Call Transcript – Q2-FY-2022 – Nov 01, 2021

"Cholamandalam Investment and Finance Company

Limited Q2FY22 Earnings Conference Call"

November 01, 2021

MANAGEMENT: MR. VELLAYAN SUBBIAH --CHAIRMAN AND NON-

EXECUTIVE DIRECTOR

MR. RAVINDRA KUNDU --EXECUTIVE DIRECTOR

MR. SHAJI VARGHESE - PRESIDENT, HOUSING

FINANCE

MR. SURESH KUMAR S--SENIOR VICE PRESIDENT AND

BUSINESS HEAD, LAP AND SME

MR. ARUL SELVAN --PRESIDENT AND CFO.

MODERATOR: MR. NISCHINT CHAWATHE- KOTAK SECURITIES

LIMITED

Page 1 of 18

Cholamandalam Investment and Finance Company Limited

November 01, 2021

Moderator:Ladies and gentlemen, good day and welcome to Cholamandalam Investment and Finance Company Limited Q2 FY22 Earnings Conference Call hosted by Kotak Institutional Equities.

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 '*' then '0' on your touchtone phone. Please note that this conference is being recorded.

I now hand the conference over to Mr. Nischint Chawathe from Kotak Securities. Thank you. And over to you, sir.

Nischint Chawathe: Good morning, everyone. Welcome to the Earnings Conference Call of Cholamandalam Investment and Finance Company Limited. To discuss the 2QFY22 performance of Chola and share industry and business updates we have with us today, Mr. Vellayan Subbiah -- Chairman and Non-Executive Director, Mr. Ravindra Kundu -- Executive Director, Shaji Varghese - President, Housing Finance, Mr. Suresh Kumar S-- Senior Vice President and Business Head, LAP and SME, and Arul Selvan -- President and CFO.

I would now like to hand over the call to Vellayan for his opening comments.

Vellayan Subbiah:Good morning, everybody. We just go through key financial results for the quarter and a half and then I will turn it over to you for questions.

Disbursements were at Rs. 8,706 crores for the quarter which is up by 35% and Rs. 12,341 for the half year which was up by 23% YoY. Total AUM has basically been more or less flat at Rs. 75,000 crores. And our NIM was up at Rs. 1,393 crores, which was up 11% year-on-year. And for the half year it's at Rs. 2,756 which is up 23%.PAT for the quarter was Rs. 607 crores, which is up 40%. And for the half year is at Rs. 933 crores which is up 8%.

So, the last quarter basically, we had several positives, first was the waning of the second wave, which I think has been the biggest effect. India is outpacing other countries in terms of increased vaccination and a good monsoon. So, these events basically led to expectations of a swift revival in the Indian economy. And those expectations have been supported by an uptrend in most economic indicators that we have seen like tax collections, power, vehicle registrations; highway toll and e-way bills. And this revival has basically helped a recovery in Chola's disbursements and collections during Q2FY22.

From an overlay perspective, we continue to hold the management overlay, additional overlay of Rs. 700 crores. And apart from this, we have created a 10% additional provision for all restructured accounts as per RBI guidelines.

So, as I said, we will just go through kind of quick numbers at an individual's business level.

Page 2 of 18

Cholamandalam Investment and Finance Company Limited

November 01, 2021

• The Vehicle Finance disbursements was Rs. 6,161 crores as against Rs. 4,781 which

is a growth of 29% for the quarter.

• The LAP business disburse Rs. 1,736 crores in Q2 as against Rs. 1,052 crores, that's a

growth rate of 65%.

• And Home Loan disburse Rs. 494 crores as against Rs. 381 crores in the same quarter

last year.

• AUM like we said is more or less been flat at Rs. 75,000 crores as compared to Rs.

	74,471 last year.
	And PBT ROA was at 3.5% for the half year. And the ROE was at 18.7% as against 20% for the
	half year in the previous year. So, our liquidity position continues to be strong with Rs. 5,401
	crores as cash balance. And that's including Rs. 1,500 crores in GSec, with a total liquidity
	position of Rs. 9,800 crores we include undrawn sanctioned land.
	The ALM is comfortable with no cumulative negative mismatches. And in terms of asset quality,
	at the end of September 2021, Stage-3 assets stood at 6.16%, with a provision coverage of 36.45
	as against 6.79 at the end of June, with a provision coverage of 35.51. Total provisions currently
	carried against the overall book is 4% as against normal provision levels of 1.75%, carried prior
	to COVID. And total restructuring book with 1 and 2, Restructuring 1 and 2 stood at Rs. 4,756
	representing 6.86% of the total book in Stage-2. And total Restructuring 1 was at 1.27%, and
	Restructuring 2 was at 5.58%, respectively.
	And in terms of capital adequacy, the capital adequacy was 19.63% as against the 15%. Tier-1
	is at 16.67%. And we also had an equity investment in a company called Paytail Commerce.
	And we invested Rs. 9.75 crores to get a holding of 16.29%.
	So, with that I will stop the commentary. I will be happy to handover to questions.
Moderator:	Thank you very much. We will now begin the Question-and-Answer session. The first question
	is from the line of Rikin Shah from Credit Suisse. Please go ahead.
Rikin Shah:	I have three broad questions. First on the growth while the disbursements have overall recovered,
	if I compare the growth between the different segments, the LAP and the Home Equity is now
	growing faster and constitutes almost 30% of our total AUM versus 25% two years ago. So, just
	wanted to understand our strategy of growing this business faster, going ahead as well vis-à-vis
	the vehicle. And that is the first one.
	The second one is on Asset quality. Our overall stress loan pool still remains relatively elevated
	at around 19%. Just want to understand the plans or expectations of how low we can bring it
	down in the coming quarters. And if you could also provide some data on the ECLGS
	incremental disbursements, during the quarter.

