Cholamandalam Investment and Finance : Call Transcript Q4-FY-2023 May 04, 2023

"Cholamandalam Investment and Finance Company

Limited

Q4 FY '23 Earnings Conference Call"

May 04, 2023

MANAGEMENT: MR. VELLAYAN SUBBIAH - CHAIRMAN AND NON-

EXECUTIVE DIRECTOR - CHOLAMANDALAM

INVESTMENT AND FINANCE COMPANY LIMITED

MR. RAVINDRA KUNDU - EXECUTIVE DIRECTOR -

CHOLAMANDALAM INVESTMENT AND FINANCE

COMPANY LIMITED

MR. ARUL SELVAN - PRESIDENT AND CHIEF

FINANCIAL OFFICER - CHOLAMANDALAM

INVESTMENT AND FINANCE COMPANY LIMITED

MODERATOR: MR. NISCHINT CHAWATHE - KOTAK SECURITIES LIMITED

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Cholamandalam Investment and Finance Company Limited

May 04, 2023

Moderator:Ladies and gentlemen, good day and welcome to Q4 FY '23 Earnings Conference Call of Cholamandalam Investment and Finance Company Limited, hosted by Kotak Securities. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you, to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star than zero, on your touchtone phone. I now hand the conference over to Mr. Nischint Chawathe from Kotak Securities. Thank you and over to you.

Nischint Chawathe: Good morning, everyone. Welcome to the earnings conference call of Cholamandalam Investment and Finance Company Limited. To discuss Q4 FY '23 performance of Chola, industry, and business updates, we have the senior management with us. Senior management is represented by Mr. Vellayan Subbiah, Chairman and Non-Executive Director, Mr. Ravindra Kundu, Executive Director, and Mr. Arul Selvan, President and CFO. I would now like to hand over the call to Vellayan, for his opening comments, after which we can take Q&A.

Vellayan Subbiah: Thank you, Nischint, and good morning, everybody, and welcome to the call. We are pleased to report results for the quarter and for the year. Disbursements were at INR21,020 crores for the quarter, up by 65%, and INR66,532 crores for the year, up by 87% year-on-year. The total AUM stood at INR1,12,782 crores, which is up by 36% year-on-year, and the net income margin is up at INR2,060 crores, for the quarter, up 32% year-on-year, and INR7,229 crores for the year, up 24% year-on-year. The PBT for the quarter is at INR1,159 crores, which is up by 25%, and INR3,600 crores for the year, which is also up by 25%.

The Chola delivered the best-ever disbursals, collections, and profitability in Q4. We have gained market share across the product segments in vehicle finance and other business units. The overall Passenger Vehicle industry sales in FY '23 rose to 38.89 lakh units, an increase of 27%. LAP and SME also witnessed strong growth in the current fiscal, on the back of lower growth during the pandemic, amidst a revival in demand from smaller businesses. Leveraging the industry growth, Chola has improved market share across product segments. The retail AUM of NBFCs is expected to grow at a healthy 12% to 14% in FY '24, after a strong rebound in 2023.

In terms of performance highlights, aggregate disbursements in Q4FY '23, we just talked about were at INR21,020 crores, which is a growth of 65%. Vehicle finance disbursements were at INR12,190 crores in the quarter, as against INR8,785 crores, that's a growth of 39% and disbursement for the year were INR39,699 Cr, which is a growth of 56% year-on-year. LAP disbursed INR2,762 Cr in the quarter, as against Rs.1,870 Cr in the quarter for FY '22, which is a growth of 48%. For the year, disbursements were at INR9,299 crores, which is a growth of 68% year-on-year. Home loan, and that includes both Affordable Home Loan and Affordable LAP in addition, disbursed INR1,405 crores for the quarter, as against INR549 crores, which is a growth of 156%.

