TERM PAPER

TECHNICAL AND
FUNDAMENTAL ANALYSIS
OF
CHOLAMANDALAM FINANCE
LTD.

SUBMITTED BY:

SONAM GABA

10904202
Company History

Cholamandalam Investment & Finance Company Limited (CIFCL) was incorporated in

1978 as the financial services arm of the Murugappa Group. The Company that
commenced business as an equipment financing company has now emerged as a
comprehensive financial services solution provider that offers vehicle finance, business
finance, home equity loans, stock broking and distribution of financial products to its
customers. The Company operates from over 200 branches across India with an assets
under management over Rs.9000 Crores. The subsidiaries of Cholamandalam include
Cholamandalam Securities Limited (CSec) and Cholamandalam Distribution Limited
(CDSL).

Company Profile

Cholamandalam DBS Finance Limited was incorporated in 1978 as Cholamandalam

Investment & Finance Company Limited (CIFCL). The company began operations as a
Non Banking Finance Company (NBFC) offering equipment finance to small and
medium sized companies in South India. Today, Cholamandalam DBS Finance Limited
is a joint venture between Murugappa Group and DBS Bank of Singapore and is one of
India's largest domestically owned NBFCs. CDFL offers Personal Loans, Vehicle
Finance, Corporate Finance, Capital Market Finance and Home Equity Loans.

CDFL offers finance for a wide range of vehicles -- HCVs, LCVs, cars, MUVs and cargo
three-wheelers. CDFL also caters to the needs of Corporate and retail consumers
through its Retail and Corporate Finance wings. The company operates from over 160
locations. The company has built up a portfolio of high quality. The company has an
unbroken track record of dividend payment for over 25 years. Following its partnership
with DBS Bank, CDFL offers consumer finance in the Indian market.

The Murugappa group has set up Cholamandalam DBS Finance Limited (CDFL).
Incorporated as Cholamandalam Investment and Finance Company Ltd (CIFCL) in
1978 with the primary objective of offering asset finance through leasing and hire
purchase to corporates and then to retail customers. It has since evolved itself into a
large, composite financial services organization. Today, Cholamandalam DBS offers
stock broking, mutual fund and investment advisory services through its subsidiaries.
The shares of CDFL are listed in the Mumbai (BSE) and National (NSE) Stock
Exchanges.

The company offers a complete range of financial services. It is one of India’s largest
domestically owned NBFCs with a gross asset base (including securitised assets) of
over Rs 4490 crore. CDFL is a leading player in automobile finance covering a wide
range of vehicles such as heavy and light trucks, cargo three-wheelers and multi-utility
vehicles. The company has presence in over 160 locations across India.

CDFL has evolved with time and built a portfolio of high quality. The company has
maintained an unbroken track record of dividend payment for over 26 years. Following
its partnership with DBS Bank, CDFL has introduced consumer finance into the Indian
market. To sustain and enhance the high quality CDFL service experience of
customers, the company is also working hard on its infrastructure and service
capabilities — technology initiatives that will provide seamless transaction delivery
across India and establishing call centres to provide more efficient customer service
delivery besides supporting and boosting cross-sell and collection mechanism are in the
pipeline.

Products and services

Since its incorporation in 1978 as Cholamandalam Investment & Finance Company

Limited (CIFCL), a NBFC, the company has successfully branched into valuable
services in the competitive scenario such as:

 Commercial vehicle finance — focusing on high yield segments with diversified

customer base and exploring new segments like three-wheelers and used
vehicles
 Corporate finance sector — servicing business needs of corporates, currently
intending to extend its services to small and medium enterprises (SMEs) in key
markets
 Personal loans & home equity loans business — currently poised to expand
nationally through a delivery support channel across the country

Its subsidiaries and associates include:

DBS Cholamandalam Distribution Limited- Formerly called Cholamandalam AMC

Ltd, DCAM is the asset management company and the investment manager of DBS
Chola Mutual Fund, which offers mutual funds to retail and institutional investors.
Established in 1996, the company manages funds in excess of Rs 2,761 crore across
17 schemes with more than 200,000 customers. DCAM is present in over 22 locations
and has a strong distribution network in place.

