| Q2 FY26 Earnings Conference Call
Summary : Cholamandalam Investment and Finance Company Limited expects a strong second half driven by improved disbursements, stable asset quality, and growth in new segments, despite Q2 challenges.
Management Perspective positive : "I think that makes me quite bullish.""we feel it looks quite strong, especially for players like us.""we remain confident of continued progress in H2.""I am fairly bullish on both.""we really feel like we are beginning to see the peak and from now on, we are basically going to see improvement going forward."
Concall Report Analysis & Insights
Business Overview
- Loan growth aggregate disbursement was Rs. 24,442 crores, AUM grew 21% YoY.
- Vehicle finance AUM grew 17%, LAP AUM grew 33%, SME AUM grew 28%.
- Home loans disbursement was negative due to procedural changes.
- CSEL degrew due to Fintech partnership stoppage; NIM improved to 7.9%.
- Q2 PBT grew 20% YoY to Rs. 1,561 crores; ROE was 18.11%.
Future Growth Prospects
- Expect 10-15 bps NIM improvement and stronger H2 disbursements.
- AUM growth of 20% is not at risk for FY '26.
- CSEL credit losses expected to moderate with improved underwriting.
- NCL expected to improve to 1.6% for the full year.
- Overall growth level likely to remain 20%-25% in FY '27.
Management Insights
- GST rate rationalization and repo rate reductions are positive for credit offtake.
- Management is bullish due to multi-product and cross-country presence.
- CSEL credit cost has peaked, and moderation is expected in H2.
- October saw fantastic growth due to GST implementation and festive holidays.
- Prefer full control over origination, underwriting, and collections in partnerships.
Signs of Skepticism
- Home loans disbursement continued to be negative in the quarter.
- CSEL registered a degrowth due to Fintech partnership stoppage.
- Select segments experienced some stress, particularly unsecured business loans.
- Extended monsoon and its impact on harvest is a concern.
- Tractor book has been declining for 3-4 quarters despite industry volume growth.
Risk Factors
- Extended monsoon and its impact on harvest is a concern.
- Home loans disbursement negative due to procedural changes.
- CSEL unsecured business loans saw higher delinquencies.
- Tractor book declined due to competition and lower yields.
- Karnataka facing delays in HL/LAP due to e-Khata issues.
Good To Know
- Q2 FY '26 PBT: Rs. 1,561 crores (20% YoY growth).
- Q2 FY '26 PBT ROA: 3%; Q2 FY '26 ROE: 18.11%.
- Total liquid assets: Rs. 17,516 crores.
- Capital adequacy: 20% (Tier-1 at 14.59%) as of September 25.
- Net slippage improved from 2.8% to 2.5% Q1 to Q2.
Key Drivers
- Strong H2 disbursement growth expected.
- GST cuts to boost vehicle finance.
- Gold business adding significant disbursements.
- CSEL credit costs expected to moderate.
Key Analyst Discussions
Competitive Environment
- Analysts asked about CSEL partnership strategy versus peers.
- Inquiry about competition in the tractor segment and declining book.
- Questions on gold loan yields compared to competitors.
- Strategy to counter PSU banks' aggression in passenger vehicle financing.
Market Trends & Consumer Behavior
- Questions on October growth trends, especially vehicle utilization.
- Impact of extended monsoon on Q3 performance was discussed.
- Inquiry about vehicle OEMs' indications post-GST cut.
- Questions on consumer behavior for unsecured business loans.
Financial Highlights
- Analysts questioned achieving 10% disbursement and 20% AUM growth targets.
- Inquiries were made about CSEL credit cost stabilization and overall trajectory.
- Write-off numbers for Q1 and Q2 FY '26 were requested.
- Clarification on NCL improvement target for FY '26 (1.6%) was sought.
- Questions on OPEX trajectory and reasons for Q2 jump were asked.
Product Composition
- Questions on stressed and performing segments in vehicle finance.
- Inquiry about geographies and ticket sizes for unsecured loan delinquencies.
- Questions on home loans and LAP registration issues.
- Discussion on M&HCV growth split and LCV/SCV asset quality.
- Questions on LAP disbursement jump and strategy changes.
Strategic Considerations
- Lessons learned from CSEL partnership business were discussed.
- Strategy for managing affordable housing NPAs was questioned.
- Short-term growth prospects for SBPL business were inquired.