Cholamandalam Investment and Finance Company Limited (511243) Earnings Call Transcript & Summary

Good evening. Welcome to the earnings conference call of Cholamandalam Investment and Finance Company Limited. We discuss 1Q FY '27 earnings today. The senior management of the company is represented by Mr. Vellayan Subbiah, Executive Chairman; Mr. Ravindra Kundu, Managing Director and CEO; and Mr. Arul Selvan, Chief Financial Officer. I would now like to hand over the call to Vellayan for his opening comments, after which we'll take Q&A. Over to you...

Thank you, Nan, and thank you, Kotak, for hosting the call. Good morning and good afternoon, everyone. I'm happy to take you through our performance for Q1 FY '27 [indiscernible] trajectory in Q1, reporting aggregate disbursements of INR 29,612 crores, up 22% year-on-year, reflecting healthy performance across all major businesses. As a result, our AUM expanded 23% year-on-year 254,392 crores, underscoring the strength of customer demand and effectiveness of distributing and operating model. The vehicle finance business maintained its growth momentum with disbursements increasing 21% year-on-year during the quarter. Growth was aided by healthy demand trends across key vehicle categories and deep market penetration, resulting in auto OEM growing 19% to INR 1,24,132 crores. The MSME portfolio also demonstrated continued resilience with disbursements growing 6% year-on-year and AUM increasing 26% year. The segment benefited from sustained customer acquisition and continued expansion in underpenetrated markets. Within the segment, LAP AUM grew 23% year-on-year to INR 54,130 crores. SME AUM and SBPL AUM recorded robust growth of 39% and 40%, reaching INR 9,923 crores and INR 3,730 crores. Consumer segment delivered strong growth during the quarter with disbursements increasing 52% year-on-year, reflecting sustained traction across all product categories and continued customer acquisition momentum. As a result, AUM grew 24% year-on-year to INR 41,671 crores. Within the segment, the home loans continue to scale steadily with AUM increasing 22% year-on-year to INR 23,644 crores. CCL AUM grew up 12% to INR 15,884 crores, while gold loans witnessed strong expansion with AUM reaching INR 2,143 crores, supported by growing customer acceptance and network expansion. NIMs improved by 42 bps year-on-year in Q1, supported by lower funding costs. Credit costs declined by 24 bps year-on-year, aided by healthy collections and continued stability in portfolio performance. Continued improvement in margins and asset quality drove stronger profitability with ROA increasing to 3.7% in Q1 FY '27 from 3.1% a year earlier, while ROE stood at 21.2%, reflecting the company's disciplined growth strategy and efficient capital deployment. company continues to maintain a strong liquidity and capital position with liquid assets of INR 2,984 crores, including undrawn san. As of June 2026, the capital adequacy of the company -- capital adequacy ratio of the company stood at 19.81%, with Tier 1 capital at 15.81%, providing ample headroom to support future growth. Of the INR 2,000 crores CCD issuance, INR 1,370 crores was converted into equity during FY '26, followed by a further INR 200 crore conversion in July 2026. The remaining INR 430 crores of CCDs is expected to be converted in October 2026, further reinforcing the company's capital base. Nishint and team, with that, I will stop and turn it over to participants for questions.

The first question comes from Kunal Shah of Citi.

Yes. So firstly, if you can just highlight in terms of the overall macro environment, the -- any business impact that we are looking in any of the product segments? And would there be any risk to the credit cost guidance, which we had given earlier of, say, almost like 1.5-odd percent for FY '27 because this quarter, we have seen increase across the board, say, in Stage 3 for most of the product segments, except for CICLes.

Yes. So first of all, the net credit cost has already come down to 1.5% from 1.8% of the last year. So we have achieved the target. I don't know why you are saying it has gone up.

No, he's concerned about GNPA as well.

GNPA, you're talking about. GNPA is basically it is a seasonal effect. We normally goes up from quarter 1 to quarter 4 to quarter 1, and it went up significantly higher last year. As compared to that, it has gone up by only 25 basis points. So that way, we -- our start has been fantastic in terms of Stage 3 and Stage 2 improvement from -- or increase from quarter 4 to quarter 1. And that is the reason there has been an improvement in net credit cost as against the last year of 1.8% to 1.5%. Now coming to the disbursement and market, what we are seeing with respect to the businesses what we are doing. As of now, we see that all the business line, whether it is vehicle finance or loan against property or housing loan or SME or SBPL or CCL or gold and even consumer for us, -- we are seeing quite a good trend even in the month of July and likely to be better growth continue to be in the coming quarters also. We haven't seen any adverse impact on our disbursement or the growth, whatever we have been discussing that 22%, 23%, we're still holding it.

