PTC India Financial Services
PTC India Financial Services (PFS) is a non-banking finance company promoted by PTC India Limited that owns 65% stake in the company. PFS has been granted the status of an infrastructure finance company by RBI. The company offers wide range of debt and equity linked financing products meeting the financing needs of power projects and related areas across the entire energy value chain. It is structured as a ‘one-stop shop’ for financing of power projects over the project life cycle from development stage, financial closure to post operationalisation. Investment Rationale: Govern­ment’s plans of power for all; robust growth in renewables power financing; adequately capitalised; NPA resolution on track; healthy financials and high dividend yield

View & Valuation:

At CMP of Rs 38.6, stock is trading at 0.9x P/ABV of FY19, which is very cheap compared to other peers. We recommend PTC India Finance a BUY at CMP Rs 38.6 and add on decline of Rs 33.5 for the targets of Rs 50 and Rs 54 in the time frame of 3-4 quarters.

India is the third largest producer and fourth largest consumer of electricity in the world. The country also has the fifth largest installed capacity in the world. Renewable energy is rapidly emerging as a major source of power and the company is in the league to reap the benefit of it. This sector saw record capacity additions during FY2017. The total generation capacity addition in respect of renewable projects aggregated to about 11 GW during FY2017. The renewable capacity is poised to see further capacity additions in line with the government’s vision of installed capacity of 175GW by 2022. The company also increased its exposure towards this sector, wherein the segment contributed at around 58% in its loan book in FY17 from 21% of FY12.

Source: HDFC Securities Equity Research
Sundaram Finance
Sundaram Finance (SFL) is the flagship company of the T. S. Santhanam arm of the TVS group; the group’s association with the Indian automotive industry covers financing, trading and manufacturing. The company is one of the large NBFCs in the country with an AUM of Rs 21,320 crore as on June 2017. The company’s primary focus is on financing of commercial vehicles and cars.

Investment Rationale:

Improvement in road infrastructure to drive higher sales of commercial vehicles; housing finance disbursements showing signs of turnaround; asset quality likely to improve; demerger of non-financial business to improve valuations; strong performance of insurance business; healthy return ratios and comfortable capital position. SFL has invested in various subsidiaries to provide a gamut of financial services, like housing finance, insurance and mutual funds. SFL is also leveraging its skills in IT services, transaction processing and distribution through Sundaram Infotech Solutions and Sundaram Business Services.

The Modi government has placed high importance on upgrading the road infrastructure in India. Highway construction in 2016-17 touched all time high at 8,144 km, which is 33% more than last year. Construction of roads on such a large scale would pep up demand for commercial vehicles. Housing finance disbursements showing signs of turnaround. Management of SFL had turned cautious in the housing finance business with rising incidence of NPA especially in the non-housing business. Disbursement declined from a peak of Rs 2,572 crore in FY13 to Rs 1,743 crore in FY16. With the government providing incentives to the sector, disbursement grew by 5% in FY17 to Rs 1,831 crore.

We have valued the company on SOTP basis feel investors could buy the stock at the CMP and add on dips to Rs 1,505-1,525 band (equivalent to 3.75xFY19E ABV) for sequential targets based on SOTP value discussed below of Rs 1,860 and Rs 2,096 in 3-4 quarters.

Source: HDFC Securities Equity Research
Bajaj Finance
Bajaj Finance’s 2Q PAT grew 37% YoY, in line with our estimate as lower than expected NII was offset by higher other op. income and lower credit cost. GNPA was flat QoQ. We lift FY18-19E EPS by 1-4%. We believe strong loan growth, lower funding cost, op. leverage gains and stable credit cost should drive 38% EPS CAGR over FY17-20E.

Loan growth were strong at 37% YoY: Consumer loans (durable, lifestyle, digital products) grew 21% YoY (22% 1Q). Disbursal growth moderated to 22% (1Q 26% YoY) as GST related pre buying in 1Q affected disbursal in July. SME AUM grew 15% YoY, led by strong growth in professional and business loans.

We expect Bajaj Finance’s strong franchise, focus on widening distribution and cross selling capabilities to drive 36% loan CAGR over FY17 20E. NIMs disappoint; other op income and credit cost surprise positively: NIM was 10.12% (12 bps YoY), below our 10.7% est due to lower yields. Funding costs were largely in line.

Raising FY18-19E EPS by 1-4%: We revise our estimates factoring in: marginally lower yields; lower interest cost due to recent QIP; higher other operating income and marginally lower credit costs. Our FY18 BV rises by 33% to Rs 286/share due to recent equity issuance at 9x 1Q FY18 BV.

Key results

Overall consumer AUM (including 2W/3W) grew 40%YoY in Sept Q driven by 31% YoY growth in consumer durable/lifestyle AUM; strong growth in personal and salaried home loan. Disbursal in consumer durable/ digital products/ lifestyle products moderated to 22% YoY vs. 26% YoY in June Q. Management indicated that pre-buying and GST related issues impacted disbursal in July, which impacted growth in Sept Q.

Growth in other key segments including Commercial finance (49% YoY) and rural segment (137% YoY) continues to remain solid.

Cost to income ratio was higher at 44.7% in Sept Q (43.6% in 2QFY17). Management continues to maintain a relatively cautious stance on business loans and loan against property segment due to concerns around potential asset quality issues in SME sector due to GST.

