Cholamandalam Investment and Finance - Initiating Coverage 12 June 12

JM Financial Institutional Securities Private Limited
Multiple drivers at play
Renewed focus on vehicle finance to drive sustainable earnings growth:
Cholamandalam Investment and Finance Company (CIFC), a part of the
Murugappa Group, offers vehicle finance (73% of AUM, focus on LCVs and
used CV), home equity, LAS and gold loans etc. In 2010, CIFC exited personal
loans JV with DBS due to heavy losses and renewed focus on its core strength
of vehicle finance. We believe a) Gain in market share b) Product additions c)
significant investment in branch additions to create pan–India distribution
network and d) clear focus on tier III and IV cities (90% of branches in
rural/semi-urban); will lead to sustainable earnings growth going ahead.
Well positioned to deliver growth through network expansion, product
additions and market share gains: We believe CIFC is well positioned to
deliver 25% CAGR in AUM, with vehicle finance being primary driver of
growth, through a) Expansion in distribution network: To reach branch
network of 600 by FY14E by adding 225 branches over next 2 years (added
200 branches in last 2 years), b) Market share gains in LCV (gained 5% in last
2 years) and used CV market through improved productivity of branches and
competitive pricing (in used CV) and c) Product additions: Introduced tractor
financing in FY12 which is expected to contribute 10% of VF AUM by
FY14E.Further, company has also started offering gold loans (started pilot
project, though this will not be significant focus area). We expect stable
margins leading to 29% CAGR in NII over FY12-14E.
Operating efficiencies to kick–in by FY14E; expect 34bps decline in cost
ratios over next 2 years: We expect CIFC’s cost to assets ratio to improve
34bps to 3.4% over FY12–14E driven by a) improved productivity (substantial
migration to branch ‘D’, ‘C’ & ‘B’ category from branch ‘E’ which is the lowest
in productivity), b) use of technology, c) complete run-off of PL portfolio.
Credit costs at historical lows; we factor normalized credit costs of 85bps
over FY12-14E: Despite losses in PL portfolio, CIFC managed to keep credit
losses of its core business under check. CIFC’s current credit costs are at
historical low levels. While we expect asset quality to remain healthy, we
factor normalised credit costs of 83bps/80bps in FY13/14E vs 43bps in FY12.
Expect 36% CAGR in earnings over FY12-14E: We forecast net profit CAGR
of c.36% over FY12–14E driven by strong AUM growth (25% CAGR led by
vehicle finance), stable margins and improving cost ratios (34bps over next 2
years). We expect CIFC to report ROA of c.1.7% and ROE of c.17.0% by FY14E.
Initiate with BUY and TP of ````220: We value CIFC at 1.5x Mar’14 BV (implied
P/E of 10x) and arrive at Mar’13 TP of `220 (c.33% upside). Key risks:
Significant slowdown in LCV resulting in slower growth and immediate
requirement of tier I capital to 12%, leading to higher dilutions.
Cholamandalam Investment
and Finance | CIFC IN
India | Banking & Financial Services | Initiating Coverage
Price: `165
BUY
Target: `220 (Mar’13)
12 June 2012
Amey Sathe, CFA
amey.sathe@jmfinancial.in
Tel: (91 22) 6630 3027
Karan Uberoi, CFA, FRM
karan.uberoi@jmfinancial.in
Tel: (91 22) 6630 3082
Sanketh Godha
sanketh.godha@jmfinancial.in
Tel: (91 22) 6630 3080
Puneet Gulati
puneet.gulati@jmfinancial.in
Tel: (91 22) 6630 3072
Ravi Singh
ravi.singh@jmfinancial.in
Tel: (91 22) 6630 3058
Key Data
Market cap ` 21.5 / US$ 0.4
Shares in issue (mn) 132.6
Diluted share (mn) 132.6
3-mon avg daily val (mn) ` 5.4/US$ 0.1
52-week range ` 190.0/106.3
Sensex/Nifty 16,454/4,997
`/US$ 55.4
Daily Performance
Cholamandalam Investment
0
50
100
150
200
250
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
-30%
-18%
-6%
6%
18%
30%
Cholamandalam Investment Relative to Sensex (RHS)
% 1M 3M 12M
Absolute -8.6 -2.7 3.2
Relative* -9.7 -0.3 12.3
* To the BSE Sensex
Shareholding Pattern (%)
4Q FY11 4Q FY12
Promoters 69.07 62.27
FII 8.09 16.96
DII 10.98 11.92
Public / others 11.86 8.85
JM Financial Research is also available on:
Bloomberg - JMFR <GO>, Thomson Publisher & Reuters.
Please see important disclosure at the end of the report
Exhibit 1. Financial Summary (```` mn)
Y/E March FY10 FY11E FY12E FY13E FY14E
Net Profit 154 622 1,725 2,420 3,210
Net Profit (YoY %) -63.9% 303.3% 177.5% 40.3% 32.6%
Assets (YoY %) 0.1% 39.4% 38.7% 29.4% 21.3%
ROA (%) 0.22% 0.75% 1.49% 1.57% 1.67%
ROE (%) 3.2% 8.0% 13.9% 15.9% 16.7%
EPS (`) 2.3 5.2 13.0 18.2 21.4
EPS (YoY %) -63.9% 124.6% 149.8% 40.3% 17.3%
PE (x) 69.0 30.7 12.3 8.8 7.5
BV (`) 73 90 107 123 148
BV (YoY %) 1% 23% 19% 15% 20%
P/BV (x) 2.19 1.78 1.50 1.30 1.08
Source: Company data, JM Financial. Note: Valuations as of 11/06/2012.

CIFC 12 June 2012
JM Financial Institutional Securities Private Limited Page 2
Exhibit 1. Key Financials
Key Parameters FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E FY14E
CAGR
(06-12)*
CAGR
(12-14)E*
Balance sheet
Borrowings (` bn) 17 32 54 54 54 79 114 151 181 37.5% 25.6%
Loans (` bn) 19 33 55 46 55 86 123 161 197 36.6% 26.4%
Securitized (` bn) 2 7 17 15 14 5 11 10 14 31.0% 10.0%
AUM (` bn) 21 40 71 60 69 91 135 171 211 36.1% 25.1%
Total Assets (```` bn) 21 37 64 69 69 97 134 174 211 36.2% 25.3%
Assets Growth (%) 21.8% 78.2% 70.1% 9.0% 0.1% 39.4% 38.7% 29.4% 21.3%
Income statement
NII (` bn) 1.1 2.2 5.1 5.0 4.1 5.9 7.6 10.2 12.7 38.9% 29.4%
Operating profits (` bn) 0.6 0.8 2.0 2.2 1.6 3.0 3.4 4.8 6.3 32.2% 35.7%
PAT (` bn) 0.4 0.3 0.6 0.4 0.2 0.6 1.7 2.4 3.2 30.3% 36.4%
Profitability
Interest Spread (%) 4.56% 6.66% 9.29% 6.15% 4.40% 6.27% 5.91% 5.96% 5.86% 1.35% -0.05%
NII / AUM (%) 5.91% 7.14% 9.18% 7.66% 6.30% 7.36% 6.70% 6.65% 6.64% 0.80% -0.06%
ROA (%) 1.84% 1.06% 1.18% 0.64% 0.22% 0.75% 1.49% 1.57% 1.67% -0.35% 0.18%
ROE (%) 11.4% 9.7% 13.4% 8.2% 3.2% 8.0% 13.9% 15.9% 16.7% 2.48% 2.79%
Asset Quality
Gross NPL (` mn) 236 229 572 2,576 4,499 2,727 1,176 1,704 2,275 30.7% 39.1%
Gross NPL (%) 1.24% 0.70% 1.04% 5.42% 7.73% 3.09% 0.95% 1.05% 1.14% -0.29% 0.20%
Net NPL (` mn) 124 138 150 597 1,201 339 369 256 341 19.9% -3.9%
Net NPL (%) 0.65% 0.42% 0.27% 1.31% 2.19% 0.39% 0.30% 0.16% 0.17% -0.35% -0.13%
Loan Loss Charge (` mn) 179 291 1,104 2,028 3,201 3,588 2,040 1,112 1,337 50.1% -19.0%
Coverage (%) 47.3% 40.0% 73.8% 76.8% 73.3% 87.6% 68.6% 85.0% 85.0% 21.3% 16.4%
Source: Company, JM Financial, Note: * Figures for ratios signify change over the specified period.

