Cholamandalam Investment and Finance Company Limited Q1 FY27 Earnings Call Summary

Event Participants

Executives

3 Arul Selvan, Ravindra Kundu, Vellayan Subbiah

Analysts

11 Abhijit, Arvind Ravichandran, Kunal Shah, Piran Engineer, Raghav Garg, Renish, Sanket, Shixuan, Shreepal Doshi, Subhranshu, Viral Shah

Financials & KPIs

Geographic & Segment Commentary

• Vehicle Finance: Disbursements +21% YoY; AUM ₹1,24,132 crore (+19%). Growth aided by healthy demand across key vehicle categories and deep market penetration. Q4→Q1 GNPA increase limited to 20 bps (3.84%→4.05%) vs 45 bps last year (3.52%→3.89%); ~125 resident locations to be converted to full-fledged branches during FY27.
• MSME (LAP, SME, SBPL): Disbursements +6% YoY; AUM +26% YoY on continued customer acquisition and expansion in under-penetrated markets. SBPL is a high-yield small-merchant business with NCL of 2.3–2.5% by design (ARC-based resolution, no SARFAESI) and pre-tax ROE of 7.9%, well above group.
• Consumer & Gold (HL, CSEL, Gold): Disbursements +52% YoY; AUM +24% YoY to ₹41,671 crore. Home loans scaling steadily (+22%); CSEL NCL improved from 6.7% to 4.7% with ROA of 3.3% ahead of plan; gold loan AUM reached ₹2,143 crore with 360 new branches planned for FY27.

Company-Specific & Strategic Commentary

• Disbursement recognition change: From Q1 FY27, disbursements for HL, LAP, SBPL and used vehicles are recognized on check clearance/debit date instead of check handover; a one-time prudential change aligned with RBI's interest-reversal requirement on the intervening period. Like-for-like growth for HL/LAP is ~20%.
• Gold loan scale-up: 360 new branches in FY27; AUM targeting ₹5,000 crore by year-end vs ₹2,143 crore now; per-branch AUM already ₹12–15 crore. ~90% of customers are new to Chola; income-generating loan products launched with 6–9 month tenures alongside consumer bullet/EMI products.
• CCD capital accretion: Of the ₹2,000 crore CCD issuance, ₹1,370 crore converted in FY26, ₹200 crore in July 2026, and the remaining ₹430 crore expected in October 2026, further strengthening the capital base.
• CSEL turnaround: NCL down from 6.7% to 4.7%; ROA of 3.3% delivered in Q1 versus a plan of 3% only by Q3; on track to exceed group ROA. FEMI steady at ~3% for 15 months; 6/12 MOB vintages improving.
• Buffer provisions & PD/LGD policy: ₹200 crore management overlay fully intact; no buffer consumption. PD/LGDs reviewed annually in December (changed from March) to allow runway for adjustments.

Guidance & Outlook

Risks & Constraints

Q&A Highlights

Credit Cost Guidance & GNPA Seasonality

• Question: Is there risk to the 1.5% FY27 credit cost guidance, given GNPA increased across most segments except CSEL? (Kunal Shah, Citi)
• Answer: Net credit cost is already at 1.5% vs 1.8% last year — the target has been met. The GNPA rise is the normal Q4→Q1 seasonal effect; this year it was only 25 bps vs 45 bps last year. July trends are healthy across all product lines with no adverse macro impact visible. (Ravindra Kundu)

Disbursement Recognition Change

• Question: What is the like-for-like disbursement growth after the definition change, and does it affect interest income timing? (Shixuan, UBS; Kunal Shah, Citi)
• Answer: Disbursements for HL, LAP, SBPL and used vehicles are now recorded on check clearance/debit date — a more conservative, verifiable basis — so reported numbers are slightly lower; like-for-like HL/LAP growth is ~20%, and AUM growth (23%) is the better metric. The change follows RBI's requirement to reverse interest on the intervening period between check issuance and clearance; recognizing the asset only on clearance avoids non-earning assets in the book. This was an internal prudence call, not regulation-driven. (Management; Arul Selvan)

NCL Improvement & Cost of Funds Outlook

• Question: Is there scope for further NCL reduction given CSEL clean-up and VF recovery? Do banks now have more pricing power on NBFC loans? (Piran Engineer, CLSA)
• Answer: Achieving 1.5% NCL in Q1 itself means FY27-end numbers will improve further as CSEL and VF reduce NCL. On cost of funds: PSL bank borrowings retain bargaining power, but market-side costs are hardening; if a 25–50 bps repo hike occurs, H2 cost of funds could rise ~10 bps, keeping the full year flat. Banks remain cheaper than bonds; MCLR-linked borrowings carry rate risk while bonds give fixed visibility. (Ravindra Kundu; Arul Selvan)

FY27 Guidance: Growth, Credit Cost, NIM, ROA

• Question: Given the seasonally weak Q1 and definition changes, are there risks or upsides to the 22% growth and 1.5% credit cost guidance? Where can pre-tax ROA exit by Q4? (Viral Shah, IIFL; Renish, ICICI Securities)
• Answer: H2 faces a base effect, but Q2 will be as good as Q1; 22% disbursement growth is achievable if the market holds, and 23% AUM growth is "doable — we will definitely not go down." On ROA, 3.5% pre-tax is the stated minimum and was delivered in Q1; credit cost can improve, but the cost-of-funds benefit won't last the full year, and CCD conversion is not a game changer relative to the borrowing base. "We will try to hold it or try to improve it." (Ravindra Kundu; Arul Selvan)

