Cholamandalam Finance April 2023 NCD Public Issue Review

Cholamandalam Investment and Finance Company Limited (Chola) is launching its public issue of NCDs to raise funds from the debt market. Read further to know more about the business of Chola.

About the Issue

The  terms of multiple series of the NCDs are set out below:

While here you can earn up to 8.26% for 22 months tenure, for similar rated bonds in the secondary market you can earn an yield of 8.60% for shorter tenure of ~8 months. For more details, check out our asset page.

About Cholamandalam Investment and Finance Company Limited:

Cholamandalam Investment and Finance Company Limited (Chola) was incorporated in the year 1978 as the financial services arm of the Murugappa group, which has more than 122 years of existence. The Chennai based company is categorized as an “Upper Layer” NBFC-ICC (Investment and Credit Company). 

Chola commenced business as an equipment financing company and have since expanded operations to offer vehicle finance, loan against property, home loans, loans to small and medium-sized enterprises, consumer and small enterprise loans and secured business and personal loans. The company operates 1166 branches across 29 States and UTs with 22.7 lakh active customers throughout India as of December 2022. AUM of Rs. 95,468 crore comprises of Vehicle Finance (64.19%), Loan Against Property (20.95%), Home Loans (7.62%), and New Businesses (7.24%). Chola is well diversified across India, with a branch network of less than 30% in each region.

 
About Murugappa Group:

Founded in 1900, the Murugappa Group is one of India’s leading business conglomerates. The Group has 29 businesses including ten listed Companies traded in NSE & BSE.

The Group holds leadership position in several product lines including Abrasives, Technical Ceramics, Electro Minerals, Auto Components & Systems, Power Conversion Equipment, Transformers & Reactors for the Power T&D segment, Solutions for Railways in Rolling Stock & Signalling Equipment, Bicycles, Fertilizers, Sugar, Tea and Spirulina (Nutraceuticals). The Group has forged strong alliances with leading international companies such as Groupe Chimique Tunisien, Foskor, Mitsui Sumitomo, Morgan Advanced Materials, Yanmar & Co. and Compagnie Des Phosphat De Gafsa (CPG). It has has a wide geographical presence all over India and spanning 6 continents.

Operational Industry Overview:

Vehicle loans, which traditionally form the largest component of NBFCs’ retail portfolio, had declined during financial year 2021-22. Accordingly, the share of vehicle and auto loans, which accounted for about 45 per cent of NBFCs’ retail portfolio at the end of March 2021, dropped to around 40 per cent at end-March 2022. CareEdge Research expects the domestic automobile industry sales volume to grow by 20% in FY23.

Micro, Small and Medium Enterprises (MSME) sector, as per SIDBI, contributes in a significant way to the growth of the Indian economy with a vast network of about 6.34 crore enterprises. This sector contributes to around 30% of India’s GDP, over 45% of India’s exports, while creating employment for about 11.1 crore people. According to the latest TransUnion CIBIL-SIDBI MSME Pulse report, credit exposure to MSMEs is at ₹ 25.3 lakh crores as of September 2022, reflecting a YoY growth rate of 10.6%. Disbursements Q2FY23 to Micro, small and medium enterprises grew at 54%, 23% and 8% in YoY, respectively.

Company Financials (Standalone):

*Increase in GNPA due to new RBI norms on NPA

• The company’s leverage is high at 6.6x as of December 2022 resulting in a low CRAR of 17.75% which is a cause of concern. As per the offer details, the post issue leverage is expected to increase further to 6.97x. 
• The AUM has seen robust growth of ~40% since FY21. 
• Profitability has shown an uptrend along with an increase in profit margins since FY20. 
• Asset quality as indicated by GNPA, though high, has improved from 6.8% in FY22 to 5.4% as of December 2022, which is a positive sign.

Top Ten Equity Shareholders of the company as of December 2022:

Borrowings:

Peer Comparison (September 2022):

*Entity has merged with group companies to form a new entity called Shriram Finance

Comforts:

• One of the top players in the country in Vehicle Finance Segment
• Geographically well diversified AUM across India as of December 2022
• Increase in AUM & Profitability
• Backed by a strong promoter group

Concerns:

• High leverage of 6.57x as of December and post issue leverage of 6.97x
• Moderate Asset Quality
• Vehicle Finance sector remains susceptible to any economic downturn