In the quarter ended June 2024, Cholamandalam Investment and Finance reported a 29.7% growth in its profit after tax reaching ₹942 crore compared to ₹726 crore in the corresponding quarter of the previous year. The company’s total income for the quarter grew by 40.9%, amounting to ₹5,828 crore, up from ₹4,134 crore registered in the same period last year.

Disbursements during the quarter ending June 30, 2024, increased by 22% to ₹24,332 crore, compared to ₹20,015 crore in the same period last year. The company’s assets under management rose to ₹1,68,832 crore from ₹1,22,755 crore in the corresponding period of the previous year.

We caught up with the company's president and CFO Arul Selvan to gain more insights into the quarterly results and the outlook for the new financial year.

Q1 In Rearview

“It was a good quarter. If you look at it, growth has been quite robust. We did a 22% growth in disbursements in this first quarter. Our profits grew by around 30%,” said Selvan talking about the company’s performance during the quarter.

He added that the company NIMs remained close to the previous year’s figure. Selvan said that the operational cost had been slightly higher because of the continued expansion of the new businesses.

“While we did a growth of 30% profit over last year’s figure, our profitability ratio is moderated at around 3.2% pre-tax ROTA (Return on total assets) but we are confident at the full year we will reach around 3.5% mark,” the CFO said.

Year Ahead

When asked about the guidance the company has for the year ahead Selvan said they are not making any major changes in terms of guidance at this point.

“AUM growth would be in the range of around 25 to 30%, provided that the monsoon comes in you know as expected or as predicted.” He added that currently, experts are predicting of good monsoon, and if that turns out to be true, it should augur well for the company’s growth prospects.

On profitability, the CFO said that the company is confident of achieving a growth of around 25 to 30% over the previous year’s numbers.

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Moderation In NIMs

The non-banking finance company’s NIMs saw a slight moderation coming down to around 7.6%, so we asked the CFO the reasons behind the moderation and whether the numbers would improve going forward.

“These were the levels which were there pre-covid. During COVID-19 the cost of funds came down drastically with the repo rates being cut. That’s when we came closer to the 8% levels of NIM. Otherwise, we should be in the 7.5% to 7.8% levels.”

He added that the asset quality is expected to improve going forward. “See, the COVID period has been an exception in every aspect. So if you look at pre-COVID, you will always see, that Q4 will be the best quarter, followed by Q1, which is where there will be a little bit of increase in Gross NPA (non-performing assets).

Q2 would more or less stay stable at that number because Q2 is also not a very great quarter because of heavy rainfall or inauspicious months etc. So that means lesser activity for the borrowers, so this period of Q2 will be a little muted.

Q3 and Q4 would be the period in which again it will improve on all counts because of festivities etc. There is usually more activity for the retail customers so that is when we will see better traction on our NPA numbers.”

Outlook For Vehicle Finance

There has been a lot of talk of a slowing down in automobile demand, so we asked Selvan if he agreed with the view and his outlook for the vehicle finance business segment, which is the company’s major source of revenue.

“See Auto-OEMs when they talk, they focus on heavy commercial vehicles or the intermediary vehicles, which is a slightly larger ticket where our focus is minimal. We don’t go there because these are primarily taken by fleet operators who are generally funded by banks.

We operate in a segment of what we generally call as small road transport operators. The number of vehicles used is generally in the range of one to five or one to 10. And these are more light commercials, mini commercials, etc.

So we operate in that segment, and this segment is expected to grow with better rural consumption and rural activities projected on the ground. The new government is also expected to become a little bit more populist in nature. The budget also aims to work towards that.

And then, a better monsoon could improve rural spending, thereby improving consumption, which would mean more vehicles of this nature flying in the rural. “

Rural Demand Making A Comeback?

Ever since the new government came to power, people have been expecting to see rural demand improving. So we asked the CFo if he has seen improvement in that segment and if the demand going to up further from here.

“Yes, for example, two-wheeler and passenger cars are seeing a pickup in demand. And we are expecting when harvest happens, improvement in commercial vehicles should also happen. Used vehicle demand is also picking up in the rural belt, that’s good for us because they have a better yield and so the profitability is better,” Selvan said.

Loan And LAP Business

“The loan against property grew well at around 45% in disbursement and around 40% in AUM. Similarly, the home loan segment also grew by around 22%.

The government is also focusing on affordable homes, which is where our focus lies in the home loan segment. That would help us to penetrate better into the tier 3, and tier 4 cities and towns, where our strength is because our branches already exist here. That is what we are targeting. So we see good traction this year,” he said.

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