DBS Cholamandalam Asset Management Company Limited- Formerly called

Cholamandalam Distribution Services Ltd, the company is in the business of distribution
of a wide array of financial services products -both in-house and third party-to high-net
worth and retail clients. Products offered include mutual funds; fixed income, share
trading and savings instruments; capital bonds; IT / PAN processing services; equity
IPOs and life and general insurance. The company combines its reach in over 27 cities
with the richness of its investment advisory services.
DBS Cholamandalam Securities Limited- Cholamandalam Securities Limited (C-Sec)
is a securities brokerage firm offering stock broking and equity research services to
institutional investors, including many of the largest mutual funds in India, and to select
individual clients. DCSec is a member of the Stock Exchange, Mumbai (BSE) and the
National Stock Exchange (NSE). It is also a depository participant with NSDL.

Recent developments

Cholamandalam DBS Finance has received Madras High Court's approval for
company's proposed capital restructuring.The High Court of Judicature at Madras has
confirmed the capital restructuring scheme of the Company under sections 78, 100 to
103 of the Companies Act, 1956.

Financial statements – Balance Sheet

Particulars Mar 2010 Mar 2009 Mar 2008 Mar 2007 Mar 2006

SOURCES OF FUNDS               

Share Capital 3664.72   3664.72   522.42   380.12   380.12  

Share Warrants & Outstandings 0.00   0.00   0.00   0.00   0.00  

Total Reserve 4185.34   4145.39   5063.86   2883.38   2777.15  

Shareholder's Funds 7850.06   7810.11   5586.28   3263.50   3157.27  

Secured Loans 38583.04   37133.36   29938.93   19205.74   9571.43  

Unsecured Loans 15361.87   16776.67   24036.83   12982.68   7427.07  

Total Debts 53944.90   53910.03   53975.76   32188.42   16998.50  

Total Liabilities 61794.96   61720.14   59562.04   35451.92   20155.77  

APPLICATION OF FUNDS :               

Loans (Non Current Assets) 54895.78   45547.51   0   0   0  

Gross Block 641.02   767.57   787.98   489.15   382.04  

Less: Accumulated Depreciation 503.47   429.16   312.11   159.72   172.32  

Less: Impairment of Assets 0   0   0   0   0  

Net Block 137.55   338.42   475.87   329.43   209.72  

Lease Adjustment A/c 0   0   0   0   0  

Capital Work in Progress 0.28   0   13.84   7.01   11.72  

Pre-operative Expenses pending 0   0   0   0   0  

Assets in transit 0   0   0   0   0  

Investments 2193.26   4052.03   1739.44   787.57   686.15  

Current Assets, Loans & Advances               

Inventories 0   0   0   0   0  

Sundry Debtors 0   0   0   0   0  

Cash and Bank 7451.32   15578.18   5336.73   2716.20   638.25  

Other Current Assets 1310.94   1447.88   810.47   635.10   184.86  

Loans and Advances 3907.52   3034.17   56500.80   33938.34   20145.64  

Total Current Assets 12669.77   20060.23   62647.99   37289.63   20968.74  

Less : Current Liabilities and Provisions               

Current Liabilities 3076.75   3286.10   3176.45   1576.01   521.66  

Provisions 6574.20   6493.37   2429.19   1459.91   1269.16  

Total Current Liabilities 9650.95   9779.46   5605.64   3035.92   1790.82  

Net Current Assets 3018.82   10280.76   57042.35   34253.71   19177.92  

Miscellaneous Expenses not written off 0   0   76.77   39.12   41.71  

Deferred Tax Assets / Liabilities 1549.26   1501.43   213.76   35.09   28.55  

Total Assets 61794.96   61720.14   59562.04   35451.92   20155.77  

Contingent Liabilities 210.59   166.71   118.69   84.47   71.91  

Profit and Loss Statement

Particulars Mar 2010 Mar 2009 Mar 2008 Mar 2007 Mar 2006

No of Months 12   12   12   12   12  

Operating Income 9266.85   11152.03   8893.70   4073.91   2045.55  

Net Sales 9266.85   11152.03   8893.70   4073.91   2045.55  

EXPENDITURE :               

Increase/Decrease in Stock 0   0   0   0   0  

Purchase of Shares / Units 0   0   0   0   0  

Employee Cost 760.82   829.36   736.80   366.77   168.06  

Operating & Establishment Expenses 827.32   1202.43   2173.81   956.01   201.40  

Administrations & Other Expenses 265.68   387.27   336.34   182.32   106.32  

Provisions and Contigencies 3628.95   2489.38   1422.33   423.67   247.35  

Expenses Capitalised 0   0   0   0   0  

Total Expenditure 5482.77   4908.44   4669.27   1928.76   723.12  

PBIDT (Excl OI) 3784.09   6243.60   4224.43   2145.15   1322.43  

Other Income 1746.91   63.54   43.40   28.21   169.98  

Operating Profit 5531.00   6307.14   4267.83   2173.37   1492.41  

Interest 5035.88   5940.99   3196.55   1644.62   990.28  

Depreciation 152.84   195.32   161.88   56.04   41.69  

Profit Before Taxation & Exceptional Items 342.28   170.83   909.40   472.71   460.44  

Exceptional Income / Expenses -28.94   0   0   0   0  

Profit Before Tax 313.34   170.83   909.40   472.71   460.44  

Provision for Tax 159.16   -256.66   315.73   162.53   108.38  

PAT 154.18   427.49   593.68   310.18   352.05  

Adj to Profit After Tax 0   0   0   0   0  

Profit Balance B/F 555.54   228.05   97.35   57.95   68.69  

Appropriations 709.72   655.54   691.03   368.13   420.74  

Equity Dividend (%) 10.00   0   40.00   40.00   50.00  

Earnings Per Share (Rs.) 1.85   6.44   11.38   8.17   9.14  

Book Value (Rs.) 73.03   72.42   105.58   84.95   82.09  

Cash flow Statement

(Rs. in Million)

Particulars Mar 2010 Mar 2009 Mar 2008 Mar 2007 Mar 2006

Profit Before Tax 313.34 170.83 909.40 472.71 460.44

Adjustment 5002.89 7624.26 4326.40 2039.62 974.50

- - -
Changes In working Capital 6892.04 -4193.58
10016.52 21638.93 13667.13

Cash Flow after changes in Working Capital -4700.28 14687.1 - - -2758.65

 4 16403.13 11154.80

- - -
Cash Flow from Operating Activities 8479.43 -3919.72
10650.70 20007.42 12783.78

