"Cholamandalam Investment and Finance Company Limited

Q2 FY '23 Earnings Conference Call"

November 02, 2022

MANAGEMENT: MR. VELLAYAN SUBBIAH - CHAIRMAN & NON-

EXECUTIVE DIRECTOR - CHOLAMANDALAM

INVESTMENT AND FINANCE COMPANY LIMITED

MR. RAVINDRA KUNDU - EXECUTIVE DIRECTOR -

CHOLAMANDALAM INVESTMENT AND FINANCE

COMPANY LIMITED

MR. ARUL SELVAN - PRESIDENT & CHIEF FINANCIAL

OFFICER - CHOLAMANDALAM INVESTMENT AND

FINANCE COMPANY LIMITED

MODERATOR: MR. NISCHINT CHAWATHE - KOTAK SECURITIES

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Cholamandalam Investment and Finance Company Ltd

November 02, 2022

Moderator:

Good morning, ladies, and gentlemen and welcome to Cholamandalam Investment and Finance

Company Limited Q2 FY '23 Earnings Conference Call hosted by Kotak Securities. As a

reminder, all participant line 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 then zero 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, Mr. Nischint.

Nischint Chawathe:

Thanks, Michelle. Good morning, everyone. Welcome to the earnings conference call of

Cholamandalam Investment and Finance Company Limited to discuss the 2Q FY '23

performance of Chola and share industry and business updates. We have the senior management

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 the Q&A.

Vellayan Subbiah:

Thank you Nischint and good morning, everybody. Just a quick update on the quarter and then

we will get into individual businesses. Disbursements for the quarter was at INR 14,623 crores,

which was up by 68%. And for the half year, we have been at INR 27,953 crores, which is up

by 126%. Total AUM is at now at INR 91,841 crores, which is up by 22%.

And our net income margin is at INR 1,697 crores for the quarter, which is up 21% year-on-year

and INR 3,337 crores for the half year, which is up 20% Y-on-Y. The PAT is at INR 563 crores

for the quarter, which is down by 7%. We will talk a bit more about that. And INR 1,129 crores

for the half year, which is up by 21%.

Broadly, the macro environment continues to look at interest rate hikes in response to high

inflation. So, there is all of this question around the global recession coming up, but in general,

India seems to be in a good place relatively. Obviously, we are just kind of a bit dependent on

trying to see what happens with global factors. But otherwise, when we look at Chola's

performance, we have achieved our highest quarterly disbursals, which has really become

possible because of our diversified product mix. So basically, a lot of the new businesses we

talked about, the growth in housing loans, loan against property. All of that is basically helping

this. And this will really help sustain the momentum moving into the festival season ahead.

Just a quick commentary on the profit number. Like we said, we were down by 7%. But

basically, it is driven by what happened last year in Q2. Last year, in Q1, we were impacted by

the COVID second wave, and therefore, we had huge forward flows into higher buckets and

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Cholamandalam Investment and Finance Company Ltd

November 02, 2022

higher provisioning. And then post release of lockdowns in Q2, we were basically able to roll

back a lot. Therefore, Q1 of FY '22 had higher credit loss provisioning at over 3% and NCL of

INR 563 crores, and Q2 resulted in just 0.37% and an NCL of INR 69 crores, which is what

basically caused our profit in Q2 to be, I would say, a bit abnormally high, which is why if we

look at the PAT for the first half of the year, we're at INR 1,129 crores, which is basically up by

21% year-on-year.

I will just give you some details on individual businesses. We said aggregate disbursements grew

by 68%. Vehicle finance disbursements were at INR 8,502 crores for the quarter, which was a

growth of 38%. The loan against property disbursed INR 2,246 crores, which is a growth of 38%

again. Home loans, basically, disbursed INR 743 crores, which was a growth of 23%. Our SME

business disbursed INR 1,473 crores which is a growth of 367%. our consumer and small

enterprise loan business dispersed INR 1,579 crores for the quarter. Our secured business and

personal loans were at INR 81 crores, and that is what resulted in helping build the book to, INR

91,841 crores. PBT-ROA was at 3.4% for the quarter and 3.5% for the half year, and ROE was

at 18.3%. We continue to hold strong liquidity, INR 4,841 crores of a cash balance and a total

liquidity position of INR 6,573 crores, and ALM is comfortable with no negative cumulative

mismatches across all-time buckets.

To talk about asset quality, at the end of September 2022, our Stage 3 assets stood at 3.84%

versus 4.16% at the end of June 2022. So, we have come down by about 0.32%. And our

provision coverage went up to 41.48% versus 40.69%. The total provisions currently carried

against the overall book is at 2.73% as against the normal provision levels of 1.75% that we

carried prior to the COVID-19 pandemic. And as per revised RBI norms, GNPA and NNPA as

of September 2022, stood at 5.84% and 3.99%, respectively. And so, we carry INR 771 crores

higher provisions under IndAS over IRAC. And as per prevailing IRAC norms, the GNPA will

be similar to the statutory numbers we just gave you. And capital adequacy was at 18.4% as

against the regulatory requirement of 15%. Tier 1 capital is at 15.77%.

So let me stop with that and we are happy to take it over, all of us are here, and we are happy to

take it over for questions.

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 one on their touchtone telephone. If you wish to remove

yourself from question queue, you may press star and two. Participants are requested to use

handsets while asking a question. Ladies and gentlemen will wait for a moment while the

question queue assembles. Ladies and gentlemen in order to ensure that the management will be

able to answer questions from all participants, please limit your questions to two per participant

should you have a follow-up question please re-join the queue. Thank you.