CIFC 12 June 2012
Cholamandalam Investment and Finance
(CIFC)
Focuses on rural/semi-urban and micro/small enterprises
Cholamandalam Investment and Finance (CIFC), a part of the Murugappa
Group (owns 62.3% as of 4Q12), provides vehicle finance, home equity and
business finance. The company also offers services of stock broking and
distribution of financial products. CIFC focuses on niche segment of
micro/small enterprises and self employed individuals (bottom of the pyramid)
in rural/semi–urban areas.
Pan–India presence with c.90% branches in Tier-II and III Cities
Currently c.90% of CIFC’s branches are based in semi–urban and rural
locations (See Exhibit 3) where it has developed niche expertise being in the
business of vehicle finance for more than two decades. As of 4Q12, the
company had 375 branches across 21 states with c.90% branches in Tier III
and IV cities. CIFC has strong presence in Southern, Northern & Western
regions and growing presence in Eastern markets.
Exhibit 2. CIFC: Geography and Region-wise distribution network*
Semi - Urban
19%
Urban
10%
Rural
71%
North
26%
East
18%
West
24%
South*
32%
Source: Company, JM Financial. As of 4Q12 * Excludes 45 branches exclusively for gold loans set up in South.
Eliminated non–core / unprofitable businesses and focused on core
business of vehicle finance
As part of business restructuring the company has eliminated non–core
activities, liquidated non-core assets and focused on its core business of
vehicle finance. The company a) in FY08, exited loss making personal loans
business b) in FY10, sold DBC Chola AMC business to L&T AMC for `450mn, c)
in FY11, terminated JV with DBS Bank and entire stake of 37.48% was acquired
by the parent i.e. Murugappa Group.
The company is also contemplating the future course of action for two of its
subsidiaries i.e. Chola Factoring and Chola Securities. Both these subsidiaries
were loss making in FY12.

CIFC 12 June 2012
Focus on secured/productive lines of
business
Exited personal loans (unsecured lending) business in CY08; PL portfolio
to run–off by 1Q13
In FY06, CIFC entered a JV with DBS Bank to offer unsecured personal loans.
However, the company suffered significant delinquency and heavy losses in
the PL (small ticket) business. As part of business restructuring, in Sept’08,
the company exited unsecured personal finance business. The exposure was
also reduced by effective collection management, selling of assets on
assignment basis and increasing provisioning on all doubtful cases. CIFC
managed to bring down PL portfolio from `28.4bn in 1Q09 to `63mn in 4Q12.
As of 4Q12, personal loans were fully provided and expected to run off by
1Q13.
Exhibit 3. CIFC: Trend in personal loans (```` mn)
0
6,000
12,000
18,000
24,000
30,000
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
Persoanl Loans Portfolio (` mn)
Source: Company, JM Financial.
Post PL segment exit, CIFC has de–risked its balance sheet by focusing on
productive end of the segment (rather than consumptive end)
Post exiting unsecured personal loans business, the company concentrated
solely on the productive/secured end of the segment than consumptive end
(personal loans). The company de-risked lending by operating on core
competencies of vehicle finance (with 2 decades of operating experience) and
consolidated its market with judicious expansion. CIFC also added home
equity (6 years of operating experience) to its product portfolio which has
negligible credit costs till now. Exhibit 6 gives detailed information about
CIFC’s main product lines.
Consolidating vehicle finance (VF) business
During FY08-10, due to losses in PL portfolio, business of vehicle finance was
got neglected as complete focus was on PL recovery. However post exiting PL
business, the company renewed its focus on its core business of vehicle
finance and consolidated its position through judicious branch expansion,
competitive pricing and better control over asset quality.

CIFC 12 June 2012
Exhibit 4. CIFC: Change in AUM mix post business restructuring
FY08
Vehicle Finance
47%
Home Equity
5%
Personal Loans
33%
Business
Finance
15%
FY12
Vehicle Finance
73%
Business
Finance
4%
Home Equity
23%
Gold Loans
0.3%
Exhibit 5. CIFC: Product portfolio
Vehicle Finance Home Equity Business Finance
Type of Loan
Provides vehicle financing for NEW
and USED HCVs, LCVs, SCVs, MLCVs,
MUVs , Tractors and Cars
Provides loans against residential
property to self employed
individuals
Provides loans against collateral of
equity shares, commercial/
residential property and
combination of current assets and
shares
Customer Profile
Micro & small enterprises and agri
based customer segment
Self Employed Individuals
Promoters of large listed entities,
High Net worth Individuals, Retail
Broking clients
LTV (%) 75% - 80% 50% - 55% 50.00%
Ticket size (```` mn) ` 0.40 – 0.50 mn ` 4.00 – 5.00 mn ` 60 – 70 mn
Weighted IRR (%) 15% – 16% 13% – 14% 13% – 14%
Net Income Margin (%)* 7.7% 5.5% 3.8%
Credit losses as % of
average assets
0.37% 0.23% 0.00%
Gross/Net NPLs (%) 0.69%/0.26% 0.81%/0.35% 1.21%/0.05%
Duration (months) 35 – 40 months 120 months 24 months
% of AUM 73% 23% 4%*
Source: Company, JM Financial. As of FY12; * CIFC has been reducing its business finance exposure.

CIFC 12 June 2012
Vehicle finance – Main driver of the growth
Vehicle finance is the company's largest business accounting for c.73% of
AUM. Traditionally, CIFC has strong presence in financing of CVs such as LCV
(market share of 17%), mini LCV (10%) and HCV (2%). The company also claims
to have market share of c.4% in used CVs (assuming Shriram Transport’s
market share of 25-30%) while PVs, cars and tractors account for a small
proportion.
Exhibit 6. CIFC: Market share as of FY12
17%
10%
2%
4%
0.0%
4.0%
8.0%
12.0%
16.0%
20.0%
LCV Mini LCV M&HCV Used CV*
Market Share in Vehicle Finance in FY12
Source: Company, JM Financial. * Assuming Shriram Transport’s market share of 25-30%
Over the years, vehicle finance business of the company has built significant
strengths such as a) strong distribution with presence in 330 locations and
deep penetration in Tier II and III towns, b) Strong dealer and manufacturer
relationship with major product presence, and c) strong credit and recovery
systems.
Well diversified portfolio across geography & product segments
CIFC’s vehicle finance portfolio is well diversified product wise with LCV and
mini–LCV (constitutes 44% of FY12 VF–disbursement) and used CVs (29%)
dominating the asset mix. Similarly geography wise, vehicle finance portfolio
is well spread with Tamil Nadu (14% of FY12 disbursements), Maharashtra
(12%) and Andhra Pradesh (9%) dominating the geography mix. CIFC has no
exposure to mining in Karnataka; has c.1% in Orissa.
Exhibit 7. CIFC: Vehicle finance – AUM mix product wise and FY12 Disbursement mix region wise
26% 25% 24%
41% 41% 40%
10% 8% 9%
12% 14% 12%
10% 11% 12%
3%
0%
20%
40%
60%
80%
100%
FY10 FY11 FY12
HCV LCV CAR & MUV Mini LCV 3Wheeler Shubh Tractor
MH
12%
AP
9%
RJ
9%Guj
8%
WB
8%
MP
7%
Punjab
6%
Kerala
6%
Delhi
5%
Chattisgarh
8%
Others
8% TN
14%

