Cholamandalam Finance awards ₹540 crore contract for Chennai corporate office construction

Murugappa Group firm Cholamandalam Investment and Finance Company Ltd on Wednesday (March 25) said it has awarded a works contract to Kalpataru Projects Ltd for the construction of its corporate office building at 18 & 18/1, Velachery Main Road, Guindy, Chennai.

The contract, valued at ₹540 crore, will be executed over a period of 33 months. The contract is awarded to a domestic entity and does not involve any interest of the promoter or promoter group. It is not classified as a related-party transaction. The award covers all aspects of the construction of the corporate office building.

Multiple brokerages have upgraded Cholamandalam Investment and Finance Co and raised their price targets on the Murugappa Group company. While ICICI Securities has upgraded the stock to "add" from "hold" and has a price target of ₹1,625 per share, Ambit has upgraded it to "buy" from "sell" and has raised its price target to ₹1,722 per share from the previous ₹1,500 apiece.

Also Read: Cholamandalam Investment is open to an equity partner if it adds value, says CFO

ICICI Securities sees an 17.7% upside potential, while Ambit's price target raise has indicated an 24.7% upside potential from the stock's previous close. The brokerage said the Cholamandalam Invest stock has corrected 16% in the past month compared to a 12% fall in the Nifty Financial Services index. It said the recent underperformance is largely due to concerns about asset quality amid rising oil prices.

Analysis by the brokerage suggests it has emerged as the most resilient vehicle finance player during the past cycles. Credit costs had declined steadily to 64 basis points by the financial year 2019 from 155 basis points in FY16, ICICI Securities said. That was the period when oil prices had surged to $70 a barrel by the financial year 2019 from $48 in the financial year 2016.

According to Ambit, the current valuation of 2.7 times the financial year 2028 estimated price-to-book value undermines the time-tested execution prowess of the company. The brokerage also said that disbursals in the vehicle finance business have bottomed, and it has the scope to improve further as auto volumes have seen an uptick.

Also Read: Vehicle finance disbursements expected to improve in fourth quarter: Cholamandalam Investment

The risk of further disappointment is low given the improving disbursal and non-performing assets (NPA) trends, Ambit said. As a result, the brokerage has upgraded Chola's financial year 2028 Earnings Per Share (EPS) estimates and price target by 7% and 15%, respectively.

Shares of Cholamandalam Investment & Finance Company Ltd ended at ₹1,474.25, up by ₹58.10, or 4.10%, on the BSE.