Investec has upgraded Cholamandalam Investment and Finance Company today (Chola Fin) to “buy,” increasing the target price to Rs 1850, which indicates a potential upside of 14% from the previous close of Rs 1611.
The brokerage praises Chola Fin’s strong execution in growth, asset quality, and profitability. It sees significant levers for continued growth, particularly in diversified segments, with non-vehicle finance expected to expand at over 30%. While vehicle sales are weakening, Investec believes this will not significantly impact overall growth.
The firm also anticipates that margin expansion and operating leverage will help sustain return on assets (RoA) at 2.6% and return on equity (RoE) at 20%, despite rising credit costs. However, it points out a concern regarding the company’s balance sheet management, highlighting lower provision coverage, a negative asset-liability management gap in short-duration buckets, and higher leverage compared to peers.
