After Strong Q3, Chola Finance CFO Confident Of Ending FY24 On A High

Cholamandalam Investment and Finance reported another set of strong numbers for the October-December quarter. The lender’s standalone net profit stood at ₹876 crore for the December quarter, marking a 28% increase over the same period last year. This growth was thanks to a strong performance across all business segments.

Disbursements witnessed an uptick of 27%, reaching ₹22,383 crore, while net income surged by 41% to ₹2,580 crore. However, the net interest margin experienced a slight decline, sliding to 7.4% from 7.6%. Despite this, Total Assets Under Management (AUM) registered robust growth, rising by 36% to ₹1,41,143 crore.

We sat down with the company's president and CFO Arul Selvan to gain more insights into the December quarter results and the plans going forward.

Q3 In Rearview

Talking about the strong numbers, Selvan took us through the things that went right for the company in the last quarter. “We grew our book reasonably well. We have done slightly better volumes in used vehicles and in passenger vehicles, two-wheelers, etc. We scaled down a bit in heavy commercials or tractors, because there we see some higher cost of funds impacting the product, especially the heavy commercial vehicle, and in the case of tractors in select locations, because of unseasonal or uneven rainfall, we have seen some stress, so we are not scaling up there.”

Moving on from vehicle finance, he also elaborated on the company’s performance in other businesses. “We are scaling up our loan against property and our home loan businesses in Tier 3 and Tier 4 locations, which is helping us get better relief as well as grow the book faster. The new businesses are also doing well, and so accordingly, we clocked around 37%, 36% growth in the AUM this quarter. So everything is going well,” he added.

The Outlook

The lender has been reporting strong numbers for quite a few consecutive quarters now and CFO Selvan believes that it can continue the strong performance. “We should continue this growth in the coming quarters.”

He adds that in the next quarter, numbers may come down a bit because of the high base effect. “See percentage growth wise? It will come down a bit because last year, the fourth quarter was very good. So overall, we should look at around 30%-32% YoY growth this year and next year again, because this year has been very good, and you will have a higher base to handle. So I would conservatively put it in the range of around 20% plus for the next year. “

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Vehicle Finance Slowdown?

After a record year of sales, several analysts and experts think that the auto industry might witness a slowdown. Now since, vehicle finance is Chola Finance’s biggest segment in terms of revenue, we asked Selvan, if he agreed with the view, and how could a possible slow year impact the company’s business.

“See, at the industry level, commercial vehicles may have a little bit of slower growth, but you have to factor in that we have different product lines not only dependent on CVs, so we can keep shifting our focus to keep a decent growth rate. So that is what we intend to do and what we have done over cycles. 

Even when CV sales have come down, we scale up the tractors, passenger vehicles or construction equipment. So that way we can keep making a reasonable growth as compared to other players in the industry.”

Diversification On Track?

The lender has been making significant efforts to diversify its offering. During the October-December quarter, the Loan Against Property business grew by 51%, Home Loans grew by 48% driven by branch expansion into Tier 3 and 4 locations and disbursement growth in the three new businesses was 33%.

So we asked the CFO if the company expects the momentum to continue and are the diversification attempts on track. “The focus is to scale up the LAP and HL business. We have been experimenting with these businesses over the last more than seven to 10 years and we are now taking these businesses into tier 3, and tier 4 towns where the demand is good and yields are also good. So we are looking at scaling up these two segments in the subsequent years. 

But having said that, these have been growing faster over the last one and a half years, primarily because the base is low. The percentage of growth seems to be larger. So the growth percentages will start moderating as we grow. But in absolute values, the growth will be pretty decent.” 

Asset Quality

The company has been able to achieve impressive growth while improving asset quality as well. In the December quarter, gross non-performing assets reduced to 3.92% from 5.37% and net NPA to 2.56% from 3.76%.

Selvan said that the company is confident of improving this further. “Asset quality will continue to improve in Q4. Generally in any financial year, Q1 will see a little bit of a reversal. So we may see some slowdown in asset quality improvement in Q1FY25, but otherwise, again, it will further improve in the subsequent quarters. So overall, it will continue to be lower year on year into Q4, as well as the next financial year. “

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