NBFC Stock to Buy Now for 17% Upside, Recommended by CLSA

Synopsis:: Shares of Cholamandalam Investment and Finance Company Limited are in focus after CLSA upgraded the stock post a 15–20% correction. Improved risk-reward, expected CV cycle recovery, and easing asset quality concerns support the growth outlook, with a projected 17% upside despite rising funding cost risks.

Cholamandalam Investment and Finance Company Limited is a major NBFC company in India. It is currently benefiting from renewed investor interest after a bullish upgrade by CLSA. After a recent correction in its share price, the company is well-positioned to benefit from favourable macro conditions, including a pick-up in commercial vehicle demand and a stabilisation in asset quality, while maintaining strong growth visibility across its diversified lending businesses.

With a market cap of Rs 1.22 lakh crore, the shares of Cholamandalam Investment & Finance Company Ltd are trading at Rs 1,436 and are trading at a PE of 25.2 compared to their industry’s PE of 17.4. The shares have given a return of more than 150% in the last 5 years.

Favourable Risk-Reward after Sharp Correction

Cholamandalam Investment and Finance Company Limited has witnessed a sharp correction of around 15-20% in recent times. This sharp correction has provided a favourable risk-reward for the company. As a result, CLSA has upgraded this stock to “Outperform” with a target price of Rs 1,725, implying a potential upside of almost 17% from current levels.

The brokerage firm is of the opinion that this sharp correction has already priced in all near-term concerns for the company. As a result, this stock is now very attractive from a medium-term perspective.

Another factor that has provided a strong reason for a sharp upside in this stock is that this company is likely to benefit from a pick-up in the commercial vehicle cycle. As economic conditions improve, this segment is likely to see a sharp pick-up in demand, which will be beneficial for Chola Invest’s core business segments.

In addition, concerns over asset quality in the unsecured segment are easing. As stress levels are stabilizing, this company is likely to see a sharp pick-up in credit quality.

Strong Growth Outlook with Limited Downside Risks

In terms of growth, CLSA has projected a strong AUM CAGR of 18-20% for this company over the next two years. This is a strong indicator of growth potential even after considering all the macroeconomic factors.

What is more interesting is that even in a worst-case scenario, where there is a disruption in the CV cycle due to geopolitical factors, this brokerage firm is of the opinion that the AUM growth for this company will remain strong at 15%. This is a strong indicator of the diversified portfolio of loans offered by this company.

Another strong factor that is in favour of this company is that diesel prices in India are expected to remain stable. This is a strong factor for commercial vehicles, which is a crucial segment for Chola Invest.

One of the factors that is a concern for this company is the increasing cost of incremental funding. However, even this factor is not a major concern for this brokerage firm, and it has a strong reason for being bullish about this stock.

Financials and more

The revenue from operations for the company stood at Rs 7,898 crore in Q3 FY26 compared to the Q3 FY25 revenue of Rs 6,733 crore, up by about 17 per cent YoY. Similarly, the net profit stood at Rs 1,290 crore in Q3 FY26, up compared to the Rs 1,088 crore profit in Q3 FY25.

Cholamandalam Investment and Finance Company Limited is a leading NBFC in India, primarily focused on vehicle finance, SME loans, and housing finance. A part of the Murugappa Group, the company has a strong presence in rural and semi-urban markets with a diversified lending portfolio.

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