Cash Flow from Investing Activities 5186.09 -5489.37 -2593.23 -2013.94 353.40

Cash Flow from Financing Activities 34.54 4043.37 23583.92 15009.94 3321.77

Net Cash Inflow / Outflow -5430.08 7033.43 983.27 212.22 -244.55

Opening Cash & Cash Equivalents 8501.23 1467.79 489.43 277.20 521.75

Cash & Cash Equivalent on Amalgamation / Take over / Merger 0 0 0 0 0

Cash & Cash Equivalent of Subsidiaries under liquidations 0 0 0 0 0

Translation adjustment on reserves / op cash balalces frgn

0 0 0 0 0
subsidiaries

Effect of Foreign Exchange Fluctuations 0 0 0 0 0

Closing Cash & Cash Equivalent 3071.15 8501.23 1472.70 489.43 277.20

Financial Ratios

Particulars Mar 2010 Mar 2009 Mar 2008 Mar 2007 Mar 2006

Operational & Financial Ratios               

   Earnings Per Share (Rs) 1.85   6.44   11.38   8.17   9.14  

   CEPS(Rs) 4.62   9.38   14.48   9.65   10.38  

   DPS(Rs) 1.00   0.00   4.00   4.00   5.00  

   Book NAV/Share(Rs) 73.03   72.42   105.58   84.95   82.09  

   Tax Rate(%) 50.79   -150.24   34.72   34.38   23.54  

Margin Ratios               

   Core EBITDA Margin(%) 40.83   55.99   47.99   53.35   72.96  

   EBIT Margin(%) 57.72   54.80   46.17   51.97   70.92  

   Pre Tax Margin(%) 3.38   1.53   10.23   11.60   22.51  

   PAT Margin (%) 1.66   3.83   6.68   7.61   17.21  

   Cash Profit Margin (%) 3.31   5.58   8.50   8.99   19.25  

Performance Ratios               

   ROA(%) 0.25   0.70   1.25   1.12   1.92  

   ROE(%) 3.19   8.29   13.59   9.78   11.35  

   ROCE(%) 8.66   10.09   8.64   7.62   7.92  

   Asset Turnover(x) 0.15   0.18   5.34   6.82   8.96  

   Sales/Fixed Asset(x) 13.16   14.34   13.93   9.35   3.33  

   Working Capital/Sales(x) 3.07   1.08   6.41   8.41   9.38  

Efficiency Ratios               

   Fixed Capital/Sales(x) 0.08   0.07   7.18   10.69   30.02  

   Receivable days 0.00   0.00   0.00   0.00   0.00  

   Inventory Days 0.00   0.00   0.00   0.00   0.00  

   Payable days 82.25   53.69   35.26   31.67   25.58  

Valuation Parameters               

   PER(x) 50.77   4.02   14.23   12.19   22.03  

   PCE(x) 20.28   2.76   11.18   10.32   19.40  

   Price/Book(x) 1.28   0.36   1.53   1.17   2.45  

   Yield(%) 1.07   0.00   2.47   3.66   2.27  

   EV/Net Sales(x) 6.01   3.86   6.42   8.16   11.73  

   EV/Core EBITDA(x) 10.07   6.83   13.38   15.30   16.08  

   EV/EBIT(x) 10.42   7.04   13.90   15.70   16.54  

   EV/CE(x) 0.90   0.70   0.96   0.94   1.19  

   M Cap / Sales 0.67   0.15   0.95   0.93   3.74  

Growth Ratio               

   Net Sales Growth(%) -16.90   25.39   118.31   99.16   -3.18  

   Core EBITDA Growth(%) -12.31   47.78   96.37   45.63   3.06  

   EBIT Growth(%) -12.48   48.85   93.92   45.95   7.08  

   PAT Growth(%) -63.93   -27.99   91.40   -11.89   3.32  

   EPS Growth(%) -71.32   -43.42   39.20   -10.57   4.90  

Financial Stability Ratios               

   Total Debt/Equity(x) 6.89   8.10   9.87   7.76   4.89  

   Current Ratio(x) 4.12   6.10   19.72   23.66   40.20  

   Quick Ratio(x) 4.12   6.10   19.72   23.66   40.20  

   Interest Cover(x) 1.06   1.03   1.28   1.29   1.46  

   Total Debt/Mcap(x) 8.67   31.41   6.39   8.52   2.22 

Valuation Ratios

