Cholamandalam Investment & Finance Company Ltd Q1 FY2026 Concall Summary

Key Takeaways

• Asset quality stress, but seasonal and contained: Stage-3 rose to 3.16% from 2.81%, driven by vehicle finance stress from early monsoon and muted industrial production. Management expects improvement from Q3, not a structural shift.
• AUM growth holds at 23% YoY despite disbursement slowdown: Aggregate disbursements were flat at ₹24,325 crores, weighed by a conscious exit from fintech partnerships and housing registration delays. AUM reached ₹2,07,663 crores.
• NIM improved to 7.8%, with a clear path to further expansion: A 12-15 bps net NIM benefit is expected this year purely from cost of funds, as repo rate cuts flow through bank borrowings from Q2 and Q3.
• Strategic pivot underway: collection over disbursement, secured over unsecured: The year is framed as "a year of collection," with tightened underwriting, a fintech partnership exit, supply chain finance cuts, and a new gold loan launch in urban markets.
• What to watch next quarter: Whether the monsoon ends by early September, triggering the promised Q2 credit cost improvement; the pace of CSEL book rundown; and gold loan traction in the 73 new branches.

Asset Quality: The Quarter's Central Concern

• Vehicle finance drove the Stage-3 increase: Stage-3 rose from 2.81% to 3.16%, with vehicle finance NCL moving from 1.9 to 2.1. Early rain hit vehicle movement and utilization, while landslides and water logging in open cast mines hurt operator earnings, causing payment deferrals.
• The seasonal mechanics: In Q1 and Q2, vehicle operators struggle to pay the first EMI. Zero-bucket customers move to the first bucket, and borderline Stage-2 customers tip into Stage-3. This pattern is amplified when the monsoon arrives early, as it did this year.
• Stress concentrated in small commercial vehicles and tractors: These two products carry higher NCLs within vehicle finance. Tractor stress is attributed to the old book; Stage-2 for tractors has already improved.
• CSEL NCL static but the book is shrinking: NCL in the CSEL fintech book remains high but did not worsen QoQ. The partnership book is being cut by ₹1,500 crores quarterly, and supply chain finance by ₹500 crores. From Q4, CSEL NCL is expected to decline.
• Other secured books normalizing from rock-bottom levels: LAP NCL range is 0.3%-0.5%, home loans 0.6%-0.7%. These were at unsustainably low levels (LAP was once 6%) and normalization is expected. Resolution takes time: SARFAESI for LAP takes one year, non-SARFAESI for HL and SBPL takes 2-3 years.
• Credit cost rose 30 bps YoY: Full-year credit cost is guided to end around 150 bps, starting from 1.8. Reduction is expected from Q3 onward; Q2 could be 1.8 or 1.7 depending on whether the monsoon ends in the first week of September.
• Not a "new normal": Management declined to define the current stress as a structural shift, pointing to the festival season's historical ability to bring improvement in the Oct-Nov-Dec quarter. Pre-COVID Stage-2 plus Stage-3 was 10%; the current 7% remains much lower.

Kundu: "the vehicle operators in 1st and 2nd Quarter actually struggle for paying the first EMI and the customer who are in the zero bucket move to first bucket and some customers who are in borderline in Stage-2 moves to Stage-3."

Vehicle Finance: Gaining Share Through the Downturn

• Disbursement growth muted at 7% in Q1: Full-year disbursement growth is guided to reach 10%-12%, with asset growth holding at 17%-18%. The recovery hinges on agriculture growth and industrial production in the second half.
• Underwriting tightened across the board: Rejection rates are higher than in the past. The company is working more closely with manufacturers, securing first right of refusal at dealer points, and cutting enquiries in negative repayment markets.
• Market share strategy is counter-cyclical: Management sees a down market as the best time to gain share, when manufacturers are also under pressure and turn to strong financing partners. Share gains are happening both at dealer points and through distribution expansion.
• Asset quality improvement expected from Q3: If the early rain ends by mid-September, good results could come from Q2 itself; otherwise, Q3 onward. The rural economy is expected to improve after the monsoon ends.

Subbiah: "when the market is looking bad, manufacturers are also down. And at that point in time, if they are coming to us, that is the best time to basically gain market share. When market is doing very well and you start gaining market that is not a great idea we have seen."

Portfolio Reshaping: Exit, Launch, and Secured Shift

• Fintech partnership business fully exited: The consumer loan partnership book is being run down, a conscious call now completely stopped. This contributed to the disbursement slowdown.
• Supply chain finance cut: A low-ROTA product, supply chain finance is being reduced alongside the fintech book. By Q4, better asset and disbursement growth is expected from CSEL and consumer durable segments.
• Gold loan business launched in urban markets: 73 independent branches opened as of June 2025, all in tier-1 cities. Loans are purely to new customers, not existing ones. The urban branch mix has shifted to ~9% of total branches from near-zero.
• Housing loan growth deliberately slowed: Disbursement growth targeted at ~10% for the year, with no expansion push. The focus is on OPEX reduction. Some key markets changed housing registration processes, slowing Q1 disbursements; a return is expected in Q2/Q3.
• MSME secured lending preferred over vehicle finance on profitability: MSME is secured, asset-backed, carries lower NCL, benefits from SARFAESI, and involves appreciating assets. Vehicles are depreciating assets with higher NCL and higher OPEX due to smaller ticket sizes.

Margins & Operating Efficiency

• NIM improved marginally to 7.8%: Further improvement is expected as repo rate cuts flow through. Bank borrowings are 50% EBLR-linked, with full benefit accruing in Q2; MCLR-linked benefits come from Q3 onward.
• Cost of funds to drive 12-15 bps net NIM expansion: Full-year cost of funds is expected to improve by ~20 bps. Of this, 5-8 bps may be given away as yield reductions in the floating rate book. The net NIM benefit is purely from the liability side.
• OPEX reduced to 2.9% from 3.0%: Tight cost control delivered the improvement. Q2 may see an increase due to annual pay hikes in July, but management wants to hold OPEX at the 3% level even with gold loan branch expenses.
• ROA recovery positioned for coming quarters: Strategic focus on improving asset quality and product/pricing strategies is expected to drive ROA recovery, though no specific timeline or target was given.

Cross-Sell & Technology: Early-Stage Transition

• Cross-sell currently limited to within vehicle finance: 25% of vehicle finance disbursement comes from existing customers. Cross-selling across divisions (LAP to VF customers, or vice versa) is not yet happening. The consumer durable book is too small to be a meaningful cross-sell target.
• Transition from product-based to customer-based view underway: The company has started using internal bureau data and analytics to assess customer propensity for other products. This is described as a shift the company is "beginning to make."
• Technology stack largely in-house: Most loan origination systems are internally developed. The LMS is supplied by a top-tier IT company; all other subsystems are built internally.

Subbiah: "we are taking each of our customer datasets and looking at their propensity and interest in buying other products that we would start cross-selling. So, we are definitely making that transition from product-based views to a customer. And I think that's a shift that we are beginning to make."

Guidance & Commitments

Key Metrics