1

SYNOPSIS

We initiated coverage of

Cholamandalam Investments and

Finance Company Ltd and set a target

price of Rs.205.00 for medium term

investment.

The group set up Cholamandalam

Investment and Finance Company Ltd

(CIFCL) incorporated in 1978, as a

comprehensive financial services

solution provider that offers vehicle

finance, business finance, home equity

loans, stock broking and distribution of

financial products to its customers.

During the quarter ended, the robust

growth of Net Profit is increased by

66.54% to Rs. 607.70 million.

Net Sales and PAT of the company are

expected to grow at a CAGR of 26% and

53% over 2011 to 2014E respectively.

Cholamandalam Investment & Finance

Company Ltd has informed the final

recommended dividend @ 10% being

Rs. 1/- per each equity share.

Years Net sales EBITDA Net Profit EPS P/E

FY 12 17792.60 12597.20 1689.90 12.74 14.17

FY 13E 21422.29 15282.84 2391.13 18.03 10.01

FY 14E 24421.41 17394.92 3059.41 23.07 7.82

Stock Data:

Sector: Financial Services

Face Value Rs. 10.00

52 wk. High/Low (Rs.) 187.95/106.25

Volume (2 wk. Avg.) 1998.00

BSE Code 511243

Market Cap (Rs in mn) 23938.00

Share Holding Pattern

1 Year Comparative Graph

BSE SENSEX

Cholamandalam Investment Finance Co Ltd

C.M.P: Rs.180.50 Target Price: Rs. 205.00 Date: July 10th 2012 BUY

Cholamandalam Investment and

Finance Company Ltd Result Update: Q4 FY 12

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Peer Group Comparison

Name of the company CMP(Rs.) Market Cap. (Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Cholamandalam Investment Fin Co. Ltd 180.50 23938.00 12.74 14.17 1.71 25.00

Muthoot Cap 77.50 966.60 12.44 6.23 1.17 30.00

Power Finance 188.25 248939.10 22.97 8.21 1.32 50.00

Shriram Trans 561.50 127067.80 55.57 10.10 2.12 65.00

Investment Highlights

Q4 FY12 Results Update

Cholamandalam Investment and Finance Company Ltd have reported net profit of

Rs 607.70 million for the quarter ended on March.31, 2012 as against 364.90

million in the same quarter last year, an increase of 66.54%. It has reported net

sales of Rs 5236.0 million for the quarter ended on March.31, 2012 as against Rs

3559.50 million in the same quarter last year, a rise of 47.10%. Total income grew

by 46.95% to Rs 5272.90 million from Rs.3588.20 million in the same quarter last

year. During the quarter, it reported earnings of Rs 4.58 per share.

Quarterly Results - Consolidated (Rs in mn)

As At Mar-12 Mar-11 %change

Net sales 5236.00 3559.50 47.10

PAT 607.70 364.90 66.54

Basic EPS 4.58 3.06 49.87

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Break up of Expenditure

Recommended Dividend

Cholamandalam Investment and Finance Company Ltd has informed the final

recommended dividend @ 10% being Rs. 1/- per equity share for the year ended

March 31, 2012 out of the company profits.

Allotment of Equity Shares

Cholamandalam Investment and Finance Company Ltd have informed an allotment

of 2000 equity shares of Rs. 10 each on the basis of Employee stock option.

Company Profile

The group set up Cholamandalam Investment and Finance Company Ltd (CIFCL)

incorporated in 1978 with the primary objective of offering asset finance through

leasing and hire purchase to corporate and then to retail customers. It has since

evolved itself into a large, composite financial services organization. Owing to

Murugappa Group's pre-eminent position in the industry and the consumer equity

that it had painstakingly built, the horizon offered opportunities in the financial

sector. To harness this, Today, Cholamandalam Investment and Finance Company Ltd

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(CIFCL) offer stock broking, mutual fund and investment advisory services through its

subsidiaries. Ever since its inception and all through its growth, the company has

kept a clear sight of its values. The basic tenet of these values is a strict adherence to

ethics and a responsibility to all those who come within its corporate ambit -

customers, shareholders, employees and society.

The Company that commenced business as an equipment financing company has now

emerged as a comprehensive financial services solution provider that offers vehicle

finance, business finance, home equity loans, stock broking and distribution of

financial products to its customers. The Company operates from over 350 branches

across India with assets under management over Rs.10000 Crores. The subsidiaries of

Cholamandalam include Cholamandalam Securities Limited (CSec) & Cholamandalam

Distribution Limited (CDSL).

