Cholamandalam Investment and Finance Company Limited- Bond Public Issue Analysis

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Cholamandalam Investment and Finance Company Limited Bond Public Issue
Cholamandalam Investment and Finance Company Limited Bond Public Issue

Cholamandalam Investment and Finance Company Limited has come up with Secured, Rated, Listed, Redeemable Non-Convertible Debentures from November 28, 2023, to December 11, 2023.  This is an attractive investment opportunity for investors as it has a credit rating of AA+/ Stable by ICRA Ltd. and India Ratings and Research Pvt. Ltd. This blog will provide details about the company, the issue, and its financial performance. The details of the issue are given below:

Issue Highlights

Issuer Name Cholamandalam Investment and Finance Company Limited
Nature of Instrument Secured Rated Listed Redeemable Non-Convertible Debentures
Rating AA+/ Stable by ICRA Ltd. and India Ratings and Research Pvt Ltd.
Seniority Senior
Face Value Rs. 1,000 per NCD
Base Issue Size Rs. 500 crores  
Option to retain oversubscription Rs. 500 crores
Coupon Up to 8.60%
Tenor 24/36/60 months
Issue Date November 28, 2023, to December 11, 2023
Minimum Investment Rs. 10,000 only

 

Specific Terms of the NCD Public Issue across different series

 

Company Profile

  • Cholamandalam Investment and Finance Company Limited (Chola) is a non-banking finance company (NBFC), a part of “The Murugappa Group”, that has been in operation for more than 123 years with a group market cap. of $38.4 Billion.
  • The company initially started as an equipment financing company and has since expanded its operations to offer a wide array of financial products including Vehicle Finance Loans, Loan Against Property, Home Loans, Consumer loans, Personal loans, SME Loans, Stockbroking & distribution of financial products. As of H1 FY24, the portfolio mix comprised of the following:

(Source: Investor Presentation Sept. 23)

  • Chola offers stock broking and a diverse range of other financial services to customers through Subsidiaries.
  • As of September 30, 2023, it operates through 1,267 branches across 29 States and Union Territories in India and has 30.9 lakh+ active customers. 
  • The CRAR of the Company as of September 30, 2023, was at 16.62% as against the regulatory requirement of 15%.
  • The market capitalization of the company stood at Rs. 100k+ Cr.

Top Domestic Institutional Shareholders (More than 1%) as of September 29, 2023:

  1. Axis Mutual Fund
  2. HDFC Mutual Fund
  3. SBI Mutual Fund, etc.

Top Foreign Institutional Holdings:

  1. Capital World
  2. Vanguard
  3. Black Rock
  4. WhiteOak Capital

Performance Highlights of Cholamandalam Investment and Finance Company Limited for the H1 FY 24

Financial Parameters of the Company:

(Rs. in crores)

Particulars FY 2021 FY 2022 FY 2023 H1 FY24
Assets Under Management 69,996.38 76,907.00 1,06,498 1,24,246
Net Worth 9560 11708 14296 15773
Net NPA (%)  2.2% 2.64% 1.62% 1.56%
Profit After Tax 1,515 2,147 2,666 1488.50

Performance Highlights of Cholamandalam Investment and Finance Company Limited 2023 for the H1 FY24. 

Financial Metrics across CIFCL’s Businesses

  • In Q4 FY 24, aggregate disbursements amounted to Rs. 21,020 Cr showing a 65% growth as compared to Rs. 12,718 Cr in Q4 FY 22.
  • As of September 30, 2023, the CRAR was at 16.62% as against the regulatory requirement of 15%.
  • The AUM, as of September 30, 2023, was Rs. 124,246 crore.
  • The Company’s asset quality as of September 30, 2023, represented by Stage 3 assets was at  2.96% % with a Provision Coverage Ratio of 47.32%.  
  • As of the end of March 2023, the company holds a strong liquidity position with Rs. 5042 Cr as cash balance, which includes an investment of Rs. 1,500 Cr to Rs. 1,600 Cr in G-sec/T-bill shown in the investment portfolio. The total liquidity position stands at Rs. 9,119 Cr, inclusive of unused sanctioned lines of credit.
  • In Q4 FY 23, the consolidated Profit Before Tax (PBT) stood at Rs.1,163 Cr.

Rating Rationale

India Ratings and Research Pvt. Ltd. in its rating rationale outlines the following key factors influencing the ratings of Cholamandalam Investment and Finance Company Limited:

Positive

  • A substantial amount of reliable long-term funding in the borrowing mix.
  • Stronger capital reserves with consistent credit costs throughout economic cycles across various segments.
  • Sustaining a competitive edge in business.
  • Attaining a leadership position in the core product segments.

Negative

Possible individual or collective factors that might result in a negative rating action include:

  • Significant weakening of the business’s standing or competitive edge, leading to a sustained decline in operating profit buffers to the extent that pre-provision operating profit buffers/credit costs fall below 2.5x without adequate capital reserves, on a sustained basis.
  • Inadequate profitability reserves to absorb a rise in the credit costs in the case of perpetual debt instruments.
  • Deterioration in funding or liquidity position, in the form of significant gaps in the Asset-Liability Management profile.
  • Sustained increase in the leverage ratio.
  • Failure to raise capital such that the Tier 1 capital ratio falls below the expectations set by Ind-Ra.

Investor Categories 

The categories of investors in a bond public issue refer to the various segments or types of investors who can participate in the offering. These categories are determined by the issuer according to guidelines laid by regulatory bodies such as SEBI, aiming to distribute the available bonds among various investor groups. Here is the allocation ratio for the Cholamandalam Investment and Finance Company Limited Public Issue across these categories.

Category I- Institutional Portion- 20% of the overall issue size- Public Financial Institutions, Insurance companies, Scheduled Banks, Provident Funds, AIFs, etc.

Category II– Non-institutional Investors- 35% of the overall issue size- Companies, Co-operative Banks, Trusts, Partnership Firms, Association of Persons, etc.

Category III– High Net-worth Individual Investors- 25% of the overall issue size- Resident Indian individuals or Hindu Undivided Families through the Karta applying for an amount aggregating to above ₹ 10,00,000 across all options of NCDs in the Issue.

Category IV– Retail- 20% of the overall issue size- Resident Indian Individuals or Hindu Undivided Families through Karta applying for an amount aggregating up to and including ₹10,00,000.   

How to Apply through TheFixedIncome.com?

Apply easily using the following three steps: 

How to Apply through_TheFixedIncome.com

Information Memorandum:

An Information Memorandum (IM) is an extensive document that provides investors with in-depth information about the bond offering. It stands as a crucial reservoir of information for investors to evaluate the bond thoroughly and make well-informed decisions. Typically, an IM consists of intricate details about the issuer’s business, financial background, management team, offering details, associated investment risks, and allocation of funds from the issue, along with regulatory and legal disclosures.

The link to the Information Memorandum of bond public issue of Cholamandalam Investment and Finance Company Limited is given below:

https://www.thefixedincome.com/storage/bondprimary_imfiles/1700806007CHOLAMANDALAMIM.pdf

Conclusion

Summing up, the bond public issue by Cholamandalam Investment and Finance Company Limited is an excellent opportunity for investors seeking to invest in Secured Rated Listed Redeemable Non-Convertible Debentures. Backed by a robust company profile, impressive financial performance, and AA+/ Stable ratings, are key factors that attract investors across various segments. Investors need to go through the IM thoroughly before investing and take into account their risk appetite and investment objectives.

Disclaimer: Investments in debt securities are subject to risks. Read all the offer-related documents carefully.

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