Cholamandalam Investment and Finance posted strong financial results for the September quarter. The non-banking financial company reported a 35% year-on-year increase in its net profit, which amounted to ₹762.49 crore. The total income for the same quarter saw a substantial growth of 51% compared to the previous year, reaching ₹3,038 crore, as per the company’s official release.

During the July-September quarter, the company recorded aggregate disbursements totalling ₹21,542 crore, representing a notable 47% increase compared to the same period in the previous year when it amounted to Rs 14,623 crore.

We sat down with the company’s President and CFO Arul Selvan to gain more insights into the company’s second-quarter results and its plans for the coming quarters.

Q2 In Rearview

“A fairly good set of numbers, because we have demonstrated consistent growth and profitability and NIMs (net interest margins) have also improved,” said Selvan talking about the company’s performance in the September quarter.

He added that despite Q2 typically being a slow quarter “because of rains and inauspicious months etc., it has been a fairly good quarter.” “We expect the next quarter where the festival season will bring more business to the borrowers, to be more effective for us,” Selvan said.

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The Outlook

Talking about the company’s outlook going forward, Selvan said that, Q3 and Q4 may not have similarly high numbers because of the higher base but for the full year he expects the growth to be anywhere between 25% to 30%.

Talking about the company’s improvement in NIM, Selvan said that it is set to improve further in the coming quarters. “NIMs will improve because the vehicle finance book, the yield levels will progressively increase because vehicle finance book is a fixed rate book. And when the rates moved up suddenly we couldn’t reprice all of the vehicle finance book. We did reprice the LAP (loan against property) and home loan book. We can’t do that with vehicle finance. So that repricing happened only on the new disbursement and the new disbursement as a percentage of the overall book continued to be slow last quarter and even part of this quarter. So you will see that marginal improvements will happen.”

The other factor that he mentioned could help the NIMs going forward is the stabilising of the cost of funds. He expects the cost of funds to be stable at the current levels and not increase any further.

Vehicle Finance

Vehicle finance is the company’s biggest segment. In the September quarter, Vehicle finance disbursements reached ₹11,731 crore, up from the ₹8,502 crore disbursements reported in the same quarter last year. So we asked Selvan, how he saw the sector performing in the coming quarters.

“We are seeing good traction in the used-vehicle segment. The passenger car segment has also been showing good numbers. Because of the festival season, there will be a lot of purchases of cars and two-wheelers, so we will certainly move the needle there. Heavy commercial vehicles, may not scale up much because the cost of funds is still high. Tractors have seen a slowdown, but I think once you get into the next monsoon cycle, you should see traction there as well.”

Growth In New Businesses

The company’s new business segments have been growing strongly. In the first half of the current financial year, disbursements in the segment grew close to 49% to ₹9,625 crore from ₹5,254 crore posted during the same period last year. So we asked the CFO, how the company plans to grow the segments.

“The new business has got more steam to grow. The advantage we have is we already have vehicle finance branches in a lot of locations,” Selvan said. He also added that while the idea is to grow the businesses the company will also focus on ensuring that it has ample information about the market. “We should be able to know the market, have a feel of the customer profile, etc., and then accordingly, we can scale up.”

He adds that the company is still committed to the target for the new businesses (Secured Business and Personal Loans, Consumer and Small Enterprise Loans, and Small and Medium Enterprises) to account for up to 20% of AUM over the next two to three years. 

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