Okay. And no product segments wherein you see any risk dropping up in second or third quarter because of be it a below average monsoon or maybe the geopolitical conflict, any product segment wherein you could see maybe a slightly higher stress?

So currently, that visibility is not there that what is going to happen in quarter 3 after the -- even the rainy season is not over. So we are expecting that July -- whatever days left out in August will be good rain. And as you know that the prediction is 92% range, which is like slightly below -- below average as against the 96%. If that happens, then it will not be so bad. And therefore, we are continuing to hope that the quarter 3, quarter 4 also will be good with respect to all the product segments.

Sure. And just a couple of data point questions. One is on the used vehicle disbursement side. Is it again more of a seasonal? It's down maybe sequentially as well as in terms of the proportion in the overall vehicle finance disbursements. And second, in terms of home loan yields, that's also down like almost 60 basis points quarter-on-quarter. So would this be more like a Q4 to Q1 phenomenon? Or is there anything to read into this, yes?

No, no, no. Actually, the vehicle finance disbursement has been up to the mark. Obviously, quarter 1 growth is slightly lower than quarter 3 that happen always.

On used vehicle, particularly.

Yes, yes. It is the same line only used vehicle or new business they put together, they have grown more than 20% in disbursement. So their growth has been good only across all segments in the vehicle finance. Coming to the point that mortgage business, whether it is home loan or loan against property or even SBPL and even in the case of used business, we have moved to recognize the disbursement by the check clearance from this quarter onwards. So to that extent, wherever we issue the check and complete the formality, whether it is used business or it is home loan business or loan against property and the SBPL business, the disbursements are slightly lower. But like-to-like, if you see that they have grown more than 20%. And from next quarter onwards, you won't see this gap coming up because this is a onetime call we have taken. said that now over all the disbursement will be aligned to the check clearance date instead of check disbursement date or check handover date. And even after this, overall disbursement has been over and above 20%. That is also you have to consider that.

And even interest income would be lower because of this maybe -- and that's the reason like home loan yields are lower 60 basis points quarter-on-quarter in terms of when do we start booking the interest income? Would that have impacted the interest income line item in home loan in particular?

No, no, no. See, in the case of home loan, they are now moving to the slightly bigger ticket size also and branch expansion, which they started now, which is going to take over in next 6 months' time. So if you see that their interest income has improved from 15.5% of last financial year to 15.9%. So in a way, their yields are higher than last year. So the yields are not going down. And their ROA also has improved from 3.9% pretax ROA to 4.7%. So I don't see what data you are referring to?

Quarter-on-quarter, sorry.

Quarter-on-quarter, always across the company, across all products, what happens is that in last quarter, we do very good collection and collection income goes up. So overall disbursement goes up, the other income goes up. So because of that, overall income always quarter 4 is higher than quarter 1. And then again, from quarter on, it starts picking up towards quarter 4. That's a normal phenomenon.

Raghav Garg from Amit.

I just have one question. See, when I look at your slippage ratio and maybe. I think the expectation may have been for a higher improvement. So I just wanted to understand if there's anything to highlight in any of the segments, if you're seeing any asset quality pressure. Just a couple of more data points in LAP and the vehicle finance portfolio, your gross Stage 3 percentages are also up Y-o-Y. And where I'm coming from is that last year, first half was probably much more intense in terms of flows into the NPA bucket versus what we've seen in the second half and what we were expecting for this quarter or maybe for this year. So anything to highlight specifically in LAP and VF and in general overall? That's the only question that I have.

No, we have mentioned that from quarter 4 to quarter 1, it is always a slight jump in there. And then from quarter 1 to quarter 2, quarter 3, it is always improving and you have seen that. In the loan against property, they have already delivered 0.3% of net.

Have been always at -- for the LAP business, the loan losses have been at about 30 basis points. For this first quarter, it is 37, 38 basis points. And we -- on an annualized basis, this will be maintained at 0.3% go beyond that. The other thing on a Stage 3 on LAP is it's been at the same levels, while the percentage increase in the Q1 and the Q1 of '26 and '27 remains almost the same. And for about -- it's also in the same range, one read, between 2.3% to 2.5% -- so we are not seeing any specific stress or trend, and we are pretty confident that this will be resolved.

