Axis Securities has reiterated a BUY recommendation on Cholamandalam Investment & Finance Company Ltd., setting a target price of Rs 2,050, implying a potential upside of approximately 25% from the current market price of Rs 1,640. The brokerage highlights a strong operational finish to FY26, underpinned by improving asset quality, resilient margins, and sustained growth momentum across lending segments.

Cholamandalam Investment & Finance Company (CIFC) has delivered a robust Q4FY26 performance, exceeding expectations on profitability metrics while maintaining stable asset quality. Axis Securities underscores that the company is entering FY27 with a solid foundation—characterized by improving credit costs, stable net interest margins (NIMs), and a diversified loan book driving growth. With management guiding for 20–23% AUM expansion, improving return ratios, and disciplined risk management, CIFC appears well-positioned to sustain earnings momentum. The brokerage expects 21% AUM growth, 21% NII growth, and 26% earnings CAGR over FY26–28, reinforcing its bullish stance.

Q4FY26 Performance: Profitability Outperforms Expectations

Broad-based earnings strength was the defining feature of CIFC’s Q4FY26 results. While Net Interest Income (NII) remained largely in line with estimates, profitability metrics significantly outperformed.

NII rose 26% YoY to Rs 3,855 Cr, supported by strong AUM growth and margin expansion.
Pre-Provision Operating Profit (PPOP) surged 28% YoY, beating estimates by nearly 3%.
Net Profit came in at Rs 1,641 Cr, marking a 30% YoY increase, driven by strong operating leverage and lower credit costs.

Operational efficiency improved meaningfully, with the cost-to-income ratio declining to 37.7% from 39.1% QoQ, reflecting better revenue traction despite elevated investments.

Asset Quality: Gradual Normalisation Underway

Asset quality continues to improve steadily, supported by tighter underwriting standards and better portfolio monitoring.

Gross NPA declined to 4.54%, while Net NPA improved to 2.87%.
Credit costs reduced sequentially to 156 bps, compared to 178 bps in the previous quarter.
Provision coverage ratio strengthened to 47.3%, enhancing balance sheet resilience.

Management expects credit costs to moderate further to around 1.5% in FY27, aided by improvements in vehicle finance and SME-linked portfolios. Early delinquency indicators remain stable, suggesting limited systemic stress.

Margins and Profitability: Stability Anchors Growth

Net Interest Margins (NIMs) remain a key strength for CIFC, with Q4 witnessing a notable uptick.

NIM expanded to 8.4%, driven by a reduction in cost of funds and strong yields in high-margin segments.
Management remains confident of sustaining margins near 8%, supported by product mix optimization and higher-yielding segments such as CSEL and gold loans.

This margin stability is critical, especially in a rising interest rate environment, and positions CIFC ahead of several NBFC peers.

Growth Engines: Multi-Segment Expansion Driving AUM Momentum

CIFC’s diversified lending portfolio continues to deliver strong growth across segments:

Vehicle Finance (VF): Disbursements grew 26% YoY, with management guiding for ~18% AUM growth in FY27.
Mortgage Business (Home Loans + LAP): AUM grew 23% YoY, despite temporary disbursement slowdown.
Consumer & Small Enterprise Lending (CSEL): Expected to rebound to ~20% growth by FY27-end.
Gold Loans: Emerging as a high-yield growth segment with strong traction and granular customer base.

Overall AUM expanded 21% YoY to Rs 2.24 lakh crore, reinforcing the company’s strong growth trajectory.

Operating Strategy: Investments Today, Scalability Tomorrow

CIFC continues to invest aggressively in distribution and new businesses, which is temporarily capping operating leverage.

The company plans to add 100 new vehicle finance branches and expand its gold loan footprint (~360 branches).
Cost-to-assets ratio is expected to remain in the 3.0–3.1% range in FY27, before improving as new branches mature.

While near-term profitability may see modest pressure, these investments are strategic and aimed at enhancing long-term scalability.

Financial Outlook: Strong Earnings Visibility

Axis Securities projects a compelling financial trajectory over the medium term:

Return ratios are expected to improve steadily, with RoA stabilizing at 2.4–2.5% and RoE at 19–20%, supported by margin stability and declining credit costs.

Valuation and Target: Upside Supported by Earnings Growth

Axis Securities values CIFC at 3.9x FY28E book value, arriving at a target price of Rs 2,050 per share.

Current Price: Rs 1,640
Upside Potential: ~25%
Valuation Comfort: Improving profitability and strong growth visibility

The stock’s re-rating potential is anchored in consistent earnings delivery and improving asset quality.

Key Risks to Monitor

Despite the positive outlook, investors should remain mindful of key risks:

A slowdown in overall credit demand could impact growth projections.
Execution risks in scaling newer business segments may affect profitability.
Any unexpected deterioration in asset quality could delay margin expansion.

Investment Verdict: A Compelling NBFC Growth Story

Cholamandalam Investment & Finance Company stands out as a structurally strong NBFC, combining high growth visibility with improving asset quality and stable margins. The company’s multi-engine lending strategy, disciplined risk management, and continued investments in distribution position it well for sustained expansion.

With earnings expected to compound strongly and return ratios trending upward, Axis Securities’ BUY call with a target of Rs 2,050 appears well justified for investors seeking exposure to India’s evolving credit landscape.