Particulars Mar 2010 Mar 2009 Mar 2008 Mar 2007 Mar 2006

Liquidity ratios               

   Total Debt/Equity(%) 6.89   8.10   9.87   7.76   4.89  

   Current Ratio(x) 4.12   6.10   19.72   23.66   40.20  

   Quick Ratio(x) 4.12   6.10   19.72   23.66   40.20  

   Interest Cover(x) 1.06   1.03   1.28   1.29   1.46  

   Total Debt/Mcap(%) 8.67   31.41   6.39   8.52   2.22  

Profitability Ratios               

   GPM(%) 0.00   0.00   0.00   0.00   0.00  

   NPM(%) 1.66   3.83   6.68   7.61   17.21  

Turn Over Ratios               

   Sales/Current Assets       0.73   0.56   0.14   0.11   0.10  

   Sales/Total Assets 0.15   0.18   0.15   0.11   0.10  

Dividend History

Announcement
Effective Date Dividend Type Dividend (%)
Date

27/04/2010 05/05/2010 Interim 10%

28/04/2008 23/07/2008 Final 40%

26/04/2007 23/07/2007 Final 40%

25/05/2006 12/07/2006 Final 50%

28/04/2005 18/07/2005 Final 50%

Stock chart 1
Stock chart 2 – Relative Strength Index
Comparison chart of Nifty Index and Cholamandalam

Value of stock prices for 2 months

DATE OPEN HIGH LOW CLOSE VOLUME

19/11/2010 180.05 188.00 177.00 182.90 203019

18/11/2010 187.90 194.00 174.20 179.10 189935

16/11/2010 186.50 200.70 184.15 185.75 480779

15/11/2010 186.00 189.00 177.80 187.00 103107

12/11/2010 195.00 197.50 182.55 184.90 271632

11/11/2010 191.50 203.85 190.00 194.75 636920

10/11/2010 187.50 212.50 183.05 190.00 2898723

09/11/2010 185.05 189.00 181.10 185.65 41768

08/11/2010 189.90 189.90 184.00 185.05 26839

03/11/2010 182.00 182.80 178.00 178.50 21182

02/11/2010 182.50 182.50 176.20 181.45 36989

01/11/2010 183.00 184.70 179.10 180.60 61987

29/10/2010 185.00 186.00 174.10 182.05 160485

27/10/2010 178.00 178.95 174.00 174.65 21903

26/10/2010 178.00 180.70 175.55 176.90 42496

25/10/2010 177.90 178.45 175.20 177.25 23802

22/10/2010 178.00 179.00 175.00 176.30 34428

21/10/2010 171.00 181.30 171.00 175.90 127255

20/10/2010 176.90 176.90 166.55 171.00 119133

19/10/2010 180.95 181.35 174.10 175.10 44050

18/10/2010 179.00 182.90 178.05 179.25 42544

15/10/2010 184.00 185.00 176.70 181.30 97912

14/10/2010 186.05 186.90 183.00 185.10 82652

13/10/2010 186.00 189.95 182.00 186.90 155506

12/10/2010 187.50 188.50 183.05 184.85 110093

11/10/2010 183.00 188.90 182.25 185.25 142665

08/10/2010 184.40 185.50 180.20 181.85 112202

07/10/2010 187.00 190.75 176.20 183.00 500955

06/10/2010 175.00 188.00 173.00 187.05 841059

05/10/2010 173.00 179.50 173.00 177.25 198028

04/10/2010 177.10 178.50 172.85 175.15 106509

01/10/2010 173.00 177.95 172.10 176.15 176716

30/09/2010 172.05 175.70 170.00 174.10 76052

29/09/2010 174.60 174.60 169.30 172.60 99869

28/09/2010 177.00 177.00 171.00 174.35 93377

27/09/2010 171.00 176.00 169.05 175.00 138603

24/09/2010 170.95 173.90 168.60 170.10 60480

23/09/2010 170.10 176.00 169.00 170.90 132133

22/09/2010 172.80 175.40 168.00 170.90 86094

21/09/2010 173.00 175.80 168.50 171.65 211265

20/09/2010 178.00 178.00 172.65 173.10 95884

Analysis  

Cholamandalam DBS Finance began the week on a relatively sedate note at Rs 101.
The fireworks came much later, on Thursday when the stock closed 16 per cent higher.
The rally continued on Friday to take the stock to the intra-week peak of Rs 133.4.