CIFC 12 June 2012
Targets First time borrowers and avoids First Time Users
CIFC focuses mainly on First Time Borrowers (who are operating in the market)
and avoids First Time Users as credit costs are significantly higher in this later
segment. CIFC has c.65% of disbursements to micro and small enterprises and
agri based customer segment. Most CIFC’s customers enjoy high pricing
elasticity as these borrowers are not on contract basis and can pass on any
cost increase.
In used CV, CIFC targets vehicles with 2-3 years of vintage (c.14% of vehicle
finance portfolio) and 4-7 years of vintage (c.15% of vehicle finance portfolio).
Exhibit 8. CIFC: Business model and positioning in vehicle finance
First Time Users & Small Ticket Operators, older vehicles
HCV, LCV, MUV, Cars & SCV
Principal Operator
> 50 Vehicles
Large Operators 26-
50 vehicles
Medium Operators 10 -25 – HCV & LCV vehicles
SRTOs – HCV & LCV
R
I
S
K
R
A
T
E
S
HIGH HIGH
LOW LOW
~65% of disbursements
are to micro & small
enterprises and agri
based customer segment
Chola positioning
•Middle of the pyramid through
New CVs, Used CVs & MUVs
•Top of the Bottom of the pyramid
through SCV & older CVs 'Shubh'
Origination of vehicle loans through – ‘Prime’ and ‘Shubh’ segments
The company originates its vehicle finance loans under two segments – Prime
and Shubh.
• The Prime segment relates to the financing of new and used (less
than five years old) auto and commercial vehicles to customers with a
favourable repayment track record.
• The Shubh segment is for customers who are purchasing relatively
older vehicles (more than five years old) and are either new to
borrowing or have a limited payment history.
Credit costs of 0.75%
Credit costs of 2.50%

CIFC 12 June 2012
Light commercial vehicle customers are sourced through dealers and
preferred financier agreements with major manufacturers and heavy
commercial vehicles are sourced via transport operators. Used and old
vehicles customers are sourced using own (CIFC) distribution.
Financing of used CVs is less cyclical and is gathering pace…
Used CV finance market includes financing availed at the time of purchasing a
used vehicle as well as refinance taken with the CV as collateral (normally for
2-3 years of vintage). Given the penetration in used CV finance, growth in the
used CV financing market is less-cyclical in nature, while in the new CV
financing market growth is highly cyclical which is linked to GDP growth.
Exhibit 9. CIFC: Strong growth in CV sales during FY03-07 and FY10-12 to
benefit CIFC
0
200,000
400,000
600,000
800,000
1,000,000
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12
MHCV LCV
FY03-07: Period of very high
growth (Vintage 4-7 years)
FY10-12: Period of very
high growth (Vintage 2-3
years)
Will be up for refinancing
as used CVs in FY12-
FY14E
… While LCV growth cycle to continue
The growing popularity of the hub-and-spoke distribution model and rising
importance of small transporters’ role in the road freight process is driving the
demand for new min LCV / LCV in cities and semi-urban areas. CRISIL
estimates LCV segment to witness CAGR of 14-16% up to 2016-17, of which
min LCV sales are expected to post a CAGR of 15-17%. Our Auto team also
expects 12-15% growth in LCV segment for FY13E.
We believe up–tick in used CV financing and continued growth trend in LCV
market favors CIFC as a) in both segments, CIFC has been gaining market
share, b) significant additions to branches will aid in improving market share,
c) low base.
Home Equity (HE) to constitute c.20% of AUM: Started in fiscal FY07, Home
Equity is a relatively new segment for the company. It has witnessed strong
growth (loan CAGR of 55% over FY08-12) and now constitutes 23% of AUM (1%
in FY07). The company focuses on the relatively less-riskier self-occupied
residential property segment which comprises 85-87% of the total home equity
portfolio while 99% of the customers are self employed individuals.
E.g. The first lot of Tata
Motors Ace of 30,000-
40,000 units has
completed almost 5-6
years. The vehicles are
now available in the
used market, which is
getting good demand
from rural consumers.

CIFC 12 June 2012
Well positioned to deliver growth through
network expansion, product additions and
market share gains
Vehicle finance, being a primary driver of growth, is expected to drive 25%
CAGR in AUM over FY12-14E
We believe CIFC is well positioned to deliver 25% CAGR in AUM through a)
distribution network expansion, b) market share gains in LCV and used CV
financing market, and c) product additions. We expect vehicle finance to
remain primary driver of growth over next 2 years (to constitute 70-75% of
AUM) and home equity to contribute 18-20% to AUM, while gold loans and
business finance to constitute rest 4-5% of AUM.
Exhibit 10. CIFC: AUM (```` bn) and YoY growth (%)
60 69
91
135
171
211
0
50
100
150
200
250
FY09 FY10 FY11 FY12 FY13E FY14E
-25%
-10%
5%
20%
35%
50%
AUM (` bn) YoY Growth (%)
Distribution network expansion with pan–India presence to deliver growth
over next 2–3 years
We compare strategy adopted by Shriram Transport (SHTF) and M&M Financial
Services (MMFS) as they expanded their distribution network and reach which
helped them achieve strong growth rates. During FY04-09, SHTF recorded 70%
CAGR in AUM (including merger of Shriram Investments) as it increased its
branch network to 479 from 179 in FY04. Similarly in case of MMFS, it
witnessed 38% CAGR in AUM in FY09-12 during which its branch network
increased to 607 vs 436 in FY09.
Exhibit 11. CIFC: Trends in branches and AUM growth rate for SHTF and MMFS
0
120
240
360
480
600
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
0%
30%
60%
90%
120%
150%
SHTF - Branches AUM - YoY Growth (%)
0
125
250
375
500
625
FY07 FY08 FY09 FY10 FY11 FY12
0%
10%
20%
30%
40%
50%
MMFS - Branches AUM - YoY Growth (%)

CIFC 12 June 2012
Exhibit 12. CIFC: Trend for SHTF in branches and AUM YoY growth (%)
250
320
390
460
530
4Q07
2Q08
4Q08
2Q09
4Q09
2Q10
4Q10
2Q11
4Q11
2Q12
4Q12
0%
14%
28%
42%
56%
70%
SHTF - Branches AUM YoY Growth (%)
Source: Company, JM Financial. * Not considered SHTF’s associate companies distribution network
Exhibit 13. CIFC: Trend for MMFS in branches and AUM YoY growth (%)
250
320
390
460
530
600
670
4Q07
2Q08
4Q08
2Q09
4Q09
2Q10
4Q10
2Q11
4Q11
2Q12
4Q12
0%
10%
20%
30%
40%
50%
60%
MMFS - Branches AUM YoY Growth (%)
We believe CIFC is well positioned to follow such strategy of expanding branch
network aggressively to increase its footprint and create a pan–India presence.
Going forward, we expect CIFC to focus on broadening as well as deepening
its distribution network. Incremental branch additions (125 in FY13E and 100
in FY14E) should also improve product penetration and aid AUM growth.
In case of SHTF, AUM
growth slowed down
significantly as branch
additions remained
stagnant.
In case of MMFS, AUM
growth continues to
remain strong mainly
driven by aggressive
branch expansion done
in last 24 months
(added 148 branches in
last 2 years).

