After 200% Gains In HSIL, Daljeet Kohli Calls Capital First The Next Bajaj Finance

First, we must note that HSIL is within touching distance of the target price of Rs. 425 promised by Daljeet. The stock is coasting along nicely in the wake of Cera’s spectacular Q2FY15 results. From the initiation price of Rs. 136 to the CMP of Rs. 410 is a journey of a magnificent 200% gain in just about 6 months.

Talk about brilliant stock picking and timing!!

Daljeet has a soft spot for Capital First. This is evident from the fact that he has given it pride of place in his Model Top 10 Portfolio. Daljeet has a ton of winning stocks in his radar. If a stock makes it to the coveted Top 10 list, it means that its fundamentals and valuations are in place and that hefty gains are in the offing.

In his latest interview, Daljeet gushed that Capital First is in the same spot that Bajaj Finance was in a few years ago.

By equating Capital First with the venerable Bajaj Finance, Daljeet has paid the stock the ultimate compliment and implied that there are huge multi-bagger gains in store for us.

Bajaj Finance is a venerable and classic “buy and forget” sort of stock. If you had bought the stock 10 years ago (01.10.2004), you would be sitting on staggering gains of 2494% today. If you had bought it 5 years ago (1.10.2009), you would be basking in gains of 909%. In just the last year, the stock is up 117%.

The important aspect is that these spectacular gains have come from a highly respected and conservative management, with strong ethical and corporate governance standards. The risk that you have taken by investing in Bajaj Finance is minimal.

Can we expect the same from Capital First?

Daljeet first homed in on Capital First on 16th July 2014 when it was quoting at Rs. 223. At today’s CMP of Rs. 310, we are looking at gains of 33%.

Apart from his “Initiating Coverage” report, Daljeet outlined the salient reasons he prefers Capital First. These can be summarized in a few crisp sentences:

(i) The business model has been changed to focus on retail lending for consumer durables/ white goods etc. This has reduced risk while improving yields;

(ii) The business is virtually risk-free as is brought out by the gross NPA at 0.01 and net NPA of even less than that;

(iii) The funding is tied up for the long term and so the cost of fund is low;

(iv) The company is also making a foray into home finance where the risks are low and yields are good;

(v) The trigger for the future will be the growth in AUM. While this was estimated at 25% growth, the company has delivered 30%. The management sounds confident that they will do 30% and above for the next two-three years;

(vi) The ROA will move from 1% to 2.5% in the next three years. The ROE will now move to 15-20%;

(vii) The stock is much cheaper than Bajaj Finance and L&T Finance.

In my view, Daljeet’s Initiating Coverage report and talk gives us enough material to decide whether we want to trust our hard-earned money to Capital First or not.