Enough has been said by me about JB Chem and I will not repeat it. I will only draw attention to my last update where I had alerted that Daljeet Kohli has advised that there is a “Big Trigger Point” in JB Chem, which will lead to its re-rating. Perhaps, we saw a trace of that in today’s jump of 10%.
Now, let’s focus on Capital First. It is one of Daljeet’s favourite stocks and has the privilege of being hand-picked by him for the “Top 10 stocks” Model Portfolio.
Daljeet first homed in on Capital First on 16th July 2014 when it was quoting at Rs. 223. He set out a modest target of Rs. 257 for that stock. When that target was taken out in no time, Daljeet realized he was on to a good thing. He issued an “Initiating coverage” report on 8th August 2014 and recommended a buy for a price target of Rs. 300.
Its’ no surprise that Capital First effortlessly took out that target also yesterday. This has forced Daljeet to go back to the drawing board to see whether there are more gains left in the stock.
(The gains from the stock, in just the 6 weeks since Daljeet’s recommendation, is a fabulous 35%.)
After a lot of number crunching, Daljeet’s research associate, Kaushal Patel, has issued an update, recommending a buy and increasing the price target to Rs. 360. Let’s pay attention to Daljeet’s/ Kaushal’s advice:
“Our recommendation was based on:
(1) Strategy of moving asset mix towards retail from wholesale have yielded fantastic results and now ready to ride on next stage of growth;
(2) Well maintained asset quality, provisioning norms are also much higher than regulatory requirement (Gross and Net NPA stood at 0.54% and 0.09%, respectively as of Q1FY15 which is still at one of the lowest levels in the industry);
(3) Return ratios are likely to improve significantly by FY16E led by operating leverage and benefit from amortization of fee income CFL has emerged as one of the fastest growing NBFC backed by 1) clear management strategy and expertise in retail segment, 2) increasing focus on retail which is least impacted by slowdown in economy, 3) moving towards less risky segments like Mortgage, Consumer durables and two wheeler financing and 4) strong promoter backing of Warburg group. Further getting out of non profitable business like securities and commodity broking in last financial year and focus on core business of financing will be the key positive for the company. We believe CLF is well placed to move on to next stage of growth. Going forward, the company aims to focus on improving productivity from existing network thus leveraging the cost to income ratio is likely to result in healthy bottom-line growth. The management sounds confident of achieving ROA of ~2.5% and ROE of ~ 18-20% on a sustainable basis going forward within next three to four years.
CFL’s Q1FY15 result was way above our expectations. CFL’s management has delivered their promises which have yielded in positive results. The Asset under Management (AUM) of CFL increased 32% y-o-y (+10% q-o-q) to Rs 106.0 bn against our expectations of 25% y-o-y growth. We believe the current growth momentum to continue during coming quarters on the back of strong execution capabilities.
We have tweaked with our AUM growth estimate and increased to 28% from earlier estimate of 25% over FY14-16E. At CMP of Rs 309/-, CFL is trading at P/ABV of 2.1x and 1.9x for FY15E and FY16E respectively. We have also expanded P/ABV multiple to 2.1x from earlier 1.9x for FY16E and continue to maintain our ‘BUY’ rating on the stock with revised price target of Rs 360/-.”
So, there you have it. I don’t think anyone can give you advice with the clarity and simplicity that Daljeet/ Kaushal have done. Now, it is up to you to decide whether you want to participate in the idea or not.