� Products

� Vehicle Finance

Chola Ltd has created value for its customers by supporting them in becoming

entrepreneurs in the field of commercial transportation. The customers’ success

and prosperity is what drives our business and our growth! Having financed over

750,000 customers, and increasing by over 15,000 new customers every month, at

Chola VF believe that we are here to help you enter a better life for past 20 Years.

� Home equity Loans

Be it to add fresh breath to business, or for that wonderful educational opportunity

for child, or that money needed to renovate your house, the company is always

there by side to help the customers go that one step further in attaining their

ambitions and dreams. Leverage the benefit of owning a property to cater to

immediate needs, within a short turnaround time

� Corporate Finance

The Cholamandalam finance division caters primarily to Corporate, Promoters,

High Net worth Individuals and Retail investors. The acceptable collaterals are

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listed Equity shares, Mutual Fund units, Add Gold ETFs, Property in nature of

commercial/residential space and other assets.

The Products of Corporate finance is

� Purely Equity shares

� Commercial/Residential Property & shares

� Pure Commercial / Residential Property

� Combination of assets and shares

� Gold Loans

Chola innate proficiency of providing differentiation through enhanced

convenience, transparency and service attributes, it has started Gold Loan

operations in 45 branches across AP, Tamil nadu and Karnataka.

The company has lined up innovative strategies to service Gold Loan Customers

with a difference, constantly exhibiting our philosophy of Safety, Trust and

Transparency. Chola also intends to be part of the financial inclusion strategy by

serving customers who are benefited by the banking services. This sets Chola

apart, enabling us to deliver on our Vision to be the highly respected and most

transparent Gold Loan Company.

� Distribution & Advisory Services

� Equity

� Derivatives

� Mutual Fund

� IPO

� Securities

� Equity

� Derivatives

� Mutual Fund

� IPO

Pursuant to the Company obtaining a fresh Certificate of Registration dated December

11, 2006 from the Reserve Bank of India (RBI) for carrying on the business of Non-

Banking Financial Institution without accepting public deposits, consequent to its

decision to exit from deposit accepting activities effective November 01, 2006, the

Company has a total deposit of `85.21 lakhs as at March 31, 2012.

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Financial Results

12 Months Ended Profit & Loss Account (Consolidated)

Value(Rs.in.mn) FY11 FY12 FY13E FY14E

Description 12m 12m 12m 12m

Net Sales 12080.20 17792.60 21422.29 24421.41

Other Income 142.20 46.90 51.59 55.72

Total Income 12222.40 17839.50 21473.88 24477.13

Expenditure -4763.30 -5242.30 -6191.04 -7082.21

Operating Profit 7459.10 12597.20 15282.84 17394.92

Interest -5921.50 -9900.20 -11088.22 -12086.16

Gross profit 1537.60 2697.00 4194.61 5308.75

Depreciation -100.50 -103.80 -114.18 -123.31

Exceptional Items -209.70 300.00 0.00 0.00

Profit Before Tax 1227.40 2893.20 4080.43 5185.44

Tax -381.60 -1203.30 -1689.30 -2126.03

Profit After Tax 845.80 1689.90 2391.13 3059.41

Equity capital 1193.50 1326.20 1326.20 1326.20

Reserves 9426.40 12711.00 15102.13 18161.54

Face value 10.00 10.00 10.00 10.00

EPS 7.09 12.74 18.03 23.07

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Quarterly Ended Profit & Loss Account (Consolidated)

