Asset quality key monitorable for Cholamandalam Investment

Cholamandalam Investment and Finance's (Chola) share has yielded one of the best returns in the last month.

- DEVANGSHU DATTA

The company has sustained assets under management (AUM) growth at 7 per cent quarter-on-quarter (Q-o-Q), and 35 per cent year-on-year (Y-o-Y) in Q1FY25. Scaling up of new businesses now contributes to 13 per cent of loans (vs 10 per cent in Q1FY24). The expense ratio has dropped to 3 per cent, down 50 basis points (bps) Q-o-Q. However, credit cost is up to 1.5 per cent (up 100 basis points Q-o-Q) and gross non-performing loans ratio is 2.6 per cent, up 10 bps Q-o-Q.

The pre-provision operating profit (PPoP) was up 14 per cent Q-o-Q, which led to a return on equity (RoE) at about 19 per cent in Q1FY25, despite the deterioration in asset quality. Chola has reported over 25 per cent Y-o-Y growth in the last two financial years and management is confident of 25-30 per cent AUM growth while improving profitability. Return on assets (RoA) guidance is 3.8 per cent but the current valuation may reflect the outlook.