Cholamandalam Finance sees strong AUM growth as margins and credit costs remain supportive

Investment View and Valuation

In its July 29, 2026 Q1FY27 result update, Prabhudas Lilladher maintained its ACCUMULATE rating on Cholamandalam Investment and Finance Company. The investment case is supported by sustained loan growth, expansion in non-vehicle-finance businesses, resilient margins, improving operating efficiency and a constructive credit-cost outlook.

The broker retained its target price of Rs1,950, based on an unchanged FY28E price-to-adjusted-book-value multiple of 3.8 times.

Loan Growth and Disbursement Trends

Cholamandalam Investment and Finance reported Q1FY27 disbursements of Rs29,612 crore, up about 22 per cent year on year. Disbursement growth across key segments was as follows:

Mortgage, used-vehicle and small-business-personal-loan disbursements were affected by a change in recognition from cheque handover to cheque clearance. Management expects this one-off impact to normalise in subsequent quarters.

Assets under management rose 22 per cent year on year and 4 per cent sequentially to Rs2,33,586 crore. Growth across vehicle finance, housing loans and loan against property, as well as the new business verticals, ranged from 18 per cent to 31 per cent. Management retained its FY27 AUM growth guidance of about 23 per cent, while noting a higher H2 base for disbursement growth.

Gold Loans and Non-Vehicle-Finance Expansion

Gold loans are an important growth initiative. Management is targeting gold-loan AUM of Rs5,000 crore in FY27, supported by strong customer acceptance and deeper network reach. The company plans to add 360 gold-loan branches and unlock about 125 further branches in FY27.

Management indicated that gold-loan yields are between 16 per cent and 17 per cent, and that the new branches should become profitable next year. CSEL, SBPL, LAP and affordable housing are generating return on assets above the company average.

Q1FY27 Financial Performance

Q1FY27 financial performance was ahead of Prabhudas Lilladher's estimates.

Net interest income also increased 4.7 per cent quarter on quarter. Calculated NIM was 7.3 per cent, compared with 6.9 per cent a year earlier. Reported yield declined 10 basis points sequentially to 14.9 per cent, while cost of funds increased by about 10 basis points to 6.7 per cent, moderating reported NIM sequentially.

Margins, Funding Costs and Operating Efficiency

Management expects a possible rate hike in H2FY27 to add around 10 basis points to FY27 cost of funds. However, CCD conversions of Rs200 crore in July 2026 and Rs430 crore in October 2026, together with a favourable product mix, are expected to offset the pressure. Prabhudas Lilladher forecasts calculated NIM to remain broadly stable at about 7.0 per cent in FY27E.

Cost-to-income improved to 36.3 per cent in Q1FY27 from 37.6 per cent a year earlier, aided by operating efficiencies. The broker expects branch expansion and productivity gains to drive a further 10 to 30 basis points improvement in the cost-to-income ratio across FY27E and FY28E.

Prabhudas Lilladher modestly increased its estimates as follows:

• FY27E and FY28E net interest income estimates were increased by 1.3 per cent and 1.7 per cent respectively.
• FY27E and FY28E operating-profit estimates were increased by 1.2 per cent and 2.0 per cent respectively.
• FY27E and FY28E PAT estimates were increased by 0.1 per cent and 2.1 per cent respectively.

The broker forecasts FY27E PAT of Rs6,821 crore, up 30.7 per cent year on year, and FY28E PAT of Rs8,514 crore, up 24.8 per cent.

Asset Quality and Credit Costs

Asset quality moderated seasonally in Q1FY27. Gross Stage 3 and net Stage 3 were 3.29 per cent and 1.81 per cent respectively, compared with 3.05 per cent and 1.63 per cent in Q4FY26.

Quarterly credit cost was controlled at 1.5 per cent, compared with 1.6 per cent sequentially and 1.8 per cent a year earlier, and was in line with management guidance. Vehicle-finance GNPA increased by about 20 basis points sequentially to 4.05 per cent, while CSEL delinquency buckets improved following tighter underwriting.

Management reported no product-specific stress and no observed asset-quality stress from the West Asia crisis or El Nino impact. Prabhudas Lilladner nevertheless remains conservative, estimating credit cost of 1.6 per cent in FY27E and 1.5 per cent in FY28E.

Key Factors to Monitor

• The high H2FY27 base for disbursement growth.
• Interest-rate-led pressure on cost of funds.
• Seasonal movements in asset quality.
• The expected normalisation of the revised disbursement-recognition method.