CHOLAFIN - Fundamental Analysis: Financial Health & Valuation

Last Updated Time : 20 Dec 25, 11:15 pm

Fundamental Rating: 4.2

📊 Core Financials:

- Quarterly PAT at 1,155 Cr. vs 1,136 Cr. shows steady earnings growth (+20% YoY).

- EPS of 55.2 ₹ reflects strong profitability.

- ROCE (10.3%) is modest, while ROE (19.7%) indicates healthy shareholder returns.

- Debt-to-equity ratio of 7.24 highlights high leverage, typical for NBFCs.

- Cash flows remain stable, supported by lending operations and strong asset growth.

💹 Valuation Indicators:

- Current P/E of 29.8 is above industry average (21.2), suggesting premium valuation.

- P/B ratio ~ 5.3 (1,645 ₹ / 308 ₹), indicating stretched valuation relative to book value.

- PEG ratio of 1.16 signals fair valuation relative to growth.

- Intrinsic value appears slightly lower than current price, limiting margin of safety.

🏢 Business Model & Competitive Advantage:

Cholamandalam Investment & Finance Company (CholaFin) operates as a diversified NBFC with focus on vehicle finance, home loans, and SME lending. Its competitive advantage lies in strong distribution networks, brand trust under Murugappa Group, and consistent asset growth. However, high leverage and sector cyclicality pose risks.

🎯 Entry Zone & Long-Term Guidance:

- Entry zone: 1,500–1,580 ₹ (near DMA 200 and support levels).

- Long-term holding: Attractive for investors seeking exposure to India’s credit growth story. Accumulate on dips for steady compounding, but monitor leverage and asset quality.

Positive

• Strong EPS (55.2 ₹) and PAT growth
• Healthy ROE at 19.7%
• DII holdings increased (+1.22%)
• Strong 52-week performance (+77.8%)

Limitation

• High debt-to-equity ratio (7.24)
• P/E (29.8) and P/B (~5.3) indicate premium valuation
• ROCE at 10.3% is modest
• Technical indicators show neutral momentum (RSI 44.9)

Company Negative News

• FII holdings decreased (-1.11%)
• High leverage raises risk in volatile credit cycles

Company Positive News

• Quarterly PAT growth (+20% YoY)
• DII holdings increased (+1.22%)
• MACD positive (2.94) indicates mild bullish momentum

Industry

• Industry P/E at 21.2 indicates moderate valuation
• NBFC sector benefits from rising credit demand in retail and SME segments
• Competition from banks and other NBFCs with stronger balance sheets

Conclusion

⚖️ Cholamandalam Investment & Finance shows strong earnings growth, healthy ROE, and sector tailwinds. However, high leverage and premium valuations limit upside. Best accumulated near 1,500–1,580 ₹ for long-term exposure to India’s credit growth story.