CMP (Rs) 272.00

Target Price (Rs) 307.00

ISIN: INE121A01016

Jan 26th

, 2013

Cholamandalam Investment & Finance

Company Ltd Result Update: Q3 FY13

BUYBUYBUYBUY

Stock Data

Sector Finance

BSE Code 511243

Face Value 10.00

52wk. High / Low (Rs.) 299.80/148.80

Volume (2wk. Avg ) 33000.00

Market Cap ( Rs in mn ) 36075.36

Annual Estimated Results (A*: Actual / E*: Estimated)

Years FY12A FY13E FY14E

Net Sales 17792.60 25607.18 32777.19

EBITDA 12597.20 19141.31 24325.07

Net Profit 1689.90 3314.10 4764.87

EPS 12.74 24.99 35.93

P/E 21.35 10.89 7.57

Shareholding Pattern (%)

1 Year Comparative Graph

BSE SENSEX Cholamandalam Investment & Finance Co.

SYNOPSIS

The group set up Cholamandalam Investment

and Finance Company Ltd (CIFCL) with an

objective of offering asset finance through

leasing and hire purchase to corporate & then

to retail customers. It has since evolved itself

into a large, composite financial service

organization.

CIFCL has approved raising of Tier I capital up

to Rs.300 crores by an issue of Securities,

through private placement including by way of

a ‘Qualified Institutions Placement’.

CIFCL has demonstrated the results during the

quarter; its boisterous growth of Net Profit is

steers by 100.96% to Rs. 815.10 million.

CIFCL has declared an interim dividend of

25% being Rs 2.50 per share on the equity

shares of the Company for the FY 2012-13.

The aggregate disbursements of the Company

for the quarter are Rs.3114 Cr. as against

Rs.2283 Cr. in Q3 FY12 registering a growth of

36%.

The Company has expanded its presence to

506 branches as on 31stDecember 2012 & the

additional branches are in Tier III and Tier IV

locations across India.

Net Sales and PAT of the company are

expected to grow at a CAGR of 39% and 78%

over 2011 to 2014E respectively.

Peer Groups CMP Market Cap EPS P/E (x) P/BV(x) Dividend

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Cholamandalam Investment Ltd 272.00 36075.36 12.74 21.35 2.57 25.00

Power Finance Corporation Ltd 206.20 272186.60 29.81 6.92 1.31 60.00

Shriram City Union Finance Ltd 1068.05 56125.80 74.67 14.30 3.40 65.00

Sundaram Finance Ltd 466.20 51796.60 35.61 13.09 2.90 155.00

Investment Highlights

Results updates- Q3 FY13,

The Company that commenced business as an

equipment financing company has now emerged as

a comprehensive financial services solution

provider that offers vehicle finance, business

finance, home equity loans, stock broking and

distribution of financial products to its customers,

reported its financial results for the quarter ended

31st Dec, 2012. The third quarter witnesses a healthy

increase in overall sales as well as profitability on

account of increasing branch networks across the

India.

Months Dec-12 Dec-11 % Change

Net Sales 6689.70 4756.20 40.65

PAT 815.10 405.60 100.96

EPS 6.15 3.40 80.85

EBITDA 5013.90 3446.00 45.50

The company’s net profit jumps to Rs. 815.10 million against Rs. 405.60 million in the corresponding quarter

ending of previous year, an increase of 100.96%. Revenue for the quarter rose by 40.65% to Rs.6689.70 million

from Rs.4756.20 million, when compared with the prior year period. Reported earnings per share of the

company stood at Rs.6.15 a share during the quarter, registering at 80.85% increase over previous year period.

EBITDA is Rs. 5013.90 millions as against Rs.3446.00 millions in the corresponding period of the previous year.

Expenditure :

During the quarter the total expenditure cost rose

by 30 per cent mainly on account of increase in

Other Operating Expenditure along with

consideration of depreciation in the rupee impact.

Total expenditure in Q3 FY13 was at Rs. 1733.70

million as against Rs. 1338.30 million in Q3 FY12.

Other Operating Expenditure cost Rs. 535.20

millions against Rs. 320.90 millions in the

corresponding period of the previous year. Business

organization outsourcing was at Rs. 438.40 million

and Employee Benefit Expenses was Rs. 400.30

millions in Q3 FY13 are the primarily attributable to

growth of expenditure.

3

Segment Revenue

Latest Updates

• Cholamandalam Investment & Finance has approved raising of Tier I capital up to Rs.300 crores by an

issue of Securities, through private placement including by way of a ‘Qualified Institutions Placement’.