Source: Jefferies
Can Fin Homes: robust growth
Can Fin Homes CFHL is a southern India-based housing finance company (HFC) sponsored by Canara Bank with focus on tier 1 and 2 cities. It offers ~24 loan products, under housing and non-housing, tailor-made for its niche customer segment.

Well placed to benefit from huge growth opportunities in housing finance, the Indian economy would require an investment of around USD one trillion over the next five to seven years to meet the increasing infrastructure and housing demand at the current growth levels. Around 70–80% of the demand is expected to come from the housing sector especially from the small ticket affordable housing segment and tier-II/III cities. CFHL is well placed to exploit huge growth opportunities as it is well capitalised with stable asset quality and has also marketing and distribution network in tier I and II cities across India.

CFHL is the fastest growing HFC with a strong loan book CAGR of 38% over FY12-17. We expect CFHL’s strong loan growth, higher NIM and stable asset quality to drive 29% CAGR in net profit over FY17-19E with an improvement in RoA from 1.9% in FY17 to 2.1% in FY19E. Moreover, we believe that CFHL is well placed to benefit from the government’s various initiatives and focus on affordable housing segment.

CFHL’s loan book grew at a CAGR of 37.8% which was higher than that of Gruh (26.6%) and DHFL (33.1%) over FY12-17. Loan book to grow at a healthy CAGR of 25% over FY17-19E. It has strategically targeted the low-ticket-size housing finance segment to benefit from high growth and low competition from banks. It has a well-diversified borrowing mix across banks, non-convertible debentures, commercial papers, National Housing Bank and deposits. CFHL is in a comfortable position on the capital front with capital adequacy ratio at 18.5% and tier I ratio at 16.5% as of FY17.

Source: Geojit Research
Shriram Transport Finance: high value
Shriram Transport Finance (SHTF) established in 1979, is one of the largest asset financing NBFCs in India with asset under management of Rs 788bn as of March 2017. SHTF's primary focus is on financing pre-owned commercial vehicles. It is among the leading financing institutions in the organised sector for the commercial vehicle industry for first time users and small road transport operators. It also provides financing for passenger commercial vehicles, multi-utility vehicles. Valuation and view: SHTF’s return ratios are at cyclical lows, with decadal high credit cost and NPLs. However, credit costs over the past two years have been statutory, rather than economic, i.e., write-offs as percentage of AUM have been steady. Additionally, we believe margin compression fears are overplayed with the company yet to reap significant benefit on CoF. We increase our FY18-19 estimates by 2%/4% to factor in stronger revenue. The stock trades at 1.8x/1.6x FY18/19E BV. Buy with a TP of Rs 1,330 (2x June 2019E BVPS).

SHTF’s return ratios are just off cyclical lows with decadal high credit cost and NPLs. However, the elevated credit costs experienced by the company over the past two years are just statutory and not economic – i.e., credit costs (as % of AUM) have been stable. So, the credit costs are high only in order to maintain PCR and not because of high net credit losses. We believe the worst of asset quality troubles are behind and the company should witness improving return ratios due to lower credit costs. Additionally, we believe margin compression fears are overplayed, with the company yet to reap significant benefit on CoF. We increase our FY18-19 estimates by 2%/4% to factor in stronger topline. The stock trades at 1.8x/1.6x FY18/19E BV. We use RI model with Rf: 7%, CoE: 14% and terminal growth rate: 5% to arrive at a TP of INR1,330 (2x Jun 2019E BVPS).

Management believes that GST will remain a challenge for another 1-2 quarters as volume of inventory in motion has come down post GST. Management targets 12-15% AUM growth for FY18.

Source: Motilal Oswal
Manappuram Finance
Manappuram Finance (MFL) has recomposed its business from being a traditional gold loan lender to a NBFC operating in four major segments – gold loans, microfinance, housing loans and commercial vehicle loans. While gold loans comprise the major portion of assets under management (AUM) at 81% for FY17, the company has re-calibrated its products from traditional long term loans to several shorter term lending products to increase cushion from fluctuation in gold prices and improve growth. Going ahead, the contribution of the non-gold business is expected to increase to ~32% by FY19E. Over FY17-19E, the overall AUM is expected to grow 22% to Rs20,278 crore.

Recommendation: While FY17 had its own challenges in terms of demonetisations-led decline in disbursements, non-recoveries of loans resulting in higher NPAs and overall weakness in profitability, MFL has maintained healthy growth in AUM and profitability along with a limited impact on NPAs. Going ahead, the overall AUM is expected to witness a 24% growth with healthy return ratios of 5.8% RoA and 25.9% RoE by FY19E. Considering the robust financial growth expected from re-alignment of business strategies by increasing presence in high-growth segments, we are positive on the stock of MFL which trades at 1.8x its FY19E ABV. Re-aligning gold loan products to reduce commodity price risk: The company has re-aligned its traditional gold loan offering having 12 month tenure into several shorter term products with varying loan-to-value (LTVs). This has resulted in increasing the buffer for fluctuation in the gold prices from 4% earlier to a range of 17.5-23.2% with the new set of products.

To reduce the risk involved in the gold loan business the company has also started mortgage and housing finance along with CV financing. Going ahead, the non-gold business of MFL is expected to reach about 32% of the total with overall business expected to witness 22% CAGR over FY17-19E to Rs20,278 crore. We initiate coverage on MFL with a Buy rating and a target price of Rs140, valuing the stock at 2.4x its FY19E ABV.

Source: Centrum Wealth Research