Jefferies raises target price for Cholamandalam Investment amidst positive growth outlook

Jefferies suggests that the shift in the loan portfolio towards higher-yielding assets can help mitigate risks associated with net interest margins.

As new business ventures expand, there will be an increase in operating leverage gains, which can offset the higher credit costs associated with these new ventures. This, in turn, will enhance the returns on the new business portfolio.

Jefferies predicts a compound annual growth rate (CAGR) of 19 percent in auto loans and around 36 percent in non-auto loans. Consequently, they anticipate an overall loan growth CAGR of approximately 26 percent from FY23 to FY26.

Furthermore, new business loans are expected to grow at a CAGR of 46 percent over the same period, resulting in the share of new business in the assets under management (AUM) increasing from 9 percent in FY23 to about 14 percent by FY26.

According to Jefferies, a 50 basis point rate cut could potentially boost the earnings per share (EPS) by approximately 8 percent. They believe that Cholamandalam Investment and Finance Company deserves premium valuations and consider it their top pick among non-banking financial companies (NBFCs).

Jefferies also revised its FY24 to FY25 EPS estimates by 1 to 6 percent, taking into account higher loan growth and reduced operating expenses.

At 12:10pm, the stock was trading at Rs 1,161.75 on the NSE, higher by 0.80 percent. It has gained over 5 percent in the last one month.