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