CIFC 12 June 2012
Exhibit 14. CIFC: Quarterly and annual Trend in branches and AUM YoY growth (%)
0
125
250
375
500
625
FY09 FY10 FY11 FY12 FY13E FY14E
-25%
-10%
5%
20%
35%
50%
CIFC - Branches AUM YoY Growth (%)
0
125
250
375
500
625
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12
25%
30%
35%
40%
45%
50%
CIFC - Branches AUM YoY Growth (%)
Gaining market share in LCV and used CV market
We expect CIFC to gain market share in LCV as well as used CV market due to
a) broader and deeper market penetration (opened 159 vehicle finance
branches in last 2 years and plans to open 225 over next 2 years), b)
competitive pricing as rates offered by CIFC are lower than the market leader
in used CV market, c) newly opened branches are likely to contribute more to
incremental business as and when they mature.
The company has already gained market share in LCV which stood at 16.9% in
FY12 vs 12.1% in FY10. Similarly in mini–LCV, its market share stood at 10.0%
in FY12 vs 8.9% in FY10 while in M&HCV, the company had market share of
2.4% in FY12 vs 1.8% in FY10. The company also claims c.4% market share in
used CV market (assuming SHTF has 25-30% market share). We expect market
share gain trends to continue for CIFC over next 2 years.
Exhibit 15. CIFC: Trend in market share
9%
2%
12%
10%
2%
15%
10%
2%
17%
0%
4%
8%
12%
16%
20%
Mini LCV M&HCV LCV
FY10 FY11 FY12

CIFC 12 June 2012
Expanding product portfolio by introducing new product lines
CIFC introduced tractor financing in 1Q12 which now constitutes 4% of Vehicle
Finance AUM (3% of total AUM). Currently only 25-30 branches offer tractor
financing as the company has been conservative on rolling out that product. In
FY13, around 125-150 branches will start offering tractor financing and
consequently it will be ramped up. Thus the company expects tractor finance
to constitute 10% of vehicle finance AUM in next 2 years.
Exhibit 16. CIFC: Vehicle finance – Disbursement mix as of FY11 and FY12
LCV
36%
HCV
16%
Mini LCV
14%
MUV
4%
Used CV's
27%
Car & 3
Wheelers
3%
LCV
33%
HCV
15%
Mini LCV
11%
MUV
5%
Tractor
4%
Car & 3
Wheelers
3%
Used CV's
29%
CIFC has also opened 45 branches exclusively for gold loans in South India
and has started the disbursements (4Q12: 0.3% of AUM and 2% of
disbursements). The company follows stricter valuation norms which are
consistent with RBI’s regulations (such as considering only gold part of the
ornaments for lending purpose).
The company is evaluating new lines of businesses such as farm equipments,
wherein its relationship with its associate company EID Parry can be used, SME
Loans and line extensions such as utility vehicles (in vehicle finance) and
housing loans (home equity).
Exhibit 17. CIFC: Trend in AUM mix (%)
58%
47% 51% 57%
66% 73%
5%
12%
21%
24%
23%
22%
15%
6%
7%
9%
4%
19%
33% 31%
14%
2%
1%
0%
20%
40%
60%
80%
100%
FY07 FY08 FY09 FY10 FY11 FY12
Vehicle Finance Home Equity Business Finance Gold Loans Personal Loans
FY11 FY12

CIFC 12 June 2012
Factoring stable margins (NII/AUM) leading to
28% CAGR in NII over FY12-14E
Increasing reliance on banks as source of funding
Over the years CIFC has increased its reliance on bank borrowings which now
(FY12) constitute c.63% of total borrowings vs c.35% in FY06. Consequently,
dependence on debentures has come down to 22% in FY12 from 38% in FY06
(went up to 62% in FY07). The company is also increasing proportion of
floating rate borrowings (partly aided by increasing reliance on banks
borrowings which is linked to base rate and floating) which was 54% in FY12
vs 16% in FY09.
Exhibit 18. CIFC: Trend in borrowings composition and borrowings profile
35% 32%
23%
37%
63% 69% 63%
38%
62% 52%
33%
9% 13%
22%
0%
20%
40%
60%
80%
100%
FY06 FY07 FY08 FY09 FY10 FY11 FY12
Bank Loans Commerical Paper Debentures Subordinated Debt & PDI
16% 9%
41%
54%
84% 91%
59%
46%
0%
20%
40%
60%
80%
100%
FY09 FY10 FY11 FY12
Floating (%) Fixed (%)
As of FY12, CIFC had c.43% of borrowing linked to base rate or base rate +
spread (0.5% to 1.5%). In declining interest rate environment (where base rates
of banks come down), CIFC stands to benefit due to re–pricing of liabilities as
its assets side is locked at fixed rate.
Exhibit 19. CIFC: Composition of FY12 borrowings
Base Rate
19%
Fixed Rate
9%
Others
40%
Fixed rate / base
rate whichever is
higher
4%
USD LIBOR +
Spread
4%
Base Rate +
Spread
(0.5% to 1.5%)
24%

CIFC 12 June 2012
‘AFC’ status and credit rating improvement should aid in managing
borrowing cost
In 1Q12, CIFC regained its status of an ‘Asset Financing Company' (AFC) from
‘Loan Company’ (LC). In order to classify as an AFC, 60% of the advances
should be lending towards financing of physical assets supporting
productive/economic activity. Companies with ‘AFC’ status enjoy significantly
lower risk weightage (30% for AA rated company) than Loan companies (100%
risk weight). Post AFC status, CIFC is expected to get lower rate on its
incremental borrowings.
In Nov’11, ICRA upgraded NCD rating of CIFC to ‘AA’ from ‘AA-‘, while in
FY11, CRISIL upgraded the company’s short term debt rating from P1 to P1+.
With improving financials and robust growth outlook, CIFC is likely to witness
further improvement in credit rating.
Hence, we expect regaining of AFC status and improvement in credit rating to
help CIFC lower its incremental borrowing costs.
However, continuing uncertainty over securitisation will lead to lower
proportion of off–balance sheet AUM
The company has been using assignment purely as funding tool and reliance
on the same has been minimal. RBI’s guidelines on securitisation have resulted
in uncertainty over structuring of securitisation/assignment transactions. Thus
we factor in lower proportion of off–balance sheet AUM over next 2 years
(FY14: off–balance sheet AUM of 6.5% vs 8.5% in FY12).
However, CIFC has one of the lowest proportions of off–balance sheet AUM as
compared to its peers.
Exhibit 20. CIFC: Trend in off–balance sheet AUM proportion and comparison with peers
11%
18%
24% 24%
20%
6%
8%
6% 7%
0%
6%
12%
18%
24%
30%
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13E FY14E
Off–balance sheet AUM proportion (%)
8%
45%
15%
20%
0%
10%
20%
30%
40%
50%
CIFC SHTF MMFS SCUF
Off–balance sheet AUM proportion (%)

