Cholamandalam Investment Shares Rise Up to 3% After 46% Q1 Profit Growth; Nomura Raises Target Price to ₹1,820

A leading non-banking financial company (NBFC) remained in focus after reporting a strong start to FY27, with quarterly profit significantly exceeding analyst estimates. The company delivered robust earnings growth, supported by healthy operating performance and lower-than-expected credit costs. Despite the strong quarterly numbers, investor sentiment remained balanced as concerns over asset quality and rising stressed loans continued to weigh on the outlook.

The latest results highlight the mixed environment currently facing India's lending sector. While loan growth and profitability remain healthy, rising delinquencies in certain lending segments are prompting brokerages to remain selective. The broader financial sector has also been closely tracking NBFC and banking stocks as investors assess the impact of credit quality, interest rates and economic growth on future earnings.

The company is Cholamandalam Investment & Finance Company (Chola), where Nomura maintained its Neutral rating while raising its target price to ₹1,820 from ₹1,730, citing stronger-than-expected earnings but continued concerns over asset quality.

Q1 Profit Beats Estimates but Stock Outlook Remains Neutral

Cholamandalam Investment reported a strong set of first-quarter results, with net profit rising 46% to ₹1,654 crore, comfortably exceeding both Nomura's and Street expectations. The earnings growth was driven by strong operating profit and lower-than-expected credit costs, allowing the company to outperform consensus estimates despite a challenging credit environment.

Following the quarterly results, Nomura raised its target price to ₹1,820 while maintaining its Neutral recommendation. The brokerage believes the earnings beat was encouraging but remains cautious due to continued deterioration in asset quality across certain loan portfolios.

Q1 FY27 Highlights

Metric	Performance
Net Profit	₹1,654 Crore
Profit Growth	Up 46%
Operating Profit Growth	Up 30%
Target Price	₹1,820
Previous Target	₹1,730
Brokerage Rating	Neutral

Strong Earnings Supported by Lower Credit Costs

One of the biggest positives during the quarter was lower credit costs, which came in around 16% below Nomura's estimates. The lower provisioning requirement helped boost profitability and allowed the company to report earnings well ahead of market expectations.

Operating profit also remained healthy, increasing 30% compared with the same period last year. Together, stronger operating performance and lower credit costs helped the company report a quarter that exceeded analyst expectations on the earnings front.

However, the brokerage cautioned that the earnings beat should not be viewed in isolation, as some of the improvement came from lower provisioning rather than a broad-based improvement in asset quality.

Asset Quality Continues to Be a Concern

Despite reporting impressive profit growth, Nomura highlighted continued deterioration in asset quality across the loan book. The brokerage noted that the company's Gross Stage 2 and Stage 3 assets increased by 49 basis points on a sequential basis, indicating that stress within the portfolio has not yet fully stabilised.

The Loan Against Property (LAP) portfolio witnessed the highest sequential deterioration among major lending segments. Rising stress in secured lending businesses remains one of the key risks that investors will continue monitoring over the coming quarters.

Asset quality continues to be one of the most important indicators for financial institutions, particularly as the lending industry navigates changing interest rate conditions and evolving borrower repayment behaviour. Investors are also closely following developments across the broader financial services sector as banks and NBFCs report June quarter earnings.

Asset Quality Snapshot

Parameter	Observation
Overall GS 2 + GS 3	Up 49 bps QoQ
Vehicle Finance GS 3	4.05%
LAP Portfolio	Highest Sequential Deterioration
Credit Cost	16% Below Estimates

Vehicle Finance Portfolio Under Pressure

Nomura also pointed to weakness in the company's vehicle finance business. The Gross Stage 3 ratio for the vehicle finance portfolio increased to 4.05%, marking the highest first-quarter level recorded since the COVID period.

Although management indicated that the pace of deterioration has moderated compared with previous quarters, the brokerage remains cautious and continues to factor in higher credit costs for the coming financial years.

Vehicle finance remains one of the company's largest lending businesses, making future trends in this segment particularly important for overall profitability and asset quality.

Operational Changes Affect Disbursement Growth

During the quarter, the company implemented a change in its loan disbursement recognition process. Management now records loan disbursements only after cheque clearance instead of earlier recognition practices.

According to Nomura, this operational change temporarily slowed reported disbursement growth across several businesses, including home loans, Loan Against Property and Secured Business Personal Loans. Management believes the impact will stabilise over the coming quarters as the revised process becomes fully operational.

Management Remains Optimistic on Growth

Despite near term asset quality concerns, management maintained a positive outlook for business growth. The company continues to guide for 23% Assets Under Management (AUM) growth during FY27, reflecting confidence in loan demand across its lending businesses.

Nomura's own estimates broadly align with management's guidance, with the brokerage projecting 22% to 23% AUM growth over FY27 and FY28. Healthy loan growth remains one of the company's key long-term strengths despite temporary challenges in credit quality.

The broader lending sector continues to attract investor attention alongside several financial stocks reporting earnings this quarter.

What Investors Should Watch

Going forward, investors will closely monitor trends in asset quality, particularly within the vehicle finance and Loan Against Property portfolios. Credit costs, loan growth, provisioning requirements and management's ability to contain stressed assets will remain the biggest drivers of future earnings performance.

The company's strong operating performance demonstrates healthy demand across its lending businesses, but sustained profitability will depend on balancing growth with disciplined risk management as credit conditions evolve.

Key Takeaways

Cholamandalam Investment & Finance Company reported a strong first quarter with net profit rising 46% to ₹1,654 crore, supported by 30% operating profit growth and lower-than-expected credit costs. The results comfortably exceeded analyst expectations, prompting Nomura to raise its target price to ₹1,820 while maintaining a Neutral rating.

However, rising stress in the vehicle finance and Loan Against Property portfolios kept brokerages cautious. Investors will now focus on asset quality trends, credit costs, loan growth and the company's ability to maintain profitability while managing portfolio risks over the coming quarters.

Why did Nomura maintain a Neutral rating on Cholamandalam Investment?

Nomura maintained its Neutral rating because, despite strong earnings growth, it remains concerned about deteriorating asset quality and rising stressed loans in certain lending segments.

How much did Cholamandalam Investment's Q1 FY27 profit increase?

The company reported net profit of ₹1,654 crore, an increase of 46% compared with the same quarter last year.

Why did Nomura raise its target price?

The brokerage increased its target price from ₹1,730 to ₹1,820 after the company reported earnings that exceeded both its estimates and broader market expectations.

What is worrying brokerages about the company's asset quality?

Gross Stage 2 and Stage 3 assets increased during the quarter, while the Vehicle Finance and Loan Against Property portfolios showed continued signs of deterioration.

What AUM growth is the company targeting for FY27?

Management expects Assets Under Management (AUM) to grow by around 23% during FY27, supported by healthy demand across its lending businesses.