Broker’s call: Cholamandalam Inv (Buy)

Cholamandalam Investment & Finance Company (CIFC) is experiencing growth through its diverse range of financial products beyond vehicle finance. The company expects to maintain a growth rate of over 20% in assets under management (AUM) over the medium term despite the decline in vehicle finance's share of its portfolio. CIFC's diversification into mortgage, consumer finance, MSME, and gold loans aims to reduce its dependence on any single segment and enhance its resilience across economic cycles.

By focusing on balance-sheet diversification, CIFC aims to drive earnings growth rather than simply expanding its balance sheet. The company is anticipated to benefit from robust net interest margins (NIMs), improved operating leverage, and normalized credit costs, which will contribute to a significant improvement in profitability.

CIFC's valuation stands at 4.1 times the expected FY27E price-to-book value (P/BV), which is higher than its peers in vehicle financing. The valuation is justified by the company's stronger growth trajectory and superior return profile, with expected return on assets (RoA) and return on equity (RoE) of 2.7% and 20% by FY28E. The stock is projected to have a purchase and hold period of about 27% compound annual growth rate (CAGR) in price-to-actual earnings (PAT) from FY26 to FY28, leading to an investment recommendation of BUY with a target price of ₹2,160, based on a 4x multiple of FY28E book value per share (BVPS).