CIFC 12 June 2012
We expect stable margins (NII/AUM) leading to 29% CAGR in NII over
FY12-14E
In a declining interest rate environment, CIFC will benefit in two ways a) With
relatively large fixed-rate book (vehicle finance (73% of AUM) is at fixed rate),
CIFC is well positioned to do well, b) c.63% of borrowings are from banks
while c.43% is linked to base rate. Thus decline in base rate of the banks, will
help CIFC lower its borrowing cost incrementally.
However, the positive impact from this will be negated as a) CIFC has c.`15bn
of on–balance sheet priority sector borrowings (13% of total borrowings) which
were taken prior to FY12 and are below base rate. These borrowings are likely
to be replaced at base rates which will lead to higher cost of funds (impact of
13-18bps), b) assumption of lower off–balance sheet AUM post new guidelines
on securitisation.
Thus we expect stable margins (NII/AUM of c.6.6% by FY14E) leading to 29%
CAGR in NII over FY12-14E.
Exhibit 21. CIFC: Trend in NII growth and margins
1.1
2.2
5.1 5.0
4.1
5.9
7.6
10.2
12.7
0.0
3.0
6.0
9.0
12.0
15.0
-25%
10%
45%
80%
115%
150%
NII (` bn) YoY Growth (%)
5.9%
7.1%
9.2%
7.7%
6.3%
7.4%
6.7% 6.7% 6.6%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
NII / AUM (%)

CIFC 12 June 2012
Operating efficiencies to kick–in by FY14E; expect
34bps decline in cost ratios over next 2 years
In the past, CIFC operated at elevated levels of cost ratios given a) the
company was running personal loans recovery efforts (especially in FY07-09
period) which was not having any positive top line impact, b) significant
expansion in distribution network by adding 159 branches and c.3,300
employees in last 2 years, c) the company also opened 45 branches
exclusively for gold loans which are not yet yielding expected results, d) it
also invested significantly in technology wherein cost is incurred and booked
immediately but benefits follow with a lag.
Exhibit 22. CIFC: Trend in cost to assets
4.9%
3.1% 3.0%
4.9%
6.2%
4.6%
3.9% 3.8% 3.8%
0.0%
1.6%
3.2%
4.8%
6.4%
8.0%
FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12
Cost to Assets (%)
CIFC has been expanding its branch network mainly into Tier 3 and 4 towns
and rural areas which will help deeper market penetration and expand market
space. In FY13, the company will be adding 125 branches and another 100
branches in FY14. The company also intends to become national player with
strong presence in southern, northern and western markets.
Exhibit 23. CIFC: Trend in branch and employee additions
180
275
140
171
226
375
500
600
0
140
280
420
560
700
FY07 FY08 FY09 FY10 FY11 FY12 FY13E FY14E
0
2,000
4,000
6,000
8,000
10,000
12,000
Branches Employees
Cost to assets was at
significantly higher
levels as compared to
its peers.
Period of FY07-09 was
characterised by higher
cost to assets mainly
due to personal loans
recovery efforts
CIFC is adding
branches mainly in tier
III and tier IV cities all
over India.
CIFC will be focusing
on broadening as well
as deepening its
distribution network.

CIFC 12 June 2012
Exhibit 24. CIFC: Branch network – Pan India presence
We expect operating efficiencies to kick in by FY14E; expect 34bps
improvement in cost ratios over next 2 years
We expect CIFC to benefit from the investments made/making in its
distribution network to start flowing in over next 2 years. We expect the
improvement in cost ratios to be led by
a) Improving branch productivity leading to decline in cost ratios:
Although CIFC will continue to expand its branch network, going forward,
cost of opening new branches will be offset by old branches becoming
profitable. 60-70% of branches added last year will start becoming
profitable as average break–even period is 6-7 months per branch.
The company categorizes its branches into, A, B, C, D, E branches based
on the size and scale and the complexity of the branch. When a new
branch is opened it is in the ‘E’ category. As and when ‘E’ category branch
gains specific size, it moves to ‘D’ category and then ‘C’ and henceforth.
CIFC is witnessing migration of branches to ‘D’ category from ‘E’ category,
indicating improving productivity. Consequently proportion of ‘D’ category
branches has gone up to 44% in FY12 from 41% in FY10.
CIFC is no longer a
regional player and has
established strong
presence in southern
(32% of branches excl.
gold loans), northern
(26%) and western
(24%) markets.

CIFC 12 June 2012
Similarly category ‘C’/’D’ proportion stood at 3.8%/8.7% respectively in
FY12 vs 2.6%/6.6% in FY10 while category ‘E’ witnessed decline to 42% in
FY12 from 47% in FY10. We expect similar trends to continue in coming
years.
Exhibit 25. CIFC: Trend in branch productivity
7% 11% 9%
41% 40% 44%
47% 46% 42%
0%
20%
40%
60%
80%
100%
FY10 FY11 FY12
A B C D E
b) Introduction of technology to improve employee productivity: The
company has been investing heavily in technology which is expected to
improve productivity in coming years. The company has already rolled
pilot project in 8-10 branches and is expected to cover 60 branches more
by FY13 and 150 branches by FY14. The company is already witnessing
improved productivity e.g. earlier one employee used to do 6 customer
cases per month now same employee is doing 9 cases per month.
c) Absence of PL portfolio which has been 100% provided and already run off
(remaining `63mn is expected to run–off by 1Q13).
Thus we believe improvement in cost to assets will be one of the important
drivers for CIFC and expect 34bps improvement in cost to assets over next 2
years (FY12-14E).
Exhibit 26. CIFC: Trend in cost ratios
3.0%
4.9%
6.2%
4.6%
3.9% 3.8% 3.8% 3.6% 3.4%
0.0%
1.6%
3.2%
4.8%
6.4%
8.0%
Cost to Assets (%)
48%
65%
61%
58%
63%
51%
56%
53%
51%
30%
40%
50%
60%
70%
80%
Cost to Income Ratio (%)
CIFC is witnessing
significant migration
from category ‘E’
branches to category
‘D’, ‘C’, and ‘B’, etc.
indicating improvement
in branch productivity

CIFC 12 June 2012
Current credit costs are at historical low levels;
we factor credit costs of 80bps over FY12-14E vs
43bps in FY12
Personal loan portfolio was a drag on asset quality
Personal Loan as a product was introduced as a new segment during JV with
DBS in 2006. Due to significantly higher delinquencies in PL segment, the
company decided to discontinue its personal loan business within 2 yrs of
operation. However losses in personal loan portfolio continued and were the
biggest drag on CIFC’s profitability during FY08-11 period. Losses in PL
resulted in substantially higher credit costs for CIFC (more than 80% of total
credit costs) in FY08-11. With focus on recovery and selling down of portfolio,
woes of personal loans are very much behind.
Exhibit 27. CIFC: Trend in credit costs (```` mn) and LLP (%)
937
2,719 2,980
1,302
-259
347
661
634
943
310
-500
500
1,500
2,500
3,500
4,500
FY08 FY09 FY10 FY11 FY12
PL Non-PL
1.5% 1.7% 1.5%
1.1% 1.1%
2.5%
4.1%
2.4% 2.5%
0.2%*
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12
LLP (%)
Source: Company, JM Financial. * Excluding PL recoveries, LLP was 43bps.
However net credit losses for core business i.e. vehicle finance and home
equity have been stable
Despite reporting elevated levels of LLP during FY08-10 period, asset quality
trends in the company’s core business i.e. vehicle finance and home equity
were stable. CIFC reported net credit losses of 1.9% in FY09 for vehicle finance
which now stand at 0.2% in FY12.
Exhibit 28. CIFC: Trend net credit losses for vehicle finance and home equity
1.1%
1.9%
1.3%
0.5% 0.4%
0.2%0.2%
0.4%
0.0% 0.1%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
FY08 FY09 FY10 FY11 FY12
Vehicle Finance Home Equity
Despite facing asset
quality issues in the
personal loan segment,
CIFC managed to keep
credit losses of its core
vehicle-finance
business under check.