This stock was decimated in the stock market crash of 2008 as it plummeted 94 per
cent from its peak value of Rs 389. Though an intermediate-term uptrend is in progress
since last March, the stock needs to cover a lot more ground before it moves away from
the bear's grip. Close above Rs 160 would be the first signal that the stock could be
moving in to a sustainable up trend. Else here will be a movement between Rs 70 and
Rs 140 over the ensuing months.

Cholamandalam DBS Finance Limited (CDFL) is an India based non banking finance
company. It principally engaged in providing various financial services to its customers.
The company product portfolio comprised of vehicle finance, home loans, corporate
finance and tenure products. It provides investment advisory services, broking,
distribution of financial products, mutual funds and securities, and asset management
through its principal opera ting subsidiaries. Additionally, the company offers e-broking,
two wheeler loans and retail loans against shares. For the year ended March 31, 2009,
the company exited from the high ticket corporate loans. CDFL is headquartered at
Chennai in India. The company reported revenues of (Rupee) INR 11,397.50 million
during the fiscal year ended March 2009, an increase of 20.55% over 2008.

The Balance sheet of the company shows that the total reserves and the shareholders
funds have increased. The company is raising money from loans also as its debt is
increasing. The cash & bank balance of the company has increased significantly from
638 crore to 7451 crore.

The Profit & Loss statement shows that the operating income of the company has
increased from 2045 crore to 11152 crore but in 2010 again decreased to 9266 crore.

The PAT according to the P&L statement has decreased from 352 to 154 crore. This
can be due to the increasing prices, increase in cost and expenses.

The Financial Ratios of the company:

The EPS of the company is down from 9.14 to 1.85 in Rs.

The earnings before interest and tax margin has decreased from 70.92 to 46.17 % from
2006 to 2008 and again increased to 57.72 in 2010. The PAT % margin has also
reduced from 17.21 to 1.66 %.

The performance ratios of the company shows a decline in the performance. The ROA,
ROE has shown a decline but ROCE has shown increase. If the company doesn’t works
on to improve the ROA, ROE, then it can affect it in future and long term severely.

The efficiency ratios of the company shows a decreasing trend. The fixed capital to
sales ratio has decreased from 30.02 to 0.08. the payable days ratio has increased from
25.58 to 82.25 days.

Coming to the growth ratios, the net sales growth % has decreased. The PAT growth %,
the EBIT growth % and EPS growth % decreased as well.
The financial stability ratios of the company:

The total debt to equity ratio has increased from 4.89 to 6.89. The current ratio and the
quick ratio of the firm has decreased, if the company doesn’t controls this decline then it
can have problems in meeting its obligations in future.

The company has been declaring the dividend every year from past 6 years. But the
dividend declared showing the decreasing trend as in 2006 company declared the 50%
dividend and in 2010 it declares the dividend of 10% only.

The stock chart shows the stock price movements and fluctuations over a period of 2
months approximately. The chart is in the form of a candle stick pattern. The red
candles means that the stock price is falling and the white color candle means that the
price is increasing.In this case, the stock will tend to rise according to the technical
analysis theory.

The stock chart 2 show the RSI i.e. the relative strength index chart.

RSI means - The Relative Strength Index (RSI) is a technical indicator used in

the technical analysis of financial markets. It is intended to chart the current and
historical strength or weakness of a stock or market based on the closing prices of a
recent trading period.

The RSI computes momentum as the ratio of higher closes to lower closes: stocks
which have had stronger positive changes have a higher RSI than stocks which have
had stronger negative changes.

RSI = 100 - 100/1 + RS*

*Where RS = Average of x days' up closes / Average of x days' down closes

The comparison chart of Nifty vs. cholamandalam finance shows the movement of stock
price compared to the movement in the nifty index. The increase in the nifty index also
increases the possibility that the stock price will go up and it does. But when the value
of nifty falls slightly the price value of the stock fall greater as compare to its increase
with the increase in nifty value. The benchmark index i.e. Nifty is the orange line and the
stock price is the blue line. This can be due to the fact that the psychology of the
persons that the index is falling so will the stock price.