Cholamandalam Investment & Finance Company Ltd Q4 FY2026 Concall Summary

Key Takeaways

• Broad-based 25% disbursement growth, NIMs up 40 bps YoY: All eight business engines now contributing, with Vehicle Finance recovering and new Gold Loan business disbursing INR1,130 crores in its first quarter.
• INR200 crores management overlay added as precaution: Buffer against second-order stresses from fuel price volatility and global shipping disruptions, even as core asset quality metrics improved and credit costs declined 20 bps YoY.
• CSEL turnaround gaining traction: Loan losses declined to 5.2% in Q4 with ROA of 2.3%; management expects pretax ROA to comfortably cross 3% in FY27 driven by further loss reduction and consumer durables growth.
• Vehicle Finance down cycle ending: Meaningful improvement started in Q4, April demand held up, and Chola gaining market share across all vehicle categories as conditions improve.
• What to watch next quarter: Whether the INR200 crores overlay proves sufficient as geopolitical disruptions evolve, the pace of CSEL's ROA march toward 3%, and home loan disbursement normalization after election-related documentation delays.

Performance Drivers

• Vehicle Finance recovery underway: 26% YoY disbursement growth in Q4 driven by sustained demand across vehicle categories; after a three-year down cycle affecting all segments including small-ticket loans, LCVs, and HCVs, meaningful improvement started from Q4 and April vehicle demand continued to hold up. Early delinquencies and non-starter trends improved across all product segments.
• Home loan moderation was procedural, not demand-driven: Disbursements saw mild moderation due to election-related administrative slowdowns in two southern states, land-record digitization mismatches, and localized lien-marking delays that temporarily extended verification and disbursal timelines. Disbursements have been in the INR1,800-2,000 crores range for 7-8 quarters; the business has scaled to a pan-India footprint with newly added branches now contributing meaningfully and the proportion of business from South steadily declining.
• Gold Loan launch off to a strong start: Newly launched business disbursed INR1,130 crores in Q4; average loan ticket size declined from INR3 lakh to approximately INR2 lakh reflecting a more granular acquisition strategy; yield has gone up to 15%.
• CSEL turnaround driven by underwriting and mix: Loan losses declined to 5.2% in Q4 with ROA of 2.3%; continuous work over the past year to improve the Gini coefficient of underwriting tools across all divisions, in collaboration with credit managers, has already helped improve asset quality across CSEL, CD, and Vehicle Finance segments. Operating expenses were higher in Q4 primarily due to a one-time CGTMSE insurance payment of around 6% that will not recur.
• NIM improvement from funding cost relief: NIMs improved 40 bps YoY driven by gradual reduction in cost of funds as interest rates softened; home loan yields jumped 50 bps primarily from ARC accounting where ARC receipts are recognized as income while corresponding net credit losses are higher, leaving net ROTA largely unchanged.
• Diversification now visible in results: Last year growth was primarily driven by three engines (LAP, SBPL, Home Loans); today all eight business engines are contributing to growth, with Vehicle Finance diversified across segments and the franchise geographically diversified.

Kundu: "Last year, at this time, Chola's growth was primarily driven by three engines—LAP, SBPL, and Home Loans. Today, all eight business engines are contributing to growth."

Asset Quality & Provisions

• Core asset quality improving steadily: Stage 2 assets showed steady improvement from Q2 onwards reflecting better repayment behavior across 0-30, 31-60, and 61-90 DPD buckets; Stage 3 assets also improved in the last quarter. Credit costs before management overlay declined 20 bps YoY across product segments.
• INR200 crores overlay is precautionary, not reactive: Overlay addresses potential second-order stresses from volatility in crude and refined fuel prices, risk of LPG supply shortfalls, and supply-side pressures on sectors dependent on global shipping and commodity flows. Methodology is based on past experience during similar situations (COVID period, elevated diesel prices phase); no change to underlying PD-LGD assumptions. Macro inputs pointed to stronger GDP growth before February geopolitical developments; post-February developments captured through this overlay.[11-12]
• Recovery costs stable despite business mix shift: Collection costs as a percentage of assets have not increased meaningfully despite addition of gold loan business and expansion in consumer durable segment. Recoveries improved due to better capacity utilization of vehicles in Q3 and Q4, and resolutions through the SARFAESI process.
• CGTMSE coverage expanding for unsecured business: Covered around 70% of assets under CGTMSE with a plan to go up to 80% to 82% for unsecured business.

Segment-Level Outlook

• Vehicle Finance down cycle ending: Over the last three years, the vehicle segment faced a down cycle impacting all categories including small-ticket loans (Tata Ace), LCVs, and HCVs, stemming from both geographical and product-specific factors. From Q4 onwards meaningful improvement started; April vehicle demand continued to hold up. Chola gaining market share as conditions improve, with no significant change in competitive behavior from banks observed over the past 4-5 months.

Kundu: "Over the last three years, we have faced challenges stemming from both geographical and product-specific factors. This is why we have consistently described the period as a down cycle for the vehicle segment."

Margins & Operating Leverage

• NIMs expected stable around 8%: Newer businesses will deliver higher yields but likely offset by marginal increase in cost of funds over FY27.
• Operating expenses to remain around 3.0-3.1% of average assets: Significant capital outlay planned for gold loan exclusive branches and new hiring; parallel IT and AI investments adding to costs. Management believes it will take another year or so before meaningful operating leverage materializes, as branches are being added across most businesses.
• Branch expansion underway across all businesses: 100 HL branches (60 in Q1, 40 in Q2); 100 LAP branches; 300+ gold loan exclusive branches; CSEL and CD likely 100 branches each; SME to increase; Vehicle Finance branches up by approximately 100. [16-17]
• Credit cost improvement is a continuous journey: Net credit cost expected to decline from 1.6% pre-overlay to around 1.5% in FY27, with improvement of around 20 bps expected from Vehicle Finance and CSEL segments. If 1.5% is achieved this year, next year expectation is to improve further to around 1.4%. High-yield businesses (CSEL, consumer durables, digital, mobile lending) structurally designed with higher net credit costs; mortgage businesses have much lower credit costs; Vehicle Finance sits in between. Once all eight businesses are fully scaled and stabilized over the next 1-2 years, management will be in a better position to define long-term ROA and net credit loss levels.[18-19]

Selvan: "We believe it will take another year or so before we start seeing meaningful operating leverage, as we are currently adding new branches across most of the businesses we discussed earlier."

Capital & Funding

• Capital position comfortable, equity raise evaluated if Tier 1 approaches 13%: With pre-tax ROTA of around 3.5% and growth less than 23-25%, the company should be largely self-sufficient through internal accruals. Management would not hesitate to raise additional capital if attractive growth opportunities arose, in consultation with promoters and senior leadership.
• Gearing declined to 6.94x from 7.1x-7.17x last quarter; no specific internal policy or guidance given for gearing ratio beyond monitoring capital adequacy.
• CCD conversion progressing: Out of INR2,000 crores CCDs, INR1,370 crores converted in FY26; balance INR630 crores expected to convert in H1 FY27.
• Credit rating upgrade path differs from peers: Many peers achieved AAA ratings by leveraging explicit parental support, which is not applicable to Chola as there is no direct dependence on any parent entity for funding requirements. Discussions with rating agencies are ongoing with no fixed formula for upgrade.

Selvan: "Many of our peers have achieved AAA ratings by leveraging explicit parental support. However, that is not applicable in our case, as there is no direct dependence on any parent entity for Chola's funding requirements."

Guidance & Commitments

Key Metrics