CIFC 12 June 2012
Current credit costs are running at historical low levels; factoring in
normalized credit costs of 80bps over next 2 years
In FY12, CIFC had credit costs of 43bps on its non–PL portfolio (i.e. vehicle
finance and home equity etc.; including PL recoveries, LLP stood at 17bps in
FY12). CIFC is enjoying benign asset quality and its current credit costs are at
historical low levels. Going forward, while expect asset quality to remain
healthy, we factor normalized credit costs of 83bps/80bps in FY13/14E vs
43bps in FY12. We expect gross NPLs of 1.1% in FY14E (vs 0.9% in FY12) with
coverage ratio of 85% in FY14E (vs 69% in FY12).
Exhibit 29. CIFC: Trend in asset quality
0.7%
1.0%
5.4%
7.7%
3.1%
0.9% 1.0% 1.1%1.2%
0.0%
1.8%
3.6%
5.4%
7.2%
9.0%
0%
20%
40%
60%
80%
100%
Gross NPLs (%) Net NPLs (%) Coverage (RHS) (%)
1.1% 1.1%
2.5%
4.1%
2.4% 2.5%
0.8% 0.8%
0.2%*
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
LLP (%)
Source: Company, JM Financial. In FY12, CIFC had LLP of 43bps for non PL portfolio
Expectation of stable asset quality trends can be attributed to sound risk
management policy of the company. Key features are as follows:
The company has separate sales, credit and collection functions, but staff
from one function is also assessed based on the performance of the other
functions which creates a commonality of objective in the organisation.
CIFC closely monitors all loans which have not paid for 60 days past the due
date during the first 18 months of the loan disbursement date using an Early
Default (ED) report which allows the company to distinguish between accounts
that require more collection effort and attention. (Source: Fitch Rating)
In case of a sales officer, the incentives are not only a function of volumes
generated but also a function of portfolio performance so as to incentivize
good quality of business origination. Similarly credit officers are not only
incentivised based on the quality of the portfolio but also on the amount of
disbursements achieved.
The use of early default (ED) report, which allows the company to distinguish
between accounts that require more collection effort and attention thereby
acting as an early warning signal to help manage any surge in delinquencies.
The use of viability reports to assess each customer along with a detailed
credit policy on each asset class, customer type and region does not allow for
much divergence in credit appraisal.
CIFC has well–spread portfolio in terms of product category as well as
geography leading to diversification of risk. The company has no mining
exposure in Karnataka while it expects c.`200mn of Orissa exposure at risk.

CIFC 12 June 2012
Factoring ````3.0bn equity dilution in FY14E
Equity dilution to support growth and to comply with Usha Thorat
Committee requirement
In terms of core tier I equity capital, CIFC has the lowest core tier I equity ratio
of 7% (including perpetual debt, Tier 1 at 11%) amongst its peers. We have
factored equity dilution of `3.0bn (13% dilution) in FY14 mainly to support
growth as well as to comply with Usha Thorat Committee’s requirement of tier
I capital of 12%. However if Usha Thorat Committee mandates immediate
increase of tier I to 12% (as against the expectation of 3 year window to
comply with 12% of tier I requirement), it may lead to further dilution.
We estimate CIFC to have core tier 1 capital of 8.4% (including perpetual debt,
tier I of 10.9%) and CAR of 16.4% by FY14E.
Exhibit 30. CIFC: Peer comparison for core Tier I and Trend in capital adequacy
7%
17%
15%
13%
0%
5%
10%
15%
20%
CIFC SHTF MMFS SCUF
FY12 Core Tier I Ratio (%)
14.8%
8.2% 8.4%
10.2% 9.5% 9.1%
7.1% 6.7%
8.4%
14.8%
12.3% 12.4%
15.1% 14.8%
16.7%
18.1%
15.7% 16.4%
0.0%
4.0%
8.0%
12.0%
16.0%
20.0%
Core Tier I Capital (%) Perpetual Debt (%) Tier II (%)
Apart from capital, insignificant impact of
regulatory changes
Minimal impact of regulatory changes except increase in tier I capital to
12% if implemented instantly (against expectation of 3 year window)
Over the last 12 months, RBI has come up with several guidelines and draft
papers discussing changes in regulatory environment of NBFCs. Most of these
guidelines revolved around key issues such as a) Securitization, b) PSL status
withdrawal for loans (e.g. gold loans), c) Higher capital adequacy
requirements, d) Change in NPL recognition from 180 days to 90 days.
CIFC will not be significantly impacted by changes in securitization guidelines
given minimal reliance on securitization it undertakes. Change in NPL
recognition from 180 to 90 days will result in 40bps increase in gross NPLs
proportion (from current levels of 1% gross NPLs), however ultimate credit
costs over the life of the product will not change in our view.

CIFC 12 June 2012
Earnings CAGR of 36% over FY12-14E
Expect earnings CAGR at c.36% over FY11-14E driven by strong AUM
growth, stable margins and improving cost ratios
We forecast net profit to witness c.36% CAGR over FY12–14E driven by strong
AUM growth (25% CAGR led by vehicle finance), stable margins and improving
cost ratios (34bps over next 2 years). We expect CIFC to report ROA of c.1.7%
and ROE of c.17.0% by FY14E.
Exhibit 31. CIFC: Trend in return ratios
0.4 0.3
0.6
0.4
0.2
0.6
1.7
2.4
3.2
0.0
0.7
1.4
2.1
2.8
3.5
-100%
0%
100%
200%
300%
400%
Net Profit (` bn) YoY Growth (%)
0.0%
0.4%
0.8%
1.2%
1.6%
2.0%
0%
4%
8%
12%
16%
20%
ROA (LHS) (%) ROE (%)

CIFC 12 June 2012
New management and well–defined organisation
structure has led the turnaround
Successful turnaround of the company by New management
The management team led by Mr. Vellayan Subbiah (joined the company in
Aug’10) has been entrusted with turnaround of the company and build a
sustainable growth model for CIFC. CIFC enjoys very low employee turnover as
compared to industry standards on account of an initiative to promote people
from within the Organization.
Exhibit 32. CIFC: Management Profile
Name Designation Profile
Mr. Vellayan Subbiah Managing Director
– Was the Managing Director of Laserwords, a leading provider of pre-
press services to global publishers since 2005
– Professional experience includes 6 years at McKinsey and Company,
Chicago and associations with 24/7 Customer Inc. Las Gatos and The
Carlyle Group
Mr. Kaushik Banerjee President – Asset Finance
– Has been in Asset Finance business for close to 22 years
– Joined CIFC in 2001 and took over as SVP of the Vehicle Finance vertical
in 2006
– Earlier headed the West & East operations of Esanda Finanz Ltd (a
subsidiary of ANZ Grindlays Bank)
Mr. Rohit Phadke Sr. VP & Business Head – Home Equity
– Has 20 years of experience in Asset Financing
– Has been with CIFC for 8 years and earlier had led the West Zone of the
Vehicle Finance Business
Mr. Arul Selvan Sr. Vice President & CFO
– With over 20 years of experience in Finance and Accounts, he heads the
Finance function of CIFC as the CFO.
– Has spent 19 years with the Murugappa Group, with stints in Tube
Investments, Corporate Strategic Planning Division of Murugappa Group,
Cholamandalam Mitsui Sumitomo General Insurance, and Group
Corporate Finance of Murugappa Group.