Understood. Just one more question. If you guys can give the vehicle finance slippages, the absolute numbers for this year and the same quarter last year, if that's possible. And that's...

See, even if you see the vehicle finance number, vehicle finance as on 31st March 2025, the number was actually lower than the March closing of 2026. So March number was 3.84%. And even the previous year, it was lower. So we need to see that even March number was lower -- higher than the last year June number. So now if you compare the March to June, so last year, March to June was like 3.5 to 3.9 which is almost 45 basis points increase from the annual closing to quarter 1 closing. As against that, it is only 20 basis points has gone up from 3.84% to 4.05%. That is what we are trying to say that the last year increase was 45 basis points, and now it is the only 25 basis points. So it is easy for us to basically reverse it over the year.

Next is Piran Engineer from CLSA.

Congrats on the quarter. Just firstly, on asset quality, is there scope for further reduction in NCL just simply because the share of CECL is much lower today, and we've cleaned out the fintech part of it and vehicle is on a recovery mode.

See, first of all, we said we will be trying to reach 1.5% in this financial year. Luckily, we achieved it in first quarter itself. It is achieved because the increase in the NCL because of the higher increase in -- or lower increase in Stage 3 compared to the last year is actually benefiting to achieve that 1.5%. So obviously, if we achieve 1.5% in the quarter 1, by end of this financial year, it will be improved only. There is nothing because not only CECL, but other businesses are also going to reduce their NCL, including the vehicle finance. So that scope is there. CECL itself is going to further reduce because they are continuously improving their NCL, and we are in the process of improving further in this financial year. So that part is also available.

Understood. And sir, my next question is for Arul, sir. When we speak with the banks, they say that now they have much more pricing power on corporate loans, especially NBFC loans than they had, say, 6 months back. Do you also see that in your dealings with them? And what does this mean for our cost of funds going forward?

Cost of funds has been low, especially from banks where we borrow, we borrow mostly the priority sector loans. So there we have a better bargaining power over them. But on the market side, cost of funds has been slightly hardening, and we are worried whether the second half, there will be a rate increase. If that happens, Cost of funds may go up in the second half. Overall, cost of funds may go up by around 10 basis points. But my guess is for the full year, we will be same as last year number as a percentage to average assets. This is primarily because last year, first and second quarter were high and the third and fourth quarter were low. This year, first and second quarter will be low and third and fourth quarter may be higher.

Understood. But sir, this is assuming no rate hike, the cost of funds.

Assuming rate hike of around 25 to 50 basis points. I'm talking rate hike on the repo.

On the -- and today, between a bond and a bank borrowing, the non-PSL bank borrowing, what would be cheaper?

Right now, the bank still is cheaper. But sometimes it will be MCLR linked. If it is MCLR linked, then it becomes a little. We don't know where it will ultimately land because if there is a price increase that -- I mean the repo rate goes up, then they hike the MCLR, it can be a problem. But the bond that way is a fixed rate. So to that extent, you have more visibility of that.

Understood. And just lastly, in the home equity business, our yields are up 30 bps Q-o-Q and Y-o-Y. Is there some one-off DA income booked in that?

No. No DA income gets booked in the individual businesses. DA income is shown separately. So DA income is not part of that business.

Income Business income.

So 30 bps, it has improved. Okay. So we've internal...

No, no, no. We are continuously and yield income, both also. Yes. So the composition of the small ticket LAP increase as well as going deep tier, so which is also helping us in increasing the yields.

Next, we have from.

Congrats on a good quarter. Just want to follow up on your comments that disbursement number that we see this quarter is impacted by definition change on timing of recognizing disbursements. So I just want to understand on a like-for-like basis, what kind of disbursement growth are we seeing this quarter for that.

Yes. See, the disbursement, there are different ways have been recognizing. One is at the time of loan sanctioning itself, that was the initial way of doing it. Then we made a change that it will be at the time of handing over of the check. to be more conservative to make sure because this handing over of a check cannot be established with any specific date, which is validatable. What we have done is now we have moved from this quarter to debit in the bank account itself of the respective check. So that is a probable validatable data. So that way, that is what -- so that has moved the disbursement number slowly. From next quarter, you will see them as per the same way we are doing it now. Once we start doing it in the same fashion, we will see the growth happening correctly.

Got it. So this impacts HL LAP and SPP.