• Cholamandalam Investment & Finance has declared an interim dividend of 25% being Rs 2.50 per share

on the equity shares of the Company for the year ending March 31, 2013.

• The Company has launched its home loan business during the later part of the quarter and disbursed

Rs.0.60 Cr. in this regard.

• The aggregate disbursements of the Company for the quarter are Rs.3114 Cr. as against Rs.2283 Cr. in

Q3 of 2011 - 12 registering a growth of 36%.

• The Company has expanded its presence to 506 branches as on 31st December 2012 compared to 375 as

on 31st March 2012. The additional branches are in Tier III and Tier IV locations across India.

• The Company raised Tier II capital of Rs.593 Cr. during the period ended 31st December 2012 by way of

subordinated debt and perpetual debt instruments.

4

Company Profile

The group set up Cholamandalam Investment and Finance Company Ltd (CIFCL) incorporated in 1978 with

the primary objective of offering asset finance through leasing and hire purchase to corporate and then to

retail customers. It has since evolved itself into a large, composite financial services organization. Owing to

Murugappa Group's pre-eminent position in the industry and the consumer equity that it had painstakingly

built, the horizon offered opportunities in the financial sector. To harness this, Today, Cholamandalam

Investment and Finance Company Ltd (CIFCL) offer stock broking, mutual fund and investment advisory

services through its subsidiaries. Ever since its inception and all through its growth, the company has kept a

clear sight of its values. The basic tenet of these values is a strict adherence to ethics and a responsibility to

all those who come within its corporate ambit - customers, shareholders, employees and society.

The Company that commenced business as an equipment financing company has now emerged as a

comprehensive financial services solution provider that offers vehicle finance, business finance, home

equity loans, stock broking and distribution of financial products to its customers. The Company operates

from over 350 branches across India with assets under management over Rs.10000 Crores. The subsidiaries

of Cholamandalam include Cholamandalam Securities Limited (CSec) & Cholamandalam Distribution

Limited (CDSL). Credit rating upgraded by ICRA (from [ICRA] AA- to [ICRA] AA).

Products

� Vehicle Finance

Chola Ltd has created value for its customers by supporting them in becoming entrepreneurs in the field

of commercial transportation. The customers’ success and prosperity is what drives our business and our

growth! Having financed over 750,000 customers, and increasing by over 15,000 new customers every

month, at Chola VF believe that we are here to help you enter a better life for past 20 Years.

� Home equity Loans

Be it to add fresh breath to business, or for that wonderful educational opportunity for child, or that

money needed to renovate your house, the company is always there by side to help the customers go

that one step further in attaining their ambitions and dreams. Leverage the benefit of owning a property

to cater to immediate needs, within a short turnaround time.

5

� Corporate Finance

The Cholamandalam finance division caters primarily to Corporate, Promoters, High Net worth

Individuals and Retail investors. The acceptable collaterals are listed Equity shares, Mutual Fund units,

Add Gold ETFs, Property in nature of commercial/residential space and other assets.

The Products of Corporate finance is

� Purely Equity shares

� Commercial/Residential Property & shares

� Pure Commercial / Residential Property

� Combination of assets and shares

� Gold Loans

Chola innate proficiency of providing differentiation through enhanced convenience, transparency and

service attributes, it started Gold Loan operations in 45 branches across AP, Tamil Nadu & Karnataka.

The company has lined up innovative strategies to service Gold Loan Customers with a difference,

constantly exhibiting our philosophy of Safety, Trust and Transparency. Chola also intends to be part of

the financial inclusion strategy by serving customers who are benefited by the banking services. This

sets Chola apart, enabling us to deliver on our Vision to be the highly respected and most transparent

Gold Loan Company.

Distribution & Advisory Services

� Equity

� Derivatives

� Mutual Fund

� IPO

Securities

� Equity

� Derivatives

� Mutual Fund

� IPO

Subsidiaries

� Cholamandalam Securities Ltd

� Cholamandalam Distribution Services Ltd

� Cholamandalam Factoring Ltd

6

Financial Highlight CONSOLIDATED

Balance sheet as at March31st, 2012

(A*- Actual, E* -Estimations & Rs. In Millions)

Particulars March (Rs.in.mn) FY12A FY13E FY14E

EQUITY AND LIABILITIES:

Shareholders’ Funds:

a) Share Capital 1326.20 1326.30 1326.30

b) Reserves and Surplus 12711.08 16025.10 20789.98

1. Net worth (a+b) 14037.28 17351.40 22116.28

Non-Current Liabilities:

Long-term borrowings 71545.50 82992.78 95441.70

Other Long Term Liabilities 193.69 149.14 131.24

Long Term Provisions 530.08 535.38 551.44

2. Total Non-Current Liabilities 72269.27 83677.30 96124.38

Current Liabilities:

Short-term borrowings 15480.63 20124.82 23747.29

Trade Payables 992.38 1200.78 1368.89

Other Current Liabilities 30255.55 41147.55 50200.01

Short Term Provisions 1854.27 1520.50 1368.45

3. Total Current Liabilities 48582.83 63993.65 76684.64

Total Liabilities ( 1+2+3 ) 134889.38 165022.35 194925.30

ASSETS:

Non-Current Assets:

Fixed Assets:

Tangible Assets 512.67 645.96 742.86

Intangible Assets 52.26 62.19 69.65

a) Total Fixed Assets 564.93 708.15 812.51

b) Receivable under Financing activity 83429.57 105527.54 127485.22

c) Deferred tax assets 511.30 327.23 281.42

d) Other non-current assets 3647.03 3792.91 4020.49

e) Non Current Investments 38.95 29.21 26.00

f) Long Term Loans and Advances 515.83 459.09 431.54

1. Total Non-Current Assets 88707.61 110844.13 133057.18

Current Assets:

Current Investments 62.74 81.56 95.43

Receivable under Financing activity 40479.63 47361.17 53991.73

Trade Receivables 73.70 78.86 82.80

Cash and Bank Balances 2882.69 3545.71 4148.48

Short Term Loans and Advances 315.16 245.82 226.16

Other Current Assets 2367.85 2865.10 3323.51

2. Total Current Assets 46181.77 54178.22 61868.11

7

Total Assets ( 1+2 ) 134889.38 165022.35 194925.30

Annual Profit & Loss Statement for the period of 2011 to 2014E

Value(Rs.in.mn) FY11 FY12 FY13E FY14E

Description 12m 12m 12m 12m

Net Sales 12080.20 17792.60 25607.18 32777.19

Other Income 142.20 46.90 59.28 69.95

Total Income 12222.40 17839.50 25666.46 32847.14

Expenditure -4763.30 -5242.30 -6525.14 -8522.07

Operating Profit 7459.10 12597.20 19141.31 24325.07

Interest -5921.50 -9900.20 -14153.27 -17833.13

Gross profit 1537.60 2697.00 4988.04 6491.94

Depreciation -100.50 -103.80 -208.65 -279.59

Exceptional Items -209.70 300.00 0.00 0.00

Profit Before Tax 1227.40 2893.20 4779.39 6212.35

Tax -381.60 -1203.30 -1132.09 -1447.48

Profit After Tax 845.80 1689.90 3647.30 4764.87

Extraordinary Items 0.00 0.00 -333.20 0.00

Net Profit 845.80 1689.90 3314.10 4764.87

Equity capital 1193.50 1326.20 1326.30 1326.30

Reserves 9426.40 12711.00 16025.10 20789.98

Face value 10.00 10.00 10.00 10.00

EPS 7.09 12.74 24.99 35.93

Quarterly Profit & Loss Statement for the period of 30th June, 2012 to 31st Mar, 2013E

Value(Rs.in.mn) 30-Jun-12 30-Sep-12 31-Dec-12 31-Mar-13E

Description 3m 3m 3m 3m

Net sales 5613.80 6078.80 6689.70 7224.88

Other income 10.30 13.70 4.90 30.38

Total Income 5624.10 6092.50 6694.60 7255.26

Expenditure -1414.90 -1587.20 -1680.70 -1842.34

Operating profit 4209.20 4505.30 5013.90 5412.91

Interest -3137.80 -3431.80 -3735.80 -3847.87

Gross profit 1071.40 1073.50 1278.10 1565.04

Depreciation -40.90 -48.50 -53.00 -66.25

Profit Before Tax 1030.50 1025.00 1225.10 1498.79

Tax -332.40 0.00 -410.00 -389.69

Profit After Tax 698.10 1025.00 815.10 1109.10

Extraordinary Items 0.00 -333.20 0.00 0.00

Net Profit 698.10 691.80 815.10 1109.10

Equity capital 1326.20 1326.20 1326.30 1326.30

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Face value 10.00 10.00 10.00 10.00

