When it was listed the BVPS was ~18 IIRC. At the price you mentioned, the PB was ~3x.
Before the market realised that UFSL should get a hold co. discount, the market used to value it at a higher PB multiple as well. Then the weakness of the business model came to light once with DEMON and then COVID.
During COVID, the PB compressed dramatically as the market overvalued risk and 1 yr fwd PB was less than 1x. Those who understood the quantum of risk materializing and the discrepancy in the market’s valuation reaped the rewards of the subsequent rerating.
Now, one must run a reverse DCF with growth, ROE, and COE parameters to judge a fair multiple. Full cycle credit costs and resultant average multi-year ROE is needed as inputs. Since the loan book itself is changing it is very difficult to accurately estimate this.
As I have discussed here before, a broad range of fair PB for a financial company growth at 20+% and 15-18% ROE is 2-2.5x. During periods of fear, the market will overvalue risk and PB can go below 1x during euphoric times when risk is undervalued the market can even assign a PB of 3-4x.
One must recognize where we are in the business, valuation and market cycle and try to play it accordingly without getting affected by the stories floating in the market. Going against the crowd is tough intellectually and emotionally.
If we buy or sell at the wrong time one of the outcomes is as you mentioned, the other can be of a famous Pune-based PMS which exited at a big loss at the bottom in Apr-22 and missed a subsequent 4x opportunity.
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