Why Is Jefferies Bullish on Chola After Strong Q4 Performance?
About the Company
🔹 Cholamandalam Investment is a diversified NBFC focused on vehicle finance, LAP, and SME lending
🔹 Strong parentage of Murugappa Group supports long-term growth visibility
🔹 Business model driven by disbursement growth, asset quality, and margin expansion
Jefferies has maintained a positive stance backed by strong operational performance and improving asset quality.
Jefferies View & Q4 Highlights
🔹 Rating maintained at Buy with target price ₹2040
🔹 PAT at ₹16.4 bn (↑30% YoY, 11% above estimates)
🔹 AUM growth at 21% YoY driven by strong disbursements
🔹 Disbursement growth at 25% YoY (Vehicle Finance 26%, LAP 5%)
🔹 NIMs expanded by 5 bps QoQ on lower cost of funds
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Asset Quality & Profitability Trends
| Metric | Trend | Impact |
|---|---|---|
| Gross Stage 3 | ↓31 bps QoQ | Improving asset quality |
| Net Slippages | ↓30% QoQ | Lower risk formation |
| Credit Cost | 1.53% (↓26 bps) | Margin supportive |
| Vehicle Finance | ↓40 bps QoQ cost | Improved profitability |
| CSEL Segment | ↓120 bps QoQ cost | Strong recovery trend |
Declining credit costs are emerging as a key driver of earnings expansion.
Strengths🔹 Strong AUM and disbursement growth 🔹 Improving asset quality metrics 🔹 Expanding margins with lower CoF |
Weaknesses🔹 Rising operating expenses 🔹 LAP growth relatively slower 🔹 Dependence on vehicle finance cycle |
The balance between growth and cost control remains crucial going forward.
Opportunities🔹 Continued credit cycle expansion 🔹 Vehicle finance demand tailwinds 🔹 Improving rural and SME lending |
Threats🔹 Interest rate volatility 🔹 Asset quality risks in downturn 🔹 Competitive NBFC landscape |
Asset quality trajectory will remain the key monitorable.
Valuation & Investment View
🔹 Earnings growth supported by strong disbursement momentum
🔹 Margin expansion driven by lower funding costs
🔹 Asset quality improvement reduces downside risk
🔹 Brokerage confidence reflects improving business fundamentals
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Investor Takeaway
Derivative Pro & Nifty Expert Gulshan Khera, CFP® highlights that Chola’s improving asset quality, strong AUM growth, and declining credit costs create a favourable risk-reward setup. Sustained execution in disbursements and cost control will be critical for maintaining this momentum. Explore deeper insights at Indian-Share-Tips.com.
Related Queries on NBFC Stocks and Chola
🔹 Is Chola a good NBFC stock to track?
🔹 What drives AUM growth in NBFCs?
🔹 How important is credit cost for NBFC profitability?
🔹 Why asset quality matters in lending businesses?
🔹 What are key risks in vehicle finance companies?
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.
