Cholamandalam Investment joins Rs 1-trillion market cap club; hits new high

The stock hit a record high of Rs 1,239.80, surging 7 per cent in the past two trading days

Cholamandalam Investment and Finance Company (Chola) became the third non banking financial company (NBFC) to surpass the Rs 1-trillion market capitalisation (market cap) mark, as the stock hit a record high on the BSE in Friday's intraday trade.

The stock touched a new high of Rs 1,239.80, gaining nearly 3 per cent from the previous day's close. In the past two trading days, the stock has rallied 7 per cent. It has also zoomed 88 per cent from its 52-week low of Rs 658 touched on January 6, 2023.

At 12:12 PM, Chola was up 2.3 per cent at Rs 1,235.15 with a market cap of Rs 1.02 trillion, the BSE data shows. In comparison, the S&P BSE Sensex was up 0.50 per cent at 67,829.

Among NBFCs, Bajaj Finance is on the top of the list with a market cap of Rs 4.58 trillion, while the recently listed Reliance Group company, Jio Financial Services, is at the second position with a market of Rs 1.53 trillion, exchange data shows.

Chola, the ­financial services arm of the Murugappa Group, is a comprehensive fi­nancial services provider offering vehicle ­finance, home loans, loan against property, SME loans, secured business & personal loans, consumer & small enterprises loans, and a variety of other fi­nancial services to customers. Chola operates from 1,204 branches across India with assets under management (AUM) of Rs 1.22 trillion.

"Chola said GDP for the country is projected to grow at 6.5 per cent during FY24 supported by solid domestic demand and pick up in capital investment. The company will look to scale up through new product segments (CSEL, SME and SBPL) as well as improving efficiencies in existing segments (VF, LAP and HL). The company's strong sales and collections set-up combined with digital initiatives and branch reach will also support in improving efficiencies," the company said.

Given rising portfolio diversification (vehicle finance at 62 per cent of AUM) and increasing penetration of non-vehicle segments in existing branches, the company remains upbeat about its growth prospects despite intense competition.

"The management attributed the higher provisions to higher standard asset provisioning for new businesses and seasonality and remains upbeat on the potential profitability of new businesses, which remains a key monitorable," according to HDFC Securities.

Chola has demonstrated its capabilities to successfully scale up new businesses, with their contribution to the disbursement mix inching up to ~23 per cent in Q1-FY24. Chola is a franchise equipped to deliver strong AUM growth with benign credit costs (relative to peers), translating into sustainable RoE of ~22-24 per cent across economic cycles. Analysts at Motilal Oswal Financial Services believe that these premium valuation multiples will sustain (and perhaps even expand) as investors keep gaining more confidence in its execution capability in new product lines without any adverse selection.