Cholamandalam Investment & Finance Company Ltd Q4 FY2025 Concall Summary

Key Takeaways

• Credit cost relief is the core P&L story: Vehicle finance NCL already improving, and management expects CSEL and SME credit costs to fall materially from H2, creating a path toward a 3.4% PBT ROTA even as newer books season.
• Conscious portfolio reshaping, not demand weakness: SME and CSEL disbursement drops reflect deliberate exits from low-ROTA supply chain finance and a troubled Fintech partnership book, while home loans, LAP and SBPL all grew strongly.
• Home loans and LAP are the new growth engines: Home loan book growing 30%+ on 15-20% disbursement growth as geographic expansion compounds; LAP targeting 25-30% disbursement growth for 30-35% book growth.
• Gold loan is the next adjacency, built cautiously: 120 dedicated branches rolling out this quarter with separate vault infrastructure, targeting INR2,000 crores over 1-1.5 years with technology-led security from day one.
• What to watch next quarter: Whether CSEL NCL stays at the guided INR210-240 crores per quarter through Q1 and Q2, the pace of vehicle finance NCL improvement if the monsoon holds, and early gold loan disbursement traction.

Credit Cost Trajectory

• Vehicle finance NCL improving: Q4 NCL at 1.6% vs 1.9% in Q1 last year, with Q1-to-Q1 reduction expected. Non-starter levels are the lowest in 18 months and early defaults have declined sequentially, though they remain above March 2024 levels.
• CSEL credit cost stays elevated through H1: The Fintech partnership book is running off, but NCL in absolute terms will remain at INR210-240 crores per quarter for Q1 and Q2 before declining from Q3 onward as the book shrinks. Management asks investors to "bear with" the first two quarters.
• SME credit cost improvement is a second-half story: SME is a term loan book with SARFAESI recovery rights, similar to LAP. Resolution progress is good and results are likely in H2. Net credit cost currently at 1%, with a 0.5-0.6% gap to the 2.5% targeted ROTA that management expects to close through NCL reduction next financial year.
• Newer books will partially offset the gains: Home loans, LAP and SBPL credit costs may rise by ~10 bps as they season, and at 35% of the book that adds ~0.35% to company-level credit cost. Management's math: vehicle finance (-10 bps at 55% weight) plus CSEL/SME (-50 bps at 10% weight) nets out against the newer-book increase.
• Vehicle finance improvement is monsoon-dependent: The NCL trajectory from 1.6% lower hinges on rural performance, capacity utilization of small and light commercial vehicles, and a second consecutive good monsoon.

Kundu: "In the case of vehicle finance, we are depending on monsoon, we are depending on reliable performance and capacity utilization of small commercial vehicle, light commercial vehicle. We have seen that this has improved from quarter 4 onwards."

Portfolio Reshaping: Where Growth Is, and Isn't

• SME disbursements deliberately cut: Supply chain finance, a large chunk of SME disbursements, was reduced because it is a low-ROTA product where assets stay on book less than a month, generating little real income while opex becomes a burden. It is being replaced with small term loans and equipment finance, which have longer tenures and maintain 30% asset growth even with flat disbursements.
• CSEL Fintech exit is structural, not cyclical: The FLDG norm introducing a 5% cap changed the risk-reward for Fintech-originated loans, and delinquency rose industry-wide. Management exited the Fintech digital business entirely. The in-house digital lending book (DST/DSA/PL/BL) continues to perform well with strong ROA, but it will not immediately compensate for the lost disbursement volume.
• Home loan growth has a geographic multiplier: 60% of disbursements still come from the South, while new branches in East, West and North are ramping up cautiously. Because the base in new geographies is small, 15-20% disbursement growth translates to 30%+ book growth, and management expects this multiplier to persist for the next two years.
• LAP is scaling nationally: LAP has expanded to 800 branches with significant investment in people. Disbursement and asset growth are now running at similar levels (~30%), and the current-year focus is improving the efficiency of existing manpower rather than adding more.
• SBPL is small but highly profitable: The secured business and personal loans book delivered 7.6% ROA in Q4 and for the full year, growing at 70% on a small base.

Vehicle Finance: Steady, Not Spectacular

• Asset growth target of 20%: Disbursement growth likely to move from 12% toward 15-17%, but meaningful acceleration depends on a pickup in light commercial vehicles and small commercial vehicles, segments where the company has been conservative and lost some market share.
• LCV and HCV gaining share: LCV grew 4% vs an industry at 3%; HCV growth was better than the industry as the customer segment started buying, with market share rising from 2.9% to 3.5%. Small commercial vehicles degrew 6% vs an industry degrew of 9%, reflecting deliberate conservatism.
• Used-vehicle mix creates some skewness: A higher proportion of used vehicles in the portfolio causes some skew in write-offs, but management does not expect high levels of write-offs and describes the trend as normal repossession-and-sale activity.
• Q4 yields get a seasonal bump: Vehicle finance yields rise 30-40 bps in Q4 because collection efficiency improves in the last quarter, lifting EMI, recovery, shortfall and other charges collection, which flows into income.

Gold Loan: The Next Adjacency

• 120 dedicated branches this quarter: Infrastructure is already created, and the branches require separate vaults, RFID systems and head-office tracking, making standalone locations necessary.
• INR2,000 crores target in 1-1.5 years: Management will be slow and cautious initially, using technology to ensure gold is secured, and will evaluate performance before scaling further.
• Opex will rise before revenue does: Gold loan-related opex is one reason the PBT ROTA target is 3.4% conservatively for the coming year rather than a higher number, with 3.5% as a subsequent aspiration.

Kundu: "In the beginning, we will be slow and cautious, and we wanted to do it in a much-advanced manner. And therefore, we are taking the benefit of the technology available to ensure that the goals are secured, and those things are getting developed."

Operating Levers and Capital Allocation

• Opex growth materially slowed in Q4: Most costs relating to new businesses introduced over the last year have been completed. The target is to keep opex at 3.0-3.1% of assets.
• Assignment income is opportunistic, not structural: Assignment deals were done in the last two quarters because the securitization market slowed as banks got saturated. Management will do one or two more deals, then slow down depending on market conditions.
• Home finance subsidiary route abandoned: The arbitrage between a home finance company and an NBFC has narrowed significantly, so home loans will remain in the main company. The subsidiary has been renamed Chola Leasing Company and will explore leasing operations in a very nascent stage.
• No new businesses beyond gold loan and consumer durables for 3-4 years: The five new businesses rolled out post-COVID (SBPL, CSEL, SME) need to be groomed to become as large as vehicle finance, LAP and home loans before management adds anything else.

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