It is more pronounced in LAP and HL because there is a time lag between the cutting of the check versus the customer depositing. For example, in vehicle finance, what happens is it is a trade advance given to the dealer and then it's only a delivery order that's given. So already, the money is given to the dealer. So there is no need to prove that this money has gone to the dealer or for the customer. The devote date will be the delivery date. Whereas in the case of LAP, there is a time lag between the time the check is cut versus it gets honored because it needs to be entered into the registration document and which takes some time at the registrar office, et cetera.

So you are saying used vehicle also is impacted by this definition change.

Yes. In used vehicle also, it happens because there, again, there is a time lag between the time we cut the check versus the physical registration or the hypothication of the vehicle happening. So wherever there is a shift of asset from one individual to another, there will be some time lag. Whereas it is a purchase of a new asset, then it flows through immediately.

Does this also impact the timing of the start of recognizing of our interest income in the P&L also?

In all the cases, we will follow now the debit into the bank account as the bus.

I see. So just adjusting for the definition changes, what's the like-for-like organic disbursement growth for home loan?

Around 20% in the case of LAP and HS. Yes. That's why the AUM growth is a better measure to watch for, and that is where we have been consistently growing because the time lag gets absorbed...

Okay. So the difference is -- so organically, it's 20% for H.

Nina, just curious, is this because of any new regulation or something that has come in for NBFCs that you have changed this?

No. See, what happens is the delay between the check cutting date or the loan booking date and the check honor date is slightly larger than RBI says that the customer is losing interest on the intervening period and they want us to reverse the interest. So we started reversing the interest more than a year back. But what happened was still the asset is lying in the book and then it is seen as an asset lying in the book without earning interest because you're reversing the interest. So we needed to not recognize the asset itself in the first place. So that is the reason why we are now saying we will recognize the disbursement only after the check is honed in the bank.

This is not based on any RBI regulation. It is our call that we have taken in order to basically to be more prudent. It's good for customers.

And very technically, this could just mean that maybe at a margin, your yields could look a little higher?

Yes. In a way, yes, because last year, the AUM carried some of the disposed assets without the interest being recognized because we have been reversing the interest manually. So to that extent, you will see some flip on the -- because the denominator is marginally coming down.

Next is Viral Shah from IIFL [Operator Instructions]

Set of results. Just a couple of questions. I'll try to restrict it into 2. Sir, just from the perspective of the guidance for this year, right, in this quarter, as you called out, there were some realignment changes with regards to the disbursement recognition. But despite that, we have delivered a 22% disbursement growth. Even in the VF, we are at close to 21% -- on the credit cost front, we are starting the seasonally the weakest quarter for us at 1.5%. I understand there is basically second half seasonality more so or not seasonality, I would say, the risk given the El Nino, et cetera, but we are also carrying a INR 200 crores of buffer provisions. So with regards to your guidance, both on the growth as well as on the credit cost front, do you see some risks to the upside for this year or, say, at the higher end of it?

So as I mentioned earlier also, Viral, to someone that we are still hoping that we will continue to do well in this financial year. And in terms of disbursement, second half is challenging because last year, the growth started happening from the second half only. But having said that, market is still looking very buoyant, and we are also in vehicle finance and in other businesses also, we are getting market share benefit in terms of like new businesses, CCL, SME, they are doing good business. So considering that and also now loan property, housing loan, SBPL, mortgage businesses and vehicle finance, used businesses from next quarter onward, there is alignment done with respect to disbursement date and disbursement recognition. So we don't have any problem in terms of delivering the number what we are seeing as of now other than the base effect in the quarter 3 and quarter 4. So quarter 2 will definitely will be better -- as good as what we have done. But after that, we have to see the market is supporting or not. If market is continue to be what it is now in the current quarter or it is slightly around that, we can still deliver 22% disbursement growth even quarter 3 also -- quarter 3, quarter 4 also.

Right. So does that mean, sir, from an AUM standpoint, this year, like 23% kind of number looks more doable for you?

Yes, 23% we have already achieved, I think it is doable. -- we'll definitely not going down.

Got it. And sir, the second question, Arul, sir, more so for you. You mentioned that after baking in some bit of repo rate hike, you are expecting not more than 5, 10 basis points kind of a cost of fund increase from here on, which means on a full year, it will be kind of flattish. But when I overlay this with, say, the yields wherein our mix is changing favorably with the CECL business also now starting to grow, plus the fact that we will get the CCD conversion money close to INR 630 crores, the effect of it will come after this quarter. Do you think that on the margin front, we can actually see a meaningful margin expansion in this year on a full year basis?