Value(Rs.in.mn) 30-Sep-11 31-Dec-11 31-Mar-12 30-Jun-12E

Description 3m 3m 3m 3m

Net sales 4170.1 4756.20 5236.00 5550.16

Other income 0.80 5.00 36.90 5.40

Total Income 4170.9 4761.20 5272.90 5555.56

Expenditure -1050.7 -1315.20 -1427.90 -1942.56

Operating profit 3120.2 3446.00 3845.00 3613.00

Interest -2435.10 -2741.90 -2826.80 -2883.34

Gross profit 685.10 704.10 1018.20 729.67

Depreciation -25.30 -23.10 -35.50 -31.95

Profit Before Tax 659.80 681.00 982.70 697.72

Tax -306.80 -275.40 -375.00 -279.09

Profit After Tax 353.00 405.60 607.70 418.63

Equity capital 1193.60 1193.6 1326.2 1326.2

Face value 10.00 10.00 10.00 10.00

EPS 2.96 3.40 4.58 3.16

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Key Ratios

Particulars FY11 FY12 FY13E FY14E

No. of Shares(in mn) 119.35 132.62 132.62 132.62

EBITDA Margin (%) 61.75% 70.80% 71.34% 71.23%

PBT Margin (%) 10.16% 16.26% 19.05% 21.23%

PAT Margin (%) 7.00% 9.50% 11.16% 12.53%

P/E Ratio (x) 25.47 14.17 10.01 7.82

ROE (%) 7.96% 12.04% 14.55% 15.70%

ROCE (%) 8.39% 12.57% 14.28% 15.18%

Debt Equity Ratio 7.48 6.20 5.56 4.92

EV/EBITDA (x) 2.89 1.90 1.57 1.38

Book Value (Rs.) 88.98 105.85 123.88 146.94

P/BV 2.03 1.71 1.46 1.23

Charts:

NetSales & PAT

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P/E Ratio(x)

Debt Equity Ratio

10

EV/EBITDA

P/BV

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Outlook and Conclusion

At the current market price of Rs.180.50, the stock is trading at 10.01 x FY13E

and 7.82 x FY14E respectively.

Earning per share (EPS) of the company for the earnings for FY13E and FY14E

is seen at Rs.18.03 and Rs.23.07 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 26% and

53% over 2011 to 2014E respectively.

On the basis of EV/EBITDA, the stock trades at 1.57 x for FY13E and 1.38 x for

FY14E.

Price to Book Value of the stock is expected to be at 1.46 x and 1.23 x

respectively for FY13E and FY14E.

We expect that the company will keep its growth story in the coming quarters

also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.205.00 for Medium to Long term investment.

Industry Overview

The Indian financial services industry has a lot of scope for further penetration, and

thus has immense scope and potential to grow exponentially. The online genre, mobile

explosion, emergence of social media platforms, technologies like cloud computing and

increasing pace of convergence and interconnectivity of devices are intensely driving

the growth of this industry. These are playing pivotal roles in transforming the way

financial services are delivered to the end-consumer. Further, financial institutions are

revamping their operational infrastructure and business delivery models.

Financial services industry mainly comprises the BFSI industry, that is, banking,

financial services (such as mutual funds) and insurance. Key developments and

performance pointers pertaining to each of these sub-segments are discussed in this

overview.

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Insurance Sector

There are 24 life insurers in India with about Rs 15 trillion (US$ 292.5 billion) in

assets.

According to data released by the Insurance Regulatory and Development Authority

(IRDA), the life insurance industry collected Rs 89,655.83 crore (US$ 17.5 billion)

during April 2011-February 2012 by writing new policies while the insurers sold about

35.12 million policies collectively. Private players sold seven million policies.

The general insurance industry continued with its growth trajectory as the gross

written premium grew 24.03 per cent during 2011-12 against the year-ago period.

Banking Services

According to the world's largest rating agency, Standard & Poor (S&P)'s Ratings

Services, India's banking system has a high level of stable, core customer deposits

supported by the system's good franchise, extensive branch networks, and large, yet

growing, domestic savings.

� According to the Reserve Bank of India (RBI)'s 'Quarterly Statistics on Deposits and

Credit of Scheduled Commercial Banks', September 2011, Nationalized Banks, as a

group, accounted for 52.2 per cent of the aggregate deposits, while State Bank of

India (SBI) and its associates accounted for 21.8 per cent. The share of New private

sector banks, Old private sector banks, Foreign banks and Regional Rural banks in

aggregate deposits was 13.7 per cent, 4.8 per cent, 4.6 per cent and 2.9 per cent,

respectively.

With respect to gross bank credit also, nationalized banks hold the highest share of

51.6 per cent in the total bank credit, with SBI and its associates at 22.1 per cent

and New Private sector banks at 13.8 per cent. Foreign banks, Old private sector

banks and Regional Rural banks held relatively lower shares in the total bank

credit with 5.2 per cent, 4.8 per cent and 2.5 per cent, respectively.

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� Another statement released by the RBI stated that bank deposits grew 13.4 per

cent to Rs 60.72 trillion (US$ 1.18 trillion) in the fiscal 2011-12 (the year to March

23, 2011) while loans and advances grew 17.08 percent to Rs 47.54 trillion (US$

927.16 billion).

Mutual Funds Industry in India

The Rs 6.70 trillion (US$ 130.66 billion) Indian mutual funds (MF) industry has 44

asset management companies (AMCs). Recent data released by the Association of

Mutual Funds in India (AMFI) indicated that average assets under management (AUM)

reported by these fund houses amounted to Rs 6,68,824 crore (US$ 130.33 billion) in

2011-12.

