I believe Repco’s numbers for ROE, Loan Book Growth and NPAs are very close if not as good as Gruh. (If you want, I’ll share the numbers as well) So it, doesn’t justify the 2x difference in P/B.
Agree on banks focusing on the HFCs segments in the future, and a comfortable P/B of 7/8 for Gruh.
Don’t agree on borrowers getting impatient for lower rates. Half the book is self-employed segment where they don’t have much bargaining power due to lack of other alternatives apart from Gruh, Repco, etc.
I think high p/b is due to 3 things – its consistently high ROE (30% ) and 25%-28% loan book and no net npas.I think the loan book growth might be under threat if a)banks focus on gruh’s segment with lower rates ( this will take time though market will discount this earlier )-I think this will happen and is inevitable but the market size is huge – I also foresee borrowers getting impatient for lower rates since information gets passed on who is charging how much – on npas co is spot clean but recent court case on high ticket LAP to royal raises some concerns as to why lend on LAP segment at such high ticket size .
I will be comfortable at a P/B of around 7-8 on the higher end for gruh.
Hi Ankit,
I am unable to find the excel sheet you are talking about. Can you please share it again on the thread.
Thanks,
Nikhil
Interesting to note from Motilal’s report above that Illango’s term has been extended till October 2016, and given that CanFin Homes now has 2400 crore market cap, which is more than 15% of Canara Bank market cap, it is likely that his term will get extended further.
Core banking software has been implemented across branches, significantly expanding branch network and low cost satellite offices across India, reducing interest rates should take care of growth going forward..
CanFin continues to be the fastest growing HFC and is getting well recognized by the market participants though FII/ DII holding still continues to be <1%. With consistent growth and entry of institutional investors, stock could continue to make new highs..
I’m invested in Gruh and views are positively biased on the HFC sector. But I can’t get my mind around it’s valuation of 13x P/B no matter what growth %, NIM, Asset Quality, ROA, etc. numbers you throw at me.
Tried to do a quick valuation analysis of some of the best performing HFCs currently:-
Does the BV/EPS multiple have anything to do with Gruh’s exalted valuations?
Alembic Pharma management had mentioned in Jan14 VP Q&A that setting up front end in US is their next challenge. As per the last concall, typical model with US partners is 50:50 profit share. Thats a huge draw down for the company. Their margins are heavily impacted due to this. They said their front end will be operational in FY17. So till then the performance would not be spectacular.
I want to understand how can Ajanta have so much better margins than Alembic. Any pointers? I dont know whether this has already been discussed. Ajanta always has their own front end, that could be one reason. But apart from that, can one say that their product identification capability is better than Alembic? Or probably the best?
@singhvir…thanks for the calculation. I would assume the “typical 50:50 profit split” as management commented in concall. But even assuming an EPS of 30, it looks cheap on fwd basis.
Maruti was found testing a LCV recently (link below). This should possess some threat to Atul Auto, I guess. Mainly due to the extensive network and reliability the company offers. Also, depends upon the pricing of the model. Though impact to Atul Auto may take time or may not impact it. But looks that LCV is still a hot market.
http://www.team-bhp.com/news/maruti-testing-cng-powered-super-carry-y9t
NCL has been a high conviction bet for me from RS. 70 levels. A couple of things that are worth noting are 
1. it does not sell to govt/contractors but sells on cash and carry/low credit period in retail
2. NCL’s plants are amongst the closest to amaravathi the new capital city near vijayawada
3. for a near 25 % increase in sales in FY15, receivables have inched up only about 2%.
4. cash flows are very good – Rs. 55 Cr. of OCF – led by improvement in all effficiency parameters – increase in current liabilities, decrease in inventories,OPM. If the company can maintain these going forward, this can be a 2-3 x on the back of both PE re-rating and rapid EPS expansion.
Given that Alembic has captured roughly same market share for Abilify as done by Torrent (as per various reports) and if we use same back of envelope calculation as used for calculating the revenue for Torrent from Abilify, then it will translate into roughly 200 MUSD sale coming from Abilify in FY16 for Alembic.
Assuming a 60-40 split with their partner, it will translate into 120 MUSD contribution in topline from Abilify to Alembic for FY!6 and a roughly 80 MUSD to bottom-line (based on blockbuster Q1 result of torrent and in case of Alembic they are sourcing API inhouse as per conf call). This contribution from Abilify in itself will be almost twice the PAT which Alembic earned for FY15 and on top of that we have their base business, contribution from Celebrex (which is also a big molecule) and guidance from company of 7-9 launches every year in US.
My guess estimate is that the FY16 EPS will be 40+ but that includes one off from abilify but they have robust product pipeline as highlighted by Ankit and should be able to sustain decent CAGR on base business as well.
All these are rough calculation and Q2 results will give how much we are correct.
Thoughts welcome.
Hello everybody!
My name is Amit Sharma. I couldn’t locate any “Introduce Yourself” page on this forum. I have been a member of this forum for long but was never active. I will try to be active from now on.
I met Mr. Achal Bakeri, Chairman, Symphony Coolers in Ahmedabad. We had some conversation on discussions related to value creation in the business of Symphony Limited.
Mr. Achal Bakeri stated that the value creation in a business happens when the market capitalization of the business grows/increases. I didn’t find this statement rational. In my opinion, the value creation in a business happens when the business is able to generate free cash flows for the shareholders of the Company, or RoCE improves and the business is able to create entry barriers.
If it comes to analysing Symphony Limited, they are a negative working capital business. They are asset light, no debt, good Profit margins and RoCE. The Company has design copyrights and they have a good design team and they come up regularly with innovative designs creating entry barriers. This way the business is creating value for the shareholders.
I just couldn’t understand as to why he was placing much emphasis on market capitalisation rather than these elements. In my opinion, market capitalisation is the work of the market and it goes up and down in a moment. But the strengths of the business don’t wither out easily and they result in healthy free cash flows for the shareholders of the Company. For me, the value creation is these strengths of the business.
May be, he got influenced by the crazy valuations of the start-ups…!!!