CIFC 12 June 2012
Initiate coverage with BUY and TP of ````220
Initiate coverage with BUY and TP of ````220
We value CIFC at 1.5x Mar’14 BV (implied P/E of 10x), implying Mar’13 target
price of `220, upside of 33% from current levels.
Exhibit 33. CIFC: One-year forward P/BV (x) and One-year forward PE (x)
0.0
1.0
2.0
3.0
4.0
5.0
Mar-03 Oct-04 Apr-06 Nov-07 May-09 Nov-10 Jun-12
Fwd. P/BV (x)
0
10
20
30
40
50
Mar-03 Oct-04 Apr-06 Nov-07 May-09 Nov-10 Jun-12
Fwd. PE (x)
Source: Bloomberg, Company, JM Financial.
CIFC: Peer Comparables: Valuation table
PAT CAGR
FY12E FY13E FY14E FY12E FY13E FY14E FY12E FY13E FY14E FY12E FY13E FY14E FY12E FY13E FY14E FY12E FY13E FY14E FY12-14E (%)
CIFC 107 123 148 13.0 18.2 21.4 1.5% 1.6% 1.7% 14% 16% 17% 1.5 1.3 1.1 12.7 9.1 7.7 36.4%
SHTF 265 316 373 55.6 60.4 67.2 3.7% 3.5% 3.4% 23% 21% 20% 2.0 1.6 1.4 9.3 8.6 7.7 10.0%
MMFS 287 342 407 60.4 74.8 88.7 3.8% 3.7% 3.5% 23% 24% 24% 2.2 1.9 1.6 10.5 8.5 7.2 21.2%
SCUF 330 404 492 65.4 85.9 98.7 3.1% 3.1% 3.0% 23% 23% 23% 1.8 1.5 1.2 9.3 7.1 6.2 29.6%
Peer
Comps
ROA (%) P/EBVPS (````) EPS (````) ROE (%) P/B
Source: Bloomberg, Company, JM Financial.

CIFC 12 June 2012
CIFC: ROE Tree
Healthy return ratios: We expect CIFC to generate ROA of c.1.7% and ROE of
c.17% by FY14E driven by strong AUM growth, improvement in cost ratios and
stable credit costs.
Exhibit 34. CIFC - Normalised earnings (%)
FY08 FY09 FY10 FY11E FY12E FY13E FY14E
Net Margin (as % of avg. IEA) 10.39% 7.88% 6.13% 7.54% 6.99% 6.93% 6.87%
NIM (as % of avg. Assets) 10.11% 7.59% 5.85% 7.08% 6.55% 6.60% 6.59%
Core Non-IR/Asset 0.00% 0.08% 0.04% 0.11% 0.09% 0.08% 0.07%
Core Non-IR/Revenues 0.0% 1.1% 0.7% 1.6% 1.4% 1.1% 1.0%
Core Revenue / Assets 10.11% 7.67% 5.89% 7.19% 6.65% 6.68% 6.66%
Cost/ Core Income 61.0% 60.1% 66.1% 52.9% 56.9% 54.0% 51.8%
Cost/Assets 6.17% 4.61% 3.89% 3.81% 3.78% 3.60% 3.44%
Core operating Profits 3.94% 3.06% 2.00% 3.39% 2.87% 3.07% 3.21%
LLP/Loans 2.54% 4.05% 2.43% 2.49% 0.17% 0.83% 0.80%
Loans/Assets 86.4% 75.3% 72.4% 84.8% 90.6% 92.4% 93.2%
Profits/Provisions on Sect. -0.05% -0.25% -0.21% -0.22% -0.09% -0.07% -0.06%
Pre-Tax 1.80% 0.26% 0.45% 1.49% 2.80% 2.38% 2.53%
Effective Tax Rate 34.7% -150.2% 50.8% 36.9% 39.7% 34.0% 34.0%
ROA 1.18% 0.64% 0.22% 0.94% 1.69% 1.57% 1.67%
Equity / Assets 8.76% 7.82% 6.96% 9.37% 10.78% 9.90% 10.03%
RoE 13.4% 8.2% 3.2% 8.0% 13.9% 15.9% 16.7%
Source: Company, JM Financial

CIFC 12 June 2012
Key risks
Significant economic slowdown in LCV growth cycle: Significant economic
slowdown resulting in slow down in LCV growth cycle is a key risk (52% of
vehicle finance AUM is LCV) and could lead to slower growth and impact CIFC’s
earnings adversely. Further, it may result in deterioration in asset quality and
could adversely affect the company’s profitability.
Immediate requirement of tier I capital of 12% may lead to further
dilutions: Usha Thorat committee has suggested tier I capital of 12% for
NBFCs. It is expected that NBFCs will be given 3 year window to achieve the
same. However if same is implemented instantly, there will be further
dilutions.
Spike in interest rates: Being a wholesale funded institution, any sustained
liquidity shock could impact the spreads adversely and affect profitability.
Company background
Cholamandalam Investment & Finance Company Limited (CIFC) was
incorporated in 1978 as the financial services arm of the Murugappa Group.
The company started off with asset financing in South India and subsequently
widened its geographical presence to gradually cover Northern and Western
India. While CIFC initially had a strong presence in the equipment finance to
the mid-size corporate market, in the mid-1990s the company entered the
vehicle financing business. In FY10, after DBS exited the joint venture, the
name was changed back to CIFCL from Cholamandalam DBS Finance Ltd. The
company operates from 375 branches across 21 states in India and has
traditionally been a specialised commercial vehicle provider for the first-time-
borrower, small road transport operators and SME segments.
Shareholding Pattern
Exhibit 35. CIFC: 4Q12 Shareholding pattern
IFC
9%
Amansa
3%
Others
14%Aquarius
2%
Creador PE
5%
Multiples PE
5%
Murugappa
Group
62%