I mentioned about the cost of funds first. That's what I said it will be flat. NIM will improve. on the other side. you are right, CD is improving, gold will improve. So those should bring, but let us see. I mean, let's not count the chicken.

As of now, NIM is 8.2% and we are hoping that we hold it either by -- with the help of Arul sir or with the help of the business heads sitting here or both put together, they will help us to basically continue to achieve this growth in terms of NIM.

See, there are other sides to it. The insurance IRD is coming with some I don't know what are the impacts of that. So let us not -- let's see...

Okay. And now that, sir, you mentioned that piece, would you also want to basically just call out...

Let the circular come, Neil decide about it. It's not going to happen for this financial year is what I hear. So I don't know about it, let us see what is the income.

And just on that point in terms of data, like what is the associated kind of OpEx that is related to that income. So if you have to assess what can be the risk to the bottom line, if at all?

No, no. I don't want to comment on it because without knowing what is the circular and what is the implication, we should not talk about it.

Next is Abhijit from Motilal.

N. Ravi sir, first question is for you. I mean, we would have seen, right, I mean, all through the course of this call, a lot of questions on asset quality. I think, I mean, predominantly, what people are trying to understand is that among all the NBFCs that have reported until now, we have generally seen good credit trends. In other words, maybe the deterioration that we are typically used to seeing in the first quarter was maybe not as pronounced as what we saw in Chola's results this time. Having said that, we heard you that, I mean, the kind of deterioration, which was there from 4Q to 1Q last year, this time, it's much lower from 4Q to 1Q this year. But just trying to understand, I mean, this is just normal, what you have said earlier? Or is there something that we would look forward to in terms of the various developments which are there, it could be this U.S. war, the West Asia crisis or for that matter, El Nino or weak monsoons. The only reason I ask is over the last 1, 1.5 months, the NBFCs that we have met, very often, they say that even if this year, if the monsoons are relatively weak, despite that, the impact of weak monsoons will only be felt next year and not this year. So if you could help us understand this please, why is this the case? And what are your thoughts here?

Yes. So first of all, Vij, you need to see that what is our Stage 2 and what is our Stage 3. These are the 2 delinquency points. Stage 2 has improved from June '25 to '26 by 33 basis points. And Stage 3 has been increased from 3.16% to 3.29%, which is 13 basis points. So these 2 data points should be added and see that what is our delinquency level. Our delinquency level is only 6%. That means 94% are current. Suppose you're comparing with any other NBFC, see that what is their delinquency level. What is their current and what is their noncurrent. That means how much the delinquent and how much is nondelinquent. If the company has 96%, 94% of the account is actually paying on time, then there will be seasonal effect a little bit. What I'm saying is that even after that, our numbers have improved from quarter 1 to quarter 1. in terms of overall delinquency. So 33 basis points has improved in Stage 2 and 13 basis points has deteriorated. Put together, the overall delinquency has improved by 20 basis points year-on-year. And that is why it is reflecting on the net credit cost. Otherwise, net credit cost would have not improved because our target to achieve 1.5% of net credit cost was for the full year, wherein we have achieved that in the first quarter because we have improved significantly better. So we have to see why we were saying 1.5% for the year and why we have achieved 1.5% in the quarter 1 without comparing with anyone else. Suppose you compare, then compare what is their Stage 2 plus Stage 3 versus what is our Stage 2 plus Stage 3 and then see where they have gone up and where we are. That is the delinquency comparison. Now coming to 3 problems. One is the West Asia crisis, then your El Nino effect and then you have some macro-related issue, which can come up in the second half. That's what people are talking about. What we are seeing that -- and last time also when we were discussing with the investors, we said that quarter 1 is looking better, and it will deliver better number for the industry itself. Similarly, what we are seeing, quarter-by-quarter only, we talk -- we cannot predict so long. Therefore, what we are seeing in this financial year -- in this quarter, that July has been better till now, and it is likely to be better. We are expecting to improve credit cost from here further. And that means -- we are considering all kind of a problem and saying that. Now if any ill effect comes out at a later stage, at that point in time only we can say that. But till now, we do not have that visibility that how much it can impact. According to us, it is not impacting as of now. And therefore, we are very confident about quarter 2 and quarter 3.

Got it, sir. So sir, just to sum that up, whatever we have seen in this quarter is just seasonality at play. And given the visibility that we have today, we are still confident when we get to, let's say, March '27, those asset quality numbers will be better than March '26.