HDFC Mutual Fund maintained its top position as the country's biggest MF with an

average AUM of Rs 89,879 crore (US$ 17.51 billion), followed by Reliance MF (Rs

78,112 crore [US$ 15.22 billion]), ICICI Prudential MF (Rs 68,718 crore [US$ 13.39

billion]), Birla Sun life MF (Rs 61,143 crore [US$ 11.92 billion]) and UTI MF (Rs 58,922

crore [US$ 11.48 billion]).

Private Equity (PE) and Mergers & Acquisitions (M&A) in India

India Inc witnessed 202 merger and acquisition (M&A) deals worth US$ 9.4 billion

during the first quarter of 2012. According to Ernst & Young (E&Y)'s latest

transactions quarterly report, deals in January-March 2012 were 22 per cent higher

than those of October-December 2011 quarter in terms of volume and 4.5 times higher

in terms of value. Domestic deals dominated the M&A space as they accounted for 63

per cent of the total number of deals and contributed 88.4 per cent of the total

disclosed deal value for the quarter.

According to experts, M&A landscape is likely to experience intense activity in the

coming months, owing to improving stock markets and better availability of finance

options. Private equity (PE) and venture capital (VC) investors infused a capital of US$

1.88 billion across 90 deals during the reported period.

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Foreign Institutional Investors in India

According to the data released by Securities and Exchange Board of India (SEBI), net

investment in equities made by foreign institutional investors (FIIs) stood at Rs 47,935

crore (US$ 9.34 billion) during the financial year ended March 31, 2012. During the

reported fiscal, foreign fund houses injected Rs 49,053 crore (US$ 9.56 billion) in the

debt market taking the collective net investments by FIIs in stocks and bonds to Rs

93,725 crore (US$ 18.26 billion).

Recent Developments

� India has launched the country's first domestic payment card network, RuPay,

to compete with multinational Visa Inc. and MasterCard Inc. The new

development will not only help banks reduce cost of issuing a debit card but

will also lead to expansion of payment network in rural areas. National

Payments Corp of India Ltd (NPCI), the nodal agency to manage and promote

RuPay, has stated that 200,000 RuPay cards have already been issued and the

target is to have 10 million debit cards under the brand by March 2013.

� Stating India as 'extraordinarily attractive investment destination', PE firm Bain

Capital LLC has announced that it will infuse about US$ 800 million in

appropriate proposals across four investment deals during 2012-16.

� L&T Finance has decided to buy Fidelity Worldwide Investment's Indian mutual

fund business. The deal would boost L&T's assets to Rs 13,500 crore (US$ 2.63

billion), making it the 13th biggest fund house and the 10th largest on the basis

of equity.

� In a recent announcement, the RBI has granted FIIs to invest in primary

issuances of companies' non-convertible debentures (NCDs), provided these

papers are scheduled to be listed on the stock exchanges within 15 days of

being issued. If the instrument, that is the NCD, does not get listed within 15

days, the foreign investor concerned would have to sell the securities to a

domestic investor.

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Government Initiatives

In its Budget for 2012-13, the Government has earmarked a capital of Rs 15,888 crore

(US$ 3.11 billion) to be infused in public sector banks, regional rural banks and other

financial institutions. Apart from this, the Government is also planning to set up a

financial holding company that will raise funds for public sector banks.

Furthermore, the RBI has liberalized regulations pertaining to FCAs to provide

operational flexibility to Indian entities making overseas direct investments. After

satisfying stipulated requirements and conditions, Indian entities can open, hold and

maintain FCAs abroad that would simplify the process of making overseas direct

investments.

Road Ahead

According to a report by the Boston Consulting Group (BCG) India, prepared in

association with a leading industry organisation and Indian Banks Associations (IBA),

Indian banking industry would be the world's third largest in asset size by 2025 and

mobile banking would become the second largest banking mode after ATMs.

Furthermore, owing to the positive eco-system of the industry and regulatory and

Government initiatives, mobile banking is anticipated to enhance from 0.1 per cent of

transactions in a 45 per cent financial inclusion base in 2010 to 34 per cent of the

transactions with 80 per cent rural inclusion base by 2020, as per the report.

While the Indian Government projects that qualified foreign investors (QFIs) would

invest US$ 50-75 billion in India's equity and bond markets, G Chokkalingam,

Executive director and CIO, Centrum Wealth Management, believes that Indian

markets would witness record inflows, probably to the extent of US$ 30 billion, by FIIs

in 2012.

Such positive forecasts are being made owing to monetary expansions in the West and

considering that India would remain the second-fastest growing economy in the world.

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______________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

17

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