Cholamandalam Investment Reports 20% Profit Growth in Q2FY26 Amid Rising NPAs

Cholamandalam Investment and Finance Company Ltd (CIFCL) announced its financial results for the second quarter of fiscal year 2026 (Q2FY26), showing positive growth in key performance areas. Standalone revenue from operations increased by 20% to ₹7,469 crore, and net profit saw a similar 20% year-on-year rise, reaching ₹1,155 crore.

Aggregate disbursements for the quarter were ₹24,442 crore, a modest 1% increase compared to the same period last year. However, the company's Assets Under Management (AUM) demonstrated strong momentum, growing by 21% year-on-year to ₹2,14,906 crore as of September 30, 2025.

Despite this growth, CIFCL experienced a sequential weakening in its asset quality. Gross Non-Performing Assets (GNPAs) increased to 4.57% in September 2025 from 4.29% in June 2025. Net Non-Performing Assets (NNPAs) also rose to 3.07% from 2.86% in the preceding quarter, adhering to Reserve Bank of India (RBI) norms. Under Indian Accounting Standards (Ind AS), Gross Stage 3 assets moved to 3.35% and Net Stage 3 assets to 1.93%.

The Provision Coverage Ratio (PCR) saw a slight dip to 33.9% from 34.4% in June. Positively, the company maintained a robust Capital Adequacy Ratio (CAR) of 20% as of September 30, 2025, well above the regulatory minimum of 15%.

Impact: The mixed performance, characterized by strong revenue and profit growth but deteriorating asset quality, presents a nuanced picture for investors. While the healthy CAR offers a buffer, the rise in NPAs could lead to increased provisioning and potentially impact future profitability. The stock's reaction, closing down 4.4% on the BSE, reflects investor caution. The overall impact on the market sentiment for financial services stocks could be moderate. Rating: 6/10

Definitions: * **Non-Performing Assets (NPA)**: Loans or advances where interest or principal payments are overdue for a specified period, typically 90 days. They are considered a drag on a financial institution's profitability. * **Provision Coverage Ratio (PCR)**: The percentage of non-performing assets that a financial institution has set aside in provisions. A higher PCR indicates better coverage for potential loan losses. * **Capital Adequacy Ratio (CAR)**: A key metric indicating a financial institution's financial health and its ability to absorb unexpected losses. It is the ratio of a bank's capital to its risk-weighted assets.