Asset Quality vs Peers & Seasonal U-Shape

• Question: NBFC peers have shown improving credit trends — why is Chola's Q4→Q1 deterioration more pronounced? What about weak monsoon, West Asia crisis, tariffs? (Abhijit, Motilal)
• Answer: Stage 2 improved 33 bps YoY while Stage 3 rose only 13 bps — combined delinquency improved ~20 bps YoY, and 94% of accounts are current. The Q4→Q1 rise is the normal U-shape; this year's U started smaller, so Q4 FY27 delinquency should be better than Q4 FY26. There is no visibility of monsoon/war impact on the book as of now; management is confident on Q2 and Q3. (Ravindra Kundu)

SBPL NPA & CSEL ROE Path

• Question: Why did SBPL NPA spike again after two quarters of improvement, and can CSEL deliver ROE above the group? (Arvind Ravichandran, Sundaram Alternatives)
• Answer: SBPL NCL of 2.3–2.5% is by design for a high-yield small-merchant book; resolutions happen through ARCs (no SARFAESI for small-ticket NBFCs), causing quarterly NPA swings. SBPL pre-tax ROE is 7.9%, far above the group. CSEL NCL has dropped from 6.7% to 4.7% and ROA of 3.3% came ahead of plan; it is on track to exceed group ROA, as are LAP and affordable housing. (Ravindra Kundu)

CSEL Credit Metrics, Mudra Loans & Bank Pricing

• Question: What are CSEL approval rates and FEMI on the new book? Does the ₹20 lakh Mudra limit hurt small-ticket LAP? What are banks charging over MCLR? (Subhranshu)
• Answer: CSEL FEMI has held at ~3% for 15 months; approval rates are 35–40% for business loans and ~60% for salaried loans, with 6/12 MOB vintages improving. The Mudra expansion has not hurt — small-ticket logins have improved. Bank loans are ~50% of total borrowings, of which 25–30% are MCLR-linked; Chola borrows at 1–3 month MCLR with no premium. Collection operations deploy ~30,000 people, with 50% of CSEL collections happening digitally. (Management)

PCR Decline — Buffer Provisions Intact

• Question: PCR declined sequentially — is this a PD/LGD change or consumption of buffer provisions? (Viral Shah, IIFL)
• Answer: Buffer provisions are not being consumed; the full management overlay is intact and will be reviewed at year-end. The PCR moderation is due to VF writing off 100%-provided cases (diluting the average as held provisions are ~48%). PD/LGDs are not changed quarterly — they are reviewed once a year in the December quarter, moved from March to allow runway for adjustments. (Arul Selvan)

Gold Loan Strategy, Product Mix & Cross-Sell

• Question: Can Chola tap its existing customer base for gold loans, and what is the product bouquet and competitive position? (Piran Engineer, CLSA; Shreepal Doshi, Equirus)
• Answer: Analysis shows ₹700–800 crore of gold loans are already taken by Chola customers from other lenders, but 90% of current gold borrowers are new to Chola and 20–25% are new to gold loans. The right to win is brand trust plus fully digital journeys in a 3-km micro-market radius; yields are on par or slightly better than peers (16–17%). Products include consumer bullet/EMI loans (6/12-month tenures) and recently launched income-generating loans (6–9 months). (Vellayan Subbiah; Management)

ALM Mismatch

• Question: The FY26 annual report shows the negative ALM mismatch widening to ~-10% — should Chola borrow more long-term at higher rates? (Raghav Garg, Ambit)
• Answer: The annual report column is not the full-fledged ALM; the investor presentation is the accurate source. The right measure is the cumulative mismatch — there is no negative cumulative mismatch in any bucket, as positive gaps in earlier buckets offset later negative gaps. (Arul Selvan)

Key Takeaway

Chola delivered a strong Q1 FY27 with disbursements up 22% YoY to ₹29,612 crore and AUM up 23% to ₹2,54,392 crore, although reported disbursements absorbed a one-time hit from the shift to check-clearance-based recognition for HL/LAP/SBPL/used vehicles. Pre-tax ROA expanded to 3.7% from 3.1% and ROE reached 21.2%, driven by NIM up 42 bps YoY to 8.2% and net credit cost at 1.5% — the FY27 target achieved in Q1 — with combined Stage 2+3 delinquency improving ~20 bps YoY. Management guides to ~22% disbursement growth, ≥23% AUM growth, NIM held near 8.2%, and pre-tax ROA of at least 3.5%, with Q2 expected as good as Q1. Strategic priorities include gold loan scale-up (360 new branches; ₹5,000 crore AUM target), CSEL NCL reduction to 4.7%, and CCD conversions adding capital (₹430 crore due October 2026). Watch points: below-average monsoon, a possible 25–50 bps repo hike lifting H2 cost of funds ~10 bps, and the pending IRDAI circular.