Is Cholamandalam’s 20–22% Growth Outlook Realistic for FY26?
About Cholamandalam’s FY26 Guidance
Cholamandalam Investment & Finance Company, a prominent non-banking financial company (NBFC) and part of the Murugappa Group, has reiterated its growth framework for FY26, targeting an AUM or asset-base growth of 20-22 %. The management also expects net interest margins (NIMs) to rise modestly by 5-10 basis points in coming quarters, credit cost to remain contained at approximately 1.5–1.6 %, and return on assets (ROA) to land in the 2.2 %–2.4 % band. Taken together, these parameters reflect a deliberate emphasis on steady scale, margin improvement and asset quality control rather than aggressive risk-taking. In a broader sense, this positions Chola as a “quality growth” NBFC in a market environment where many lenders are grappling with credit stress, margin pressure, and regulatory overhang.For investors focused on the Indian NBFC sector, management guidance is a critical input because it provides forward visibility into growth, asset quality trajectory and profitability levers. Chola’s targets assume favourable borrowings cost trends, healthy demand for vehicle finance / home loans / secured portfolios, and restrained additional credit stress. The ability to deliver on these numbers will depend on cost of funds, regulatory transmission, portfolio composition and macro momentum.
Key Management Guidance Highlights
🔹 Growth Outlook: AUM / Business growth of 20-22 % in FY26, underscoring sustained scale ambitions.
🔹 Margin Guidance: NIMs expected to expand by 5-10 basis points as funding costs ease and mix improves.
🔹 Asset Quality: Credit cost expected at ~1.5–1.6 % of assets, signalling controlled risk environment.
🔹 Profitability: Target ROA placed at 2.2–2.4 %, reflecting earnings intensity improvement.
🔹 Business Mix: Emphasis on vehicle finance, home loans, LAP and secured business loans as growth pillars.
Chola’s guidance is modest relative to some peers who aim for 25 %+ growth, but the emphasis here is on responsible growth with margin and asset quality discipline. For stakeholders seeking sustainable franchise value rather than aggressive expansion, this may hold appeal.
Peer Comparison Snapshot
| Company | Focus Segment | Guidance Growth / ROA |
|---|---|---|
| Cholamandalam (Chola Finance) | Vehicle Finance, HL, LAP, SBPL | 20-22 % growth, ROA 2.2–2.4 % |
| Shriram Finance | Diversified NBFC (MFIs, CVs, vehicle finance) | ~20–25 % growth, ROA ~2.5 % |
| Muthoot Finance | Gold loans, secured business loans | Growth ~18–20 %, ROA ~2.0 % |
In the context of NBFCs, a ROA of 2.2-2.4 % is adequate when accompanied by capital efficiency, controlled credit cost and high leverage. Chola’s guidance suggests it is aware of this dynamic and is prioritising depth of portfolio rather than just headline growth.
Strengths🔹 Established market leadership in vehicle finance and secured retail lending. 🔹 Diversified product portfolio across vehicle, home, LAP and new-business segments. 🔹 Strong brand association with the Murugappa group and high governance standards. 🔹 Credit quality control and stable funding profile provide resilience in cycles. |
Weaknesses🔹 Growth may lag more aggressive peers, limiting upside in strong cycles. 🔹 Margin expansion of 5-10 bps is modest and may disappoint if rates remain flat. 🔹 Exposure to vehicle finance means macro sensitivity to CV/LCV demand and used vehicle volumes. 🔹 ROA levels are still moderate; scale will depend on cost and mix improvements. |
The prospect of only a 5–10 bps NIM expansion suggests that Chola is relying more on volume growth and cost-efficiencies to drive ROA improvement rather than a large re-rating on margin alone.
Opportunities🔹 Increasing credit penetration in semi-urban and rural markets provides long-run growth tailwinds. 🔹 Vehicle finance recovery in CV/LCV/used segments may accelerate AUM growth beyond 20 %. 🔹 Home loans and LAP growth offer higher yields and lower credit cost over time. 🔹 Margin improvement via funding cost decline and mix shift to newer, higher-yield segments. |
Threats🔹 Macro slowdown or vehicle financing downturn could impair growth momentum. 🔹 Prolonged high interest rates may compress margins if cost of funds remains elevated. 🔹 Asset quality stress in nascent business lines could lead to higher credit costs than guided. 🔹 Competitive intensity may increase in home and LAP segments, pressuring yields. |
While the guided ROA of 2.2-2.4 % may appear modest, it is consistent with a prudent growth model focused on asset quality and diversified lending rather than aggressive risk. Investors should assess execution in disbursement uptick, credit cost moderation and margin pass-through over the next two quarters.
Valuation & Investment View
Given the guidance of 20 %+ growth, stable margins and controlled credit cost, Chola offers a balanced risk-reward proposition among mid-sized NBFCs. The key questions for valuation are: how much funding cost reduction flows through, how quickly asset quality improves, and whether newer segments scale without undue stress. For investors targeting structural exposure to retail financing, Chola may offer durable growth, though upside may be limited if execution stalls. Tactical investors seeking event-driven opportunities may look into near-term disbursement inflection, cost leverage or segment mix shifts as triggers.Investor Takeaway With Gulshan Khera
Derivative Pro & Nifty Expert Gulshan Khera, CFP®, observes that Chola Finance’s guidance represents more of a “steady-engine” than a high-octane growth story. For long-term investors, the emphasis on 20-22 % growth, margin stability and asset quality control reflects a framework of predictability and resilience. The value of such predictability may become more visible in a market environment where credit stress and funding risk dominate. Readers may explore further insights and actionable research via Indian-Share-Tips.com, which is a SEBI Registered Advisory Services.
SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