EPS 5.26 5.22 6.15 8.36

Ratio Analysis

Particulars FY11 FY12 FY13E FY14E

EPS (Rs.) 7.09 12.74 24.99 35.93

EBITDA Margin (%) 61.75% 70.80% 74.75% 74.21%

PBT Margin (%) 10.16% 16.26% 18.66% 18.95%

PAT Margin (%) 7.00% 9.50% 14.24% 14.54%

P/E Ratio (x) 38.38 21.35 10.89 7.57

ROE (%) 7.96% 12.04% 21.02% 21.54%

ROCE (%) 8.34% 12.57% 17.80% 20.84%

Debt Equity Ratio 7.54 6.20 5.27 4.34

EV/EBITDA (x) 14.82 9.54 6.47 5.26

Book Value (Rs.) 88.98 105.85 130.83 166.75

P/BV 3.06 2.57 2.08 1.63

Charts

9

Outlook and Conclusion

� At the current market price of Rs.272.00, the stock P/E ratio is at 10.89 x FY13E and 7.57 x FY14E

respectively.

� Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.24.99 and

Rs.35.93 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 39% and 78% over 2011 to 2014E

respectively.

� On the basis of EV/EBITDA, the stock trades at 6.47 x for FY13E and 5.26 x for FY14E.

� Price to Book Value of the stock is expected to be at 2.08 x and 1.63 x respectively for FY13E and FY14E.

10

We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth

story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.307.00

for Medium to Long term investment.

Industry Overview

Indian financial markets, broadly comprising of segments like asset management, banking, insurance, foreign

direct investments (FDI) and foreign institutional investors (FII), effectively promote the savings of the economy

by directing them towards suitable investment options. The Indian financial sector is well developed, competitive

and integrated to face all traumas (like the recent financial turmoil).

World Economic Forum’s latest report ‘Financial Development Report 2012’ has named India as the world's top-

ranked country in terms of life insurance density. Life insurance density is the ratio of direct domestic premiums

for life insurance to per capita gross domestic product (GDP) of a country. India has been ranked 40th in terms of

overall financial development of a country, but is much ahead of larger economies like the US, UK, Japan and

China for life insurance density.

Insurance Sector

Premium collection by general insurance companies increased by 24.7 per cent year-on-year (y-o-y) in

September 2012 at Rs 6, 059.02 crore (US$ 1.1 billion), according to the data compiled by the sector regulator

Insurance Regulatory and Development Authority (IRDA). The total premium stood at Rs 34,001.09 crore (US$

6.32 billion) for April-September 2012.

In terms of premium collections for life insurance segment, private players collected Rs 7, 095 crore (US$ 1.32

billion) in April-September 2012 period while state-owned Life Insurance Corp of India (LIC) recorded a

remarkable 24 per cent y-o-y growth in premium collections at Rs 15, 532.7 crore (US$ 2.88 billion) during the

period. LIC’s support helped the industry post a 15 per cent y-o-y growth in premium collected in the first half of

2012-13.

Banking Services

Key recent statistics pertaining to the Indian banking industry are discussed below:

11

• According to the Reserve Bank of India (RBI)’s ‘Quarterly Statistics on Deposits and Credit of Scheduled

Commercial Banks’, March 2012, Nationalised Banks accounted for 53.0 per cent of the aggregate deposits,

while the State Bank of India (SBI) and its Associates accounted for 21.8 per cent. The share of New Private

Sector Banks, Old Private Sector Banks, Foreign Banks, and Regional Rural Banks in aggregate deposits was

13.0 per cent, 4.8 per cent, 4.4 per cent and 3.0 per cent, respectively.

Nationalised Banks accounted for the highest share of 52.0 per cent in gross bank credit followed by State

Bank of India and its Associates (22.5 per cent) and New Private Sector Banks (13.5 per cent). Foreign Banks,

Old Private Sector Banks and Regional Rural Banks had shares of around 4.8 per cent, 4.8 per cent and 2.4

per cent, respectively.

• Another statement issued by the RBI revealed that foreign exchange reserves stood at, US$ 294.99 billion for

the week ended January 4, 2013 wherein the value of gold reserves was recorded at US$ 27.21 billion and

that of foreign currency assets (FCAs) was at US$ 261.06 billion.

The value of special drawing rights (SDRs) was US$ 4.40 billion and the country’s reserve position with the

IMF was at US$ 2.30 billion.

