Prime Stocks update: Book profits & Hold this finance player

1. 

   Anandkumar Mehta

   February 5, 2024 at 12:20 pm

   Thank you. Clarifies fully. Appreciate your quick feedback.
2. 

   Anandkumar Mehta

   February 4, 2024 at 2:27 pm

   Sir I would really appreciate if you could share your views on the fundamental point of NIM expansion due to expected rate cut
3. 

   Anandkumar Mehta

   February 4, 2024 at 1:54 pm

   My counter view:

   1. Aptus traded at peak valuation of 7 times price to book. Current PB of 5-5.5 still is some way away.
   2. Given a significant 70 pct of book is on fixed price, anticipated reduction in benchmark rates may lead to expansion in NIM
   3. Technically stock is forming rounded bottom completion and break out of which can attract new buyers
   4. Stock is yet to cross post IPO peak of 380 which is important technical breakout level and when crossed can push prices higher
   1. 

      N V Chandrachoodamani

      February 5, 2024 at 9:15 am

      Welcome your query sir,

      Let me first address your previous query on NIM expansion

      The case for rate reduction has strengthened post budget, which was not so until 31st of Jan

      Having said, NIM is not something to be obsessed with in the case of Aptus. It has low leverage/borrowings (<1.5X Vs 3X for its peers) due to which interest outgo is very low. If it leverages up, then NIM to RoA can change, but RoE will still go up

      The most attractive thing about Aptus at this valuation is its low leverage/ very high Capital adequacy (CAR)

      So, it can continue growing at 30%+CAGR for next few years without raising additional equity capital while doing so will lead to optimum utilization of capital.

      Consequently, ratios will follow natural adjustment with increase in leverage

      Now coming to technicals, you are spot on!

      But we don't want to be messing up with both methods when it comes to our reco. We want to be fundamentally biased.

      As mentioned in the report, there is little evidence of companies delivering consistent value by dealing with risky class of borrowers in the long run. Repco was once perceived as next Gruh, but those investors disappointed badly. Then PNB Housing Finance too.

      So, on the ground evidence says that we had only one outlier, GRUH. Canfin has also did with phenomenal consistency with less risky salaried class of customers for long period of time. These are the only two evidences available

      At this point of time, Aptus looks a probable candidate, as mentioned about its merits in the report.
      It is still a probable candidate and not THE Candidate.

      So, we don't want to allow investors to buