Summary
Cholamandalam Investment and Finance Company Limited - Q3 FY 2026 Earnings Call Summary Monday, February 02, 2026 10:00 AM
Event Participants
Executives 3 Arul Selvan (CFO), Ravindra Kundu (MD & CEO), Vellayan Subbiah (Executive Chairman)
Analysts 10 Abhijit (Motilal Oswal), Akshay Jain (Autonomous), Aravind Ravichandran (Sundaram), Kunal Shah (Citi), Nidhesh Jain (Investec), Nischint Chawathe (Kotak Securities), Piran Engineer (CLSA), Shreya Shivani (Nomura), Shubhranshu Mishra (PhillipCapital), Suraj Das (Sundaram Mutual Fund), Viral Shah (IIFL)
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Disbursements | ₹29,962 crores | +16% YoY; driven by broad-based momentum in Vehicle Finance and Mortgage segments. |
| Total AUM | ₹2,27,770 crores | +20% YoY; robust growth led by LAP (+31%) and SBPL (+52%) verticals. |
| Net Interest Margin (NIM) | 8.00% | +33 bps YoY; benefit of RBI rate cuts impacting cost of funds favorably. |
| Gross Stage 3 (GNPA) | 4.17% | Stable QoQ (from 4.11%); management noted Stage 2 assets improved to 3.61% from 3.96%. |
| Net Credit Cost | 2.0% (VF) | Elevated due to seasonal rains and capacity utilization issues; expected to moderate in Q4. |
| ROA | 3.2% | Maintained through productivity focus; interim dividend of 65% (₹1.30/share) declared. |
| ROE | 19.11% | Strong profitability despite elevated credit costs in unsecured and fintech-linked books. |
| Capital Adequacy (CRAR) | 19.16% | Tier 1 at 14.12%; conversion of ₹1,063 crores CCDs in Jan 2026 to further bolster Tier 1. |
Geographic & Segment Commentary
Vehicle Finance: Disbursals grew 17% YoY to ₹13,000+ crores, supported by GST rate reductions lowering vehicle prices. Demand was particularly strong in M&HCV (56% growth) and Small Commercial Vehicles (28% growth). Management noted that while Stage 3 is stable at 4.17%, early delinquencies are trending down.
Loan Against Property (LAP) & Home Loans: LAP disbursals rose 26% YoY, while Home Loans grew 10%. The segment is focusing on “Small LAP” and Tier 3/4 geographies to sustain yields around 12-13%. Asset quality remains manageable due to the appreciating nature of underlying property collateral.
CSEL (Consumer & Small Enterprise Loans): Disbursals grew 32% QoQ as the company pivoted away from fintech partnerships toward direct sourcing (DSA/DST). The partnership book reduced from ₹3,000 crores to ₹600 crores. Credit costs in this segment fell from 7% in Q2 to 6.4% in Q3.
Company-Specific & Strategic Commentary
Fintech Exit & Direct Sourcing: Management has completely stopped lending through fintech relationships as of Q1 FY26 to improve book quality. The focus has shifted to a “Diamond Category” sourcing model for unsecured loans, targeting lower long-term credit costs.
Gold Loans Expansion: The newly launched gold loan business disbursed ₹772 crores in Q3, operating through 118 dedicated branches in South and Eastern India. Strategy involves leveraging existing branch infrastructure to diversify the high-yield portfolio.
Asset Sale to ARC: The company sold ₹65 crores of non-SARFAESI residential pool assets to an ARC. This resulted in an upfront NCL hit of ₹35 crores but improved the overall health of the Home Loan portfolio.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| AUM Growth | 20% - 22% for FY26 | Based on sustained momentum in Vehicle Finance and Mortgage segments. |
| NIM | ~8.10% for Q4 FY26 | Anticipated 5-10 bps reduction in cost of funds plus seasonally higher other income. |
| PBT ROA | 3.50% (Long-term) | Target to be achieved through credit cost moderation and scaling new businesses. |
| CSEL Credit Cost | <5.0% for FY27 | Expected as the legacy partnership book is fully eliminated and direct sourcing matures. |
Risks & Constraints
| Risk | Context |
|---|---|
| Asset Quality (Vehicle) | Current Stage 3 levels (4.17%) are higher than historical norms. Risk remains if capacity utilization for small road transport operators does not improve as projected. |
| Unsecured Loan Stress | While partnership books are running down, the unsecured CSEL segment still carries high credit costs (6.4%). Success depends on the new “diamond category” sourcing filters. |
| Non-SARFAESI Recovery | Recovery in Home Loans and SBPL for tickets <₹20 lakhs is legally intensive and slow (2-3 years). Management is mitigating this via occasional ARC sales. |
Q&A Highlights
Vehicle Finance Asset Quality
- Question: Why is Vehicle Finance credit cost (2%) higher than peers? (Suraj Das)
- Answer: Stage 2 assets have already started coming down from 4% to 3.6%. Early defaults and “non-starters” are also declining, which are leading indicators for Stage 3 improvement in Q4. (Ravindra Kundu)
CSEL Segment Pivot
- Question: How should we look at the credit cost stabilization in CSEL? (Kunal Shah)
- Answer: Legacy partnership books have run down from ₹3,000cr to ₹600cr. We are now sourcing only “Diamond” quality customers. Expect NCL to drop below 5% in the next fiscal. (Ravindra Kundu)
Cost of Funds & Transmission
- Question: How much further can the cost of funds fall given recent rate trends? (Viral Shah)
- Answer: There is still room for a 5-10 bps reduction in the next quarter due to the mix of fixed-rate NCDs and bank borrowing MCLR adjustments. (Arul Selvan)
Strategic Growth in Mortgages
- Question: Why continue aggressive growth in segments where NPAs are rising like SBPL? (Nidhesh Jain)
- Answer: These are appreciating assets. SARFAESI provides strong recovery long-term. SBPL delivers a high PBT ROA of 7.3%, making the credit cost trade-off acceptable. (Ravindra Kundu)
Key Takeaway
Cholamandalam delivered a resilient Q3 FY26 with 16% YoY growth in disbursements (₹29,962 crores) and steady 20% AUM growth, reaching ₹2.27 lakh crores. While the Vehicle Finance segment faced elevated credit costs of 2% due to seasonal macro factors, management highlighted a significant 30 bps improvement in Stage 2 assets as a precursor to better asset quality in Q4. Strategically, the company has successfully transitioned away from fintech-led unsecured lending, reducing that book from ₹3,000 crores to ₹600 crores, while scaling its direct-sourced CSEL and new Gold Loan businesses. NIMs improved by 33 bps YoY to 8%, benefiting from lower borrowing costs. Looking ahead, management expects Q4 to be seasonally strong with NIMs expanding toward 8.1% and credit costs moderating as the “cyclicity” in commercial vehicles turns favorable. The key watch remains the successful resolution of non-SARFAESI small-ticket mortgage loans and the performance of the new direct-sourced unsecured portfolio.
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