Mutual Funds Industry in India

Indian mutual funds' average assets under management (AUM) increased by 5.3 per cent or Rs 392 billion (US$

7.39 billion) to Rs 7.87 trillion (US$ 146.31 billion) in the October-December 2012 quarter from Rs 7.47 trillion

(US$ 139 billion) in the previous quarter, as per the latest data released by the Association of Mutual Funds in

India (AMFI). The growth in assets was majorly driven by inflows into income and gilt funds.

Further, assets recorded a stupendous growth rate of 15 per cent or Rs 1.05 trillion (US$ 19.52 billion) in the

calendar year 2012 as against 1 per cent growth in 2011.

Private Equity, Mergers & Acquisitions (M&A) in India

• Private Equity (PE) companies invested around US$ 8.85 billion in 2012, according to consultancy firm Price

Waterhouse Coopers (PwC). Information technology (IT) and healthcare seemed to have witness the highest

number of deals on the PE canvas wherein there were 162 deals worth US$ 3.25 billion in IT and healthcare

witnessed 48 deals worth US$ 1.23 billion.

12

• Similarly, the pace intensified on the merger and acquisition (M&A) front. There were as many as 268 deals

(involving Indian entities) that amounted to about US$ 36.3 billion in 2012; up 22.6 per cent over the 2011

tally, reported the global deal tracking firm Mergermarket.

Foreign Institutional Investors in India

• Investments into Indian shares through participatory notes (P—Notes) were recorded at US$ 32.4 billion in

November 2012, according to the latest data released by the Securities and Exchange Board of India (SEBI).

P—Notes, allow entities like overseas High Net-worth Individuals (HNIs), hedge funds and other foreign

institutions, to invest in Indian markets through registered FIIs , while saving on time and costs associated

with direct registrations.

• Overseas investors infused a hefty sum of Rs 4, 500 crore (US$ 836.64 million) in the first week of January

2013; wherein during January 1- 4, 2013, FIIs were gross buyers of shares worth Rs 8, 350 crore (US$ 1.55

billion), while they sold equities amounting to Rs 3, 830 crore (US$ 712.09 million).

• As on January 4, the number of registered FIIs in India stood at 1, 760 and total number of sub-accounts were

6, 357.

Financial Services in India: Recent Developments

• The Ergo Insurance Group (part of world’s leading reinsurer Munich Re) and the Avantha Group, India's

leading business conglomerate, have entered into a joint venture agreement in the space of life insurance.

The new company, to be named Avantha Ergo Life Insurance Company Ltd, is expected to commence

operations at the beginning of 2014, subject to regulatory approval.

• The Small Industries Development Bank of India (SIDBI) has partnered with eight regional rural banks

(RRBs) and urban co-operative banks in West Bengal. The scope of agreements includes training the staff of

RRBs and co-operative banks in project appraisal, monitoring and collection as also providing free access to

software on a down-scaling methodology developed for lending to micro enterprises.

Financial Services: Government Initiatives

The Indian Government has re-affirmed its efforts to push economic growth by increasing the FDI limit from 26

per cent to 49 per cent in insurance. The reform is expected to please international players who had been waiting

to venture into India and also encourage existing players to increase their stakes in strategic alliances.

13

The Indian insurance sector needs US$ 10-12 billion capital infusion in the next five years.

Furthermore, in a bid to attract higher foreign inflows, the Government of India (GoI) has opened up an

opportunity for FIIs of all jurisdictions to earn tax-free interest by investing in debt instruments of a state-owned

enterprise. Owing to this landmark move, FIIs and non-resident Indian (NRIs) have been allowed to invest in the

public issue of tax-free bonds by Housing and Urban Development Corporation (Hudco) that opened up on

January 9, 2013.

The GoI has also approved the establishment of a Credit Risk Guarantee Fund Trust (CRGFT) for low income

housing, with an initial outlay of Rs.1000 crore (US$ 185.92 million). The CRGFT, registered on May 1, 2012 and

launched on October 31, 2012 would administer and operate the Scheme, which is demand-driven, as stated by

Ajay Maken, Union Minister of Housing & Urban Poverty Alleviation (HUPA).

Road Ahead

Both the Houses of the Parliament have recently passed the much awaited Banking Laws Amendment Bill to give

a face-lift to the Indian banking industry as the initiative has paved way for more banks (domestic as well as

international) in the market. This will not only create a healthy competition among the players in the industry,

but will also escalate the style of operation and technology.

Also, the Indian mutual fund industry is expected to grow to Rs 2, 000 billion (US$ 37.19 billion) by 2020 owing

to regulatory changes and shift in investors' savings pattern, according to Reliance Capital Asset Management.

14

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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