Cholamandalam Finance Q2 FY26: Navigating Growth and Asset Quality

Cholamandalam Investment and Finance Company Limited, a prominent player in India's financial services sector, has reported its consolidated financial results for the second quarter and half-year ended September 30, 2025. The company demonstrated robust performance, with aggregate loan disbursements reaching ₹24,442 crore in Q2 FY26. This contributed to a significant 21% year-on-year growth in Assets Under Management (AUM), which now stands at an impressive ₹2,14,906 crore. The Net Interest Margin (NIM) also saw a healthy improvement, rising from 7.5% to 7.9% during the quarter, signaling enhanced profitability from its core lending activities. Profit After Tax (PAT) for Q2 FY26 grew by 20% year-on-year to ₹1,155 crore, reflecting strong operational efficiency and strategic execution.

Segment-wise, the performance presented a mixed yet strategically managed picture. Vehicle Finance, a cornerstone of Cholamandalam's business, continued its strong trajectory, with AUM growing by 17%. The Light Commercial Vehicle (LCV) segment, in particular, recorded a notable 14% growth in Q2 FY26, with volumes reaching a record high. The tractor industry also showed resilience, growing by 31% in Q2 FY26, driven by favorable rural sentiments and GST reductions. Loan Against Property (LAP) AUM expanded by 33%, while Home Loans AUM grew by 28%. However, home loan disbursements faced a temporary setback due to procedural changes in registration processes in key markets. The Small and Medium Enterprises (SME) business saw its AUM grow by 28%, and the Secured Business & Personal Loan (SBPL) segment exhibited exceptional growth of 57%, highlighting the success of newer initiatives.

Strategic Adjustments and Asset Quality Management

Management demonstrated a proactive approach to asset quality, particularly in the Consumer & Small Enterprise Loan (CSEL) segment. While this portfolio experienced higher delinquencies due to customer leverage issues and the exit from a partnership business, management confirmed that credit losses in CSEL have peaked. They have implemented tightened underwriting norms and enhanced borrower monitoring, expecting better results in the coming quarters. This strategic course correction underscores the company's commitment to maintaining a healthy book. Furthermore, the company made a conscious decision to adjust its strategy in the tractor financing segment, which had seen a decline over the past few quarters. By revamping the vertical and focusing on used tractors, Cholamandalam aims to improve yields and maintain profitability in this segment.

The company's robust liquidity position and capital adequacy provide a strong foundation for future growth. With total liquid assets of ₹17,516 crore and a Capital Adequacy Ratio (CAR) of 20.00% (Tier-I at 14.59%), Cholamandalam is well-positioned to absorb market shocks and pursue expansion opportunities. The management's emphasis on digital transformation, evidenced by initiatives like the new LEAP LOS Digital platform and AI/ML-based scoring models, reflects its foresight in anticipating technological shifts and enhancing operational efficiency. The launch of the Gold loan business and the expansion into CSEL, SSBPL, and SME segments are clear indicators of a diversified growth strategy aimed at tapping into new market opportunities.

Outlook and Future Trajectory

Cholamandalam's Q2 FY26 performance underscores its strategic clarity and disciplined execution. Despite facing headwinds in certain segments and external factors like the extended monsoon, the company has demonstrated resilience and adaptability. Management remains optimistic about the second half of FY26, anticipating stronger growth, further NIM improvement, and a reduction in Net Credit Loss (NCL). The focus on leveraging its diversified product portfolio, expanding geographical presence, and enhancing digital capabilities positions Cholamandalam for sustained growth. The commitment to proactive risk management and transparent communication reinforces investor confidence, ensuring the company continues its trajectory as a leading financial services provider in India.