CIFC 12 June 2012
Timeline
Exhibit 36. CIFC: Company timeline
1978
Commenced
Equipment
Financing
2007
Commenced Home
Equity Business
1992
Commenced
Vehicle
Finance
Business
2008
Exited Consumer
Finance Business
1994
Started
Chola
Securities
2009
Sold AMC
Focus on Secured
Lending Lines
(Vehicle Finance,
Home Equity &
Business Finance)
1996
Started Chola
Asset
Management
Company
2010
JV with DBS
terminated
Additional Capital
infusion of
`2500mn by IFC &
other PE Investors
2011
PL Book Provided,
AFC Status
Rating Upgrade
from ICRA,
Launch of Tractor
and Gold Loans
2012
Infusion of Equity
share capital of
` 2120mn
2000
Started
Chola
Distribution
2005
JV with DBS
2006
Commenced
Consumer
Finance
1978
Commenced
Equipment
Financing
2007
Commenced Home
Equity Business
1992
Commenced
Vehicle
Finance
Business
2008
Exited Consumer
Finance Business
1994
Started
Chola
Securities
2009
Sold AMC
Focus on Secured
Lending Lines
(Vehicle Finance,
Home Equity &
Business Finance)
1996
Started Chola
Asset
Management
Company
2010
JV with DBS
terminated
Additional Capital
infusion of
`2500mn by IFC &
other PE Investors
2011
PL Book Provided,
AFC Status
Rating Upgrade
from ICRA,
Launch of Tractor
and Gold Loans
2012
Infusion of Equity
share capital of
` 2120mn
2000
Started
Chola
Distribution
2005
JV with DBS
2006
Commenced
Consumer
Finance
2006
Commenced
Consumer
Finance
Source: Company, JM Financial. All are calendar years

CIFC 12 June 2012
Financial Tables (Standalone)
Profit & Loss (```` mn)
Y/E March FY10 FY11 FY12 FY13E FY14E
Net Interest Income (NII) 4,057 5,883 7,571 10,167 12,670
Non-Interest Income 203 279 213 227 243
Total Income 4,259 6,161 7,784 10,394 12,913
Operating Expenses 2,699 3,165 4,368 5,550 6,623
Pre-provisioning Profits 1,560 2,996 3,416 4,844 6,290
Total Provisions 1,247 1,755 181 1,177 1,426
PBT 313 1,241 3,236 3,667 4,864
Tax 159 458 1,286 1,247 1,654
PAT (Pre-Extra ordinaries) 154 783 1,950 2,420 3,210
Extra ordinaries (Net of tax) 0 -161 -224 0 0
Reported Profits 154 622 1,725 2,420 3,210
Dividend 114 212 312 265 315
Retained Profits 40 570 1,638 2,155 2,895
Balance Sheet (```` mn)
Capital 665 1,194 1,326 1,326 1,500
Reserves and Surplus 4,185 9,526 12,847 15,002 20,723
Convertible Warrants 0 0 0 0 0
Share holders equity 4,850 10,720 14,173 16,328 22,223
Preference Share 3,000 0 0 0 0
Stock Option O/s 0 0 0 0 0
Borrowed Funds 53,936 79,453 114,441 150,719 180,561
Deferred tax liabilities 0 0 0 0 0
Current Liabilities 7,626 6,610 5,612 6,689 8,010
Total Liabilities 69,412 96,783 134,226 173,735 210,794
Loans 54,896 86,003 123,219 161,417 196,929
Investments 2,193 683 617 726 847
Cash & Bank Balances 7,451 1,688 2,584 2,986 3,545
Loans & Advances - CA 1,874 1,176 754 969 1,182
Other Current Assets - CA 1,311 5,596 6,009 6,461 7,076
Fixed Assets 138 332 532 688 835
Miscellaneous Exp. 0 0 0 0 0
Deferred Tax Asset 1,549 1,306 511 488 381
Total Assets 69,412 96,783 134,226 173,735 210,794
Key ratios (%)
Borrowed Funds 0.0% 47.3% 44.0% 31.7% 19.8%
Advances 20.5% 56.7% 43.3% 31.0% 22.0%
Total Assets 0.1% 39.4% 38.7% 29.4% 21.3%
NII -19.6% 45.0% 28.7% 34.3% 24.6%
Non-Interest Income -8.3% 37.6% -23.5% 6.5% 6.9%
Operating Expenses -11.9% 17.3% 38.0% 27.1% 19.3%
Operating Profits -29.1% 92.0% 14.0% 41.8% 29.8%
Core Operating Profits -31.9% 103.0% 17.7% 43.0% 30.4%
Provisions -38.6% 40.8% -89.7% 551.7% 21.1%
Reported PAT -63.9% 303.3% 177.5% 40.3% 32.6%
Yields / Margins (%)
Interest Spread (%) 4.40% 6.27% 5.91% 5.96% 5.86%
NIM (%) 6.13% 7.54% 6.99% 6.93% 6.87%
Profitability (%)
ROA (%) 0.22% 0.75% 1.49% 1.57% 1.67%
ROE (%) 3.2% 8.0% 13.9% 15.9% 16.7%
Cost to Income (%) 63.4% 51.4% 56.1% 53.4% 51.3%
Assets Quality (%)
Gross NPAs (%) 7.73% 3.09% 0.95% 1.05% 1.14%
LLP (%) 6.37% 5.82% 1.79% 0.83% 0.80%
Capital Adequacy (%)
Tier I (%) 9.54% 10.78% 11.00% 9.75% 10.92%
CAR (%) 14.80% 16.67% 18.08% 15.75% 16.36%
DuPont Analysis (%)
NII / Assets (%) 5.85% 7.08% 6.55% 6.60% 6.59%
Other income / Assets (%) 0.29% 0.34% 0.18% 0.15% 0.13%
Total Income / Assets (%) 6.14% 7.41% 6.74% 6.75% 6.72%
Cost to Assets (%) 3.89% 3.81% 3.78% 3.60% 3.44%
PPP / Assets (%) 2.25% 3.61% 2.96% 3.15% 3.27%
Provisions / Assets (%) 1.80% 2.11% 0.16% 0.76% 0.74%
PBT / Assets (%) 0.45% 1.49% 2.80% 2.38% 2.53%
Tax Rate (%) 50.79% 36.94% 39.75% 34.00% 34.00%
ROA (%) 0.22% 0.75% 1.49% 1.57% 1.67%
Leverage (x) 14.4 10.7 9.3 10.1 10.0
ROE (%) 3.2% 8.0% 13.9% 15.9% 16.7%
Valuations
Shares in issue (mn) 66.5 119.4 132.6 132.6 150.0
EPS (`.) 2.3 5.2 13.0 18.2 21.4
EPS (YoY) (%) -63.9% 124.6% 149.8% 40.3% 17.3%
PE (x) 69.4 30.9 12.4 8.8 7.5
BV (`) 73 90 107 123 148
BV (YoY) (%) 1% 23% 19% 15% 20%
P/BV (x) 2.21 1.79 1.51 1.31 1.09
DPS (`) 1.7 1.8 2.3 2.0 2.1
Div. yield (%) 1.1% 1.1% 1.5% 1.2% 1.3%

CIFC 12 June 2012
JM Financial Institutional Securities Private Limited
Member, BSE Limited and National Stock Exchange of India Limited
SEBI Registration Nos.: BSE - INB011296630 & INF011296630, NSE - INB231296634 & INF231296634
Registered Office: 141, Maker Chambers III, Nariman Point, Mumbai - 400 021, India
Corporate Office: 51, Maker Chambers III, Nariman Point, Mumbai - 400 021, India
Board: +9122 6630 3030 | Fax: +91 22 6747 1825 | Email: jmfinancial.research@jmfinancial.in | www.jmfinancial.in
Analyst Certification
The research analysts, with respect to each issuer and its securities covered by them in this research report, certify that:
All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and
No part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report.
Analyst(s) holding in the Stock: (Nil)
Disclosure
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company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its affiliated company(ies) solely for the purpose of information of the select
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received or may receive compensation from the company(ies) mentioned in this report for rendering any of the above services. Research analysts and sales persons of JM
Financial Institutional Securities may provide important inputs to its affiliated company(ies) associated with it.
While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description of the securities, markets or developments referred to
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