Cholamandalam Investment & Finance Company Ltd. (Chola Finance)
Cholamandalam Investment & Finance Company Ltd. (Chola Finance) is a well-established player in the Indian financial services sector. It is part of the Murugappa Group, offering a range of products in areas like asset management, insurance, and finance. The company is primarily known for its offerings in vehicle financing, home loans, and SME financing. Let’s explore its growth potential over the next five years.
Company Overview and Business Model
Chola Finance operates in multiple segments within the financial services industry:
- Vehicle Financing: Provides loans for both commercial and passenger vehicles.
- Home Loans: Focuses on retail housing finance.
- SME Financing: Offers loans to small and medium-sized enterprises for business growth.
- Other Products: Includes distribution of financial products such as mutual funds and insurance.
Historical Performance
Chola Finance has delivered consistent growth over the years, driven by its diversified portfolio. Let’s take a look at the key metrics from its past few years:
Revenue and Profit Growth
| Metric | FY2015 | FY2020 | FY2024 |
|---|---|---|---|
| Revenue (₹ Crore) | ₹3,220 | ₹8,450 | ₹13,000+ |
| Net Profit (₹ Crore) | ₹480 | ₹1,500 | ₹2,100+ |
| EPS (₹) | ₹10.5 | ₹36.5 | ₹55+ |
| Stock Price (Approx.) | ₹450 | ₹1,200 | ₹2,150 |
| 10-Year CAGR Return | — | — | ~25% |
Chola Finance has shown remarkable consistency in growth, with revenue and profits expanding steadily, especially over the past 5 years.
Key Metrics & Valuations
| Metric | FY2015 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 | FY2021 | FY2022 | FY2023 | FY2024 |
|---|---|---|---|---|---|---|---|---|---|---|
| AUM (₹ Crore) | 15,000 | 22,000 | 32,000 | 40,000 | 52,000 | 60,000 | 67,500 | 85,000 | 103,000 | 120,000 |
| YoY Growth | — | 46.7% | 45.5% | 25.0% | 30.0% | 15.4% | 12.5% | 25.0% | 21.2% | 16.5% |
| EPS (₹) | 10.5 | 12.5 | 15.6 | 20.0 | 25.5 | 36.5 | 43.2 | 52.0 | 60.0 | 55.0 |
| YoY EPS Growth | — | 19.0% | 24.8% | 28.0% | 27.0% | 43.6% | 18.5% | 20.0% | 15.0% | -9.0% |
Future Prospects and Expected Returns
Given the strong historical growth, we can estimate the potential returns for Chola Finance over the next 5 years based on different growth scenarios for its EPS and PE ratios.
Let’s consider the following assumptions for Chola Finance:
- EPS Growth for next 5 years: 15%, 20%, 25%
- PE Multiples: 15, 18, 20
Using these assumptions, we can calculate the potential price after 5 years and the compound annual growth rate (CAGR) of returns.
Projected Returns (Next 5 Years)
Today’s Price: 1513 PE: 29.86
| Metric | Worst Case | Base Case | Best Case |
|---|---|---|---|
| EPS Growth | 20% | 25% | 30% |
| PE | 20 | 25 | 30 |
| Price After 5 years | ₹2,522 | ₹3,860 | ₹5,643 |
| CAGR Returns | 9.16% | 16.66% | 23.47% |
so going forward 17-18% CAGR is a good bet for Chola Finance.
Notes:
Chola is majorly in vehicle financing 54% and home loans 18% and SME 18% and rest in other segments.
Questions to answer?
- where is the growth coming from?
- how big is the market ?
- how much market share can they capture?