Cholamandalam reports rise in disbursements and AUM

Cholamandalam reported solid performance in FY 25, with disbursements rising 14% y/y to INR1,008.7bn. Vehicle Finance disbursements increased 12% y/y to INR539.2bn, while disbursements for Loan Against Property registered a growth of 32% to INR179.1bn. Total AUM reached INR1,998.8bn at end-FY 25, marking an increase of 30%. As a result, net income surged 36% to INR135.7bn, and profitability increased 24% to INR42.6bn.

Moreover, the company reported a slight improvement in asset quality, with gross NPA decreasing from 4% as of December 31, 2024, to 3.97% as March 31, 2025. Its liquidity position remained strong, with a cash balance of INR152.7bn as of March 31, 2025. In addition, Cholamandalam updated that it is launching gold loan business in select geographies.

Cholamandalam Investment and Finance Company Limited, incorporated in 1978 as the financial services arm of the Murugappa Group, started as an equipment financing company, but gradually transitioned into a comprehensive financial services provider. It offers a variety of services including vehicle finance, home loans, loan against property, SME loans, and investment advisory services, amongst others.

With a network of 1,613 branches across India, Chola oversees assets totaling over INR1,998.8bn and serves more than 4.3m customers.

Focus on diversifying product mix

The company reported a sustained rise in disbursements, posting a CAGR of 40% over FY 21-25. Vehicle Finance continues to account for the bulk of the disbursements, but its share has fallen from 78% in FY 21 to 54% in FY 25. This reflects Cholamandalam’s focus on expanding its business mix across the other verticals. Likewise, the group’s AUM rose at a CAGR of 27% over the same period, with the share of Vehicle Finance in the total AUM mix decreasing from 72% to 55%.

Encouraging outlook for key segments

Vehicle Finance business continued to expand with disbursements rising by 12% y/y and AUM growing by 20% in FY 25. However, there has been an increase in provisions from 1.2% in FY 24 to 1.6% in FY 25. Cholamandalam anticipates the growth for heavy commercial vehicle segment in FY 26 would be driven by higher infra spending, revival of construction activities and expansion of roads. On the other hand, e-commerce deliveries and warehouse expansion in tier 2 and 3 cities would drive growth and demand for light commercial vehicles.

The passenger car segment continues to gain ground and is expected to do well in FY 26 aided by rising income levels, penetration in rural markets, increasing urbanization and change in customer preferences towards utility vehicles. In addition, ICRA expects the LAP portfolio to grow by 21-23% in FY 26, driven by increasing property ownership, rising demand for financial products, and an expanding middle class. The company plans to leverage this demand by growing wide in tier 3 and tier 4 markets to improve margins.

Decent rise in NII

The company posted a solid net interest income (NII) CAGR of 23% over FY 19-24, reaching INR84.1bn. Total revenue, therefore, surged at a CAGR of 19.6% over the same period to INR86.1bn in FY 24. Net profit rose at a CAGR of 23.3% to INR34.2bn in FY 24.

Cash and equivalent was volatile over the same period, ending lower at INR8.5bn at end-FY 24, compared to INR31.6bn at end-FY 19. The group raised considerable borrowing over the same time, bringing the total debt to INR1,350bn at end-FY 24, from INR506bn at end-FY 19.

In comparison, Shriram Finance, a local peer, reported a NII CAGR of 19.5% over the past five years, reaching INR192bn in FY 24. Net profit surged at a CAGR of 23.4% to INR73.7bn in FY 24.

Increase in stock price lifts valuation

Over the past one year, the company's stock has delivered decent returns of about 16.4%, reflecting a positive fundamental trajectory. In comparison, Shriram Finance’s stock outperformed, with returns of approximately 30%.

The sharp run-up in share prices has pushed the valuation higher compared to its historical average and Shriram Finance. Cholamandalam is currently trading at a P/B multiple of 5.8x, which is higher than its 3-year historical average of 4.9x and that of Shriram Finance (2.3x).

Analysts anticipate a net profit CAGR of 25.9% over FY 24-27, reaching INR68.4bn with margins of 33.3% in FY 27, with EPS expected to increase to INR80.6 in FY 27 from INR41.1 in FY 24. Likewise, analysts estimate a net profit CAGR of 16.9% for Shriram Finance.

Overall, Cholamandalam is set for growth over the long term, supported by favorable growth trends of key segment products including HCVs and LCVs, and strong traction in LAP business. In addition, with the backing of the Murugappa Group, the company is poised to serve the society and enable customers to lead a better life through effective financing solutions. However, the company is prone to some risks including risk of default, liquidity risk, demographic risk, and investment risk.