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Cholamandalam Investment and Finance Company Limited

May 04, 2023

	And for the year, they disbursed INR3,830 crores, which is a growth of 102%. The SME business
	disbursed INR2,104 crores for the quarter, registering a growth of 127%. And for the year, the
	disbursement was INR6,388 crores, which is a growth of 232%. Consumer and small enterprise
	business disbursed INR2,364 crores for the quarter and INR6,865 crores, for the year. And
	secured business and personal loans disbursed INR196 crores, for the quarter and INR451 crores
	for the year. Total AUM stood at INR1,12,782, which is a growth of 36%. So, the encouraging
	news, as you can see, is that we've grown across businesses. So, Vehicle Finance growth has
	been bolstered by growth in Loan Against Property, Home Loans, SME, CSEL and SBPL.
	So that's very encouraging to see the secular growth across all of our business lines. And that's
	actually contributed to what, we believe will be a reduction in cyclicality over time. The PBT,
	ROA for the quarter was at 4.4%. And for the year, it was at 3.8%. ROE was at 20.6%, as against
	20.4%, in the previous year. The company continues to hold a strong liquidity position with
	INR5,042 crores as cash balance at the end of March 2023 (including INR1,500 crores, invested
	in G-Sec and INR1,600 crores invested in T-Bills which are shown under investments) and a
	total liquidity position of INR9,119 crores, which includes undrawn sanction lines The ALM
	position is comfortable with no cumulative negative mismatches across any time bucket. The
	consolidated Profit Before Tax for the quarter was INR1,163 crores, as against INR927 crores
	in the previous year, same quarter. And for the year, INR3,615 crores, as against INR2,902
	crores. The Board has recommended a final dividend of INR0.70 per share, on the equity shares
	of the company, subject to the approval of the members of the company, at the ensuing Annual
	General Meeting. This is in addition to the interim dividend of INR1.30 per share, which was
	declared on 31, January 2023.
	In terms of asset quality, our Stage 3 levels have improved from 3.51% on December 2022 to
	3.01% on March 2023.GNPA as per RBI norms has come down to 4.63% in March 2023, as
	against 5.37% in December 2022 and NNPA, as per RBI norms, has come to 3.11%, as against
	3.76%, in December 2022. In terms of capital adequacy, as of March 31, 2023, we were at
	17.13%, against the regulatory requirement of 15%, and Tier I was at 14.78%, which then
	implies that Tier II was at 2.35%. We also successfully initiated our maiden public NCD issue
	of secured, rated, redeemable NCDs. The prospectus was filed in Q4, amounting to INR1,000
	crores, and it was oversubscribed by 2.6x, within the first 3 days of issue. So, with that, I'll bring
	to a conclusion kind of our opening commentary, and Nischint, we'll be happy to turn it over to
	you for Q&A, thank you.
Moderator:	Thank you very much. We will now begin the question-and-answer session. Anyone who wishes
	to ask a question may press star and 1 on their touchtone telephone. If you wish to remove
	yourself from the question queue, you may press star and 2. Participants are requested to use
	handsets while asking a question. Ladies and gentlemen, we will wait for a moment, while the
	question queue assembles. We have our first question from the line of Suresh Ganapathy from
	Macquarie Capital. Please go ahead.

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Cholamandalam Investment and Finance Company Limited

May 04, 2023

Suresh Ganapathy: Yes, thanks. Yes, so Vellayan, these are, of course, good numbers. When everybody's talking about slowdown and consumption-related issues and stuff, where are you getting this growth from, and how do you think, this is going to be sustainable heading into FY '24, when you have already a lakh crores kind of an AUM base? That's my first question, Vellayan.

Vellayan Subbiah: Yes. So, Suresh, thanks, broadly, what we have to look at is, in no segment do we have, a significantly large market share. That's the first thing. And the second thing is, if you notice, most of our growth and most of our expansion is coming from Tier 3, Tier 4 cities. So, all of the businesses are going deeper into Tier 3, Tier 4 cities and geographies that, we don't see, have as deep financial service penetration as Tier 1 and Tier 2.

So, a combination of that, the fact that, in, so, first of all, Suresh, like you can see, one of the reasons of driving the growth is that it's not just Vehicle Finance anymore. There is, 6 businesses, all that are growing, right? And that secular growth across the 6 businesses is what's helping our overall CAGR levels. So, it used to be kind of predominantly we were seen as a Vehicle Finance shop. That image of Chola will begin to change and is already beginning to change as we observe it in the market.

Suresh Ganapathy: So, you're still agreeing on the under-penetration of financial services in each of these markets and you are saying organically, you still see on the ground a lot of demand. Is that the right interpretation?

Vellayan Subbiah: Yes, Suresh, and like I said, previously, when we had growth numbers earlier, it was predominantly driven by Vehicle. Now, you can see, how much the other businesses are also supporting that growth. So, it is moving from one product to now 6 products.

Suresh Ganapathy: Another two quick questions. Can you assure us that, there is absolutely no adverse selection of assets, when growth is happening in such breakneck speed? Because just some of the newer segments, are you overconfident that, that is not something, which is compromised, when you are chasing growth at this pace and especially, when you are penetrating into some of these unknown Tier 3, Tier 4, centres?

Vellayan Subbiah: So, Suresh, again, that all of these Tier 3, Tier 4 centres are, centres that, we have been present in with Vehicle Finance. So, they are not new geographies to us. The second thing is, the philosophy of the company, we always tend to be more collections-led in everything, we do. So, even for the new businesses, the first thing we did was build out that collections infrastructure and that continues to be, I would say central to the DNA of the way, we think in Chola that, it is first collections, then underwriting, then sales. Now, given that, we do see significant opportunity in these new businesses. But, definitely, the thing in all of our internal reviews kind of the focus continues to be predominantly in that sequence on collections, then underwriting, then sales.

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	Cholamandalam Investment and Finance Company Limited
	May 04, 2023
Suresh Ganapathy:	Okay. And final question is on capital. What is your plan? You are already around that 15%
	levels, right?
Vellayan Subbiah:	Yes, we are at 17 predominantly because we have not used a lot of Tier 2. It is a fair ask that,
	we will kind of, we will obviously something that again, we tend to be conservative on. So, it is
	something that, we will kind of review in this upcoming financial year.
Suresh Ganapathy:	This is Tier 2 or equity capital, you will review?
Vellayan Subbiah:	Obviously, yes, we will review equity capital and its requirements in the current financial year.
Suresh Ganapathy:	Okay. Thanks, Vellayan. All the best.
Vellayan Subbiah:	Thank you, Suresh.
Moderator:	Thank you. Ladies and gentlemen, in order to ensure management is able to answer queries from
	all participants, kindly restrict your questions to 2 at a time. You may join back the queue for
	follow-up questions. We have our next question from the line of Umang Shah from Kotak
	Mutual Fund. Please go ahead.
Umang Shah:	Yes, hi. Good morning. Thank you for taking my questions and congratulations on yet another
	good quarter. Just two questions from mine. First is, let us say, two years out, how should we
	look at the overall AUM mix? According to you, how will it look like? And are we looking at
	introducing any other new products, if at all?
Arul Selvan:	We will be, I would say that the Vehicle Finance should be in the range of around 50% levels
	and the Loan Against Property and the Home Loan should be in the range of around 30%, 35%,
	and the new businesses should be in the range of around 15%. This is what, we would try to
	work on.
Umang Shah:	Understood. And the second question is on the yield part. So, let's say if this is how the mix
	looks like, probably there is still a little bit of room for our yields to expand from here on,
	assuming that, some of the newer businesses are relatively into the higher yield category. Will
	that be a fair assumption, or the current margin profile is something, which is more or less sort
	of a stable margin profile that, we would like to hold on to?
Vellayan Subbiah:	So, see, the better way to look at it is that we want to focus on keeping NIMS kind of at least
	current levels. So, because always, yield expansions are then kind of tempered with,
	compression, either due to kind of a competitive intensity or due to, kind of usually, what we've
	seen is rising interest rate cycles, do kind of put, increase the level of competitive intensity and
	therefore reduce the spread. So, our attempt will be, and our kind of focus will be, to keep the
	NIM levels at least constant, which we believe at this stage, should be achievable.
Umang Shah:	Perfect. Thank you, so much and good luck. Thank you.
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