Page 3 of 18

	Cholamandalam Investment and Finance Company Limited
	November 01, 2021
	And the third question is on our consumer strategy few quarters ago, you had articulated that we
	would chalk out a plan on the consumer lending. Are there any updates on the same? Thank you.
	That's all from me.
Vellayan Subbiah:	So, broadly on LAP and HE, yes, we do see those two businesses, disbursements will grow faster
	than vehicle. And the other thing obviously, is because they are longer tenure loans, they will
	increases the percentage of AUM. And we are quite comfortable with that. And so, we do see
	that trend continuing for the next few years.
Ravindra Kundu:	Yes, so asset quality as on, I mean, if you see the collection efficiency, two way we actually
	calculate it. One is that is the billing or cash flow. So, our billing, cash flow against the billing
	for the month of September was like 149%, which has improved in October, which is the month,
	which is just completed now, it is one of 116%. And Stage-1, Roll Forward Rate of Vehicle
	Finance is actually further improved, and it has come down to 1.76%. So, we have collected
	98.24%, and more or less across all businesses the numbers are similar. So, Stage-2 also overstay
	is September it has further come down. So, these are all tentative number when I say for the
	month of October. Up to September number all available in the presentation. So, things are
	improving. As against June we have improved in September and October is also looking better
	than September.
	In terms of disbursement, we have done better in October further over September as well as last
	year. In spite of there is a slight scarcity in supply and demand. A lot of manufacturers are
	expecting their production and their supply will improve in next two-to-three-month time. In
	spite of that we have seen our disbursement is going up further over September, in October and
	also last year, so this year our disbursement has been pretty good. ECGLS we have not done
	much disbursement, very negligible amount of, Rs. 25 crores of disbursement we have done in
	this quarter.
Arul Selvan:	And the 19% will includes around 7% of restructure book. It does not, it is in Stage-1 but it is
	not.
Rikin Shah:	Just a follow up clarification on the asset quality. September collection efficiency number, I
	missed that number. And second, just wanted to get a sense on how the NPA levels are for our
	Home Equity and Home Loan business as well.
Ravindra Kundu:	Yes, September, I mentioned that September cash flow against the bidding was 115%, in October
	it has been 116% now. And in terms of roll rate also, roll rate has come down from 2% to 1.6%.
	So, both the sides we have improved. In terms of our LAP, it has come down from 8.86% to
	8.17%. And Home Loan also has come down from 4.29% to 4.09%, so marginal decreases, but
	that's the way the movement is happening, because people have started paying one installment.
	But they will start paying more once the festival season is over.

Page 4 of 18

Cholamandalam Investment and Finance Company Limited

November 01, 2021

Moderator:Thank you. The next question is from the line of Praful Kumar from Dymon Asia. Please go ahead.

Praful Kumar:Vellayan, what we are picking up from the ground that you are doing some path breaking work on the digital side. So, can you please outline your vision not contours in terms we are building, is it more like a Shriram Mall Or like of any other product? What are the broad timelines you are looking at? Any pilots, have you done? Any update that you can share on the digital journey that you have been drawing for last few quarters now?

Vellayan Subbiah:Yes, I think so there are a couple of things right, first I always want to warn that kind of, it's a transformation and transformations take time, right. So, I don't think that we should build expectations, because its impact on kind of numbers in the near term is going to be fairly minimal.

Praful Kumar:Sure. No, I am talking about a three-to-five-year vision, just to understand --

Vellayan Subbiah:What we said is that we will develop around three ecosystems, right, the Vehicle Finance Ecosystem or the Vehicle Ecosystem was one. The SME Ecosystem was the second. And the Consumer Ecosystem is the third, right. And so broadly, what we have said is, either through --

. So, there are two parts to it, kind of one is how to get acquire customers for these ecosystems. Second is, what products to sell them, right. So, from selling products perspective, obviously, we need to introduce new products, which is what we are beginning to do, that we can offer to these customer sets, right, whether it's kind of consumer loans, whether it's small business loans, and as such.

So, we are developing products there, and individual product teams that are experienced within Chola, we are also building up kind of new teams, but led by people who we feel very comfortable with, and who are experienced, from Chola to head those teams, that's on being able to offer them products.

On the acquisition side, we have to acquire, see the auto ecosystem, we have an acquisition mechanism, through our existing loans. But on the other Consumer and SME, we will look at both partnerships and potential acquisitions by the company to basically look at how we can acquire customers into those ecosystems over time. So, that again, our partnerships are hopefully over. And these partnerships and acquisitions will happen, I would say over the next 12 to 18 months, to either look at acquiring customers for the SME ecosystem or acquiring customers for the consumer ecosystem. So, broadly, that's kind of the strategy and then, like I said, as it gets more defined over time, we will continue to discuss it with you.

Praful Kumar:Do we have an in-house tech team already, how long have been, you have been building this, just a small understanding on how deep entrenched is the product suite already in terms of the phase of development, Yes.

Page 5 of 18