The first question is from the line of Rajesh from Alf Accurate Advisors Pvt. Ltd. Please go

ahead.

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Cholamandalam Investment and Finance Company Ltd

November 02, 2022

Rajesh Kothari:Sir, I have just two questions, the first is if you can give color on the yield on loans, which has declined about 75 bps Y-o-Y. And of course, the cost of fund is up 13 bps, so this leads to 88 bps lower spread. Can you give your near term, how do you see that? And next year, how do you see the same? That is first question. And second question is with reference to the operating expenses, which is up about 28% Y-o-Y. How do you see this number and the cost to AUM ratio in the near term and in the FY '24?

Arul Selvan:The yield has moved from 13.7% to 13.5% as compared to last year. This is primarily because we are again comparing the previous year. Actually, the yield in the Q3, Q4 have dropped further because of the prevailing lower interest rate scenario at that point in time. And from there, it has actually moved up if you compare the Q3, Q4 numbers versus what we are now doing at Q1, Q2.

Cost of funds has gained and on an year-on-year basis it is still lower than last year. That is what you are seeing here from 6% to still at 5.8%. While Q1 versus Q2, it has moved up. The expectation on cost of funds increase over the full year would be around 50, 60 basis points on a year-on-year comparison. What I have said in the last call also, and we still hold to that. While we would be improving the yield by way of increasing the yield on the floating rate book, which is for LAP on the entire book and for the vehicle finance book being fixed rate book, we would be increasing it on the marginal yield. We will see yield improvements happening aggressively as we move into the subsequent quarters. Regarding your opex question, we still hold that we would be in the 3% to average asset ratio. We will endeavor to keep it at that or slightly below that level.

Rajesh Kothari:So basically, when I look at FY '24, the net yield, how do you see the yield as you move forward, particularly in FY '24? And same question for whether one should look at operating expenses in absolute terms, in FY '24, should we expect about 10%, 12% kind of a growth? Or do you think because of the lot of new business development, it can be higher?

Arul Selvan:So, the yield will be a factor of the product mix. As you know, the strength of Chola is we have a wide product mix even within each of the product categories we handle, which is vehicle finance, LAP or the other new products. So that would dramatically be driven by which products we focus on, depending on the demand in the geographies we operate in. So, it is very difficult to say that will it be exactly what would be the FY '24 number right now on yield, NIM, etcetera. The way we operate is to make that product mix done in such a way that the ROTA of 3.5% pretax is delivered irrespective of wherever we are on the yield line or the cost of funds line or on the opex line.

When we do a higher yield product, the opex will be larger because this will be a small ticket, like, say, for example, 2-wheeler loan or our new businesses, like CSEL. But then the yield compensates for the higher opex. So individual line items will keep varying based on product mix. So, I would rather request that the focus be on the ROTA, which would be what we will continue to deliver in the 3.5% levels pretax.

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Cholamandalam Investment and Finance Company Ltd

November 02, 2022

Ravindra Kundu:

To give you the yield trajectory for last few quarters, Q2 last year, we were actually for the

marginal book, we achieved 13.77%. And then Q4, it went down to 13.38% for the entire cifcl

book. And now in Q1, it has gone up to 13.73%, in Q2, it has gone up to 14.25%. So, from the

lowest bottom of 13.38%, our marginal book growth in the Q2 has gone up almost closer to 80

basis points. In addition to that, we have also done a rate revision for our home loan and loan

against property, and that is going on. So that is also impacting improvement in the book yield.

In the current year, if you see that from the Q2 last year in the vehicle finance, the new vehicle

sales have picked up. And that is also a reason we have to participate in the market. And till Q1

of last year and even in Q2 the used component was high. The marginal book yield was higher.

In spite of that, we have been successful in increasing the rates of the marginal book.

Rajesh Kothari:

And my question on operating expense on an absolute basis, how should one look at it for FY

'24?

Arul Selvan:

We cannot tell on the absolute basis. We have given you on the average asset as I said that it

will be less than 3% level. So, we stick to that.

Moderator:

Thank you. We have the next question from the line of Rikin Shah from Crédit Suisse. Please

go ahead.

Rikin Shah:

Just had one question. So, the disbursements for the new businesses have moved to the quarterly

run rate of INR 3,000 crores, probably even ahead of what was kind of guided earlier. So as

these new products keep getting rolled out to the existing branches would you be comfortable

sharing your growth guidance or what proportion of these new businesses will consist of the

total book at around 5% in medium term?

Arul Selvan:

We have reached to 5% now.

Rikin Shah:

Yes.

Ravindra Kundu:

So, see that is on the AUM level, 5% is the total size of the 3 new businesses, CSEL, SME and

SBPL, and obviously, it will go up. Just to give you the direction of vehicle finance, how it is

happening in terms of disbursement for a few quarters, last four, five quarters, vehicle finance

in Q1, the disbursement was 78%.

In Q2, it came down to 71% and Q4, 69% and Q1, it is 64% and Q2, it is 58%. So obviously,

the disbursement mix of the vehicle finance is coming down in spite of vehicle finance is also

growing at the rate of 38% in quarter two and the overall growth has been 89% for the half year.

So, all the divisions are trying to basically grow their disbursement depending upon the market condition and the portfolio behavior. Obviously, the new businesses will take a little more share

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Cholamandalam Investment and Finance Company Limited published this content on 02 November 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 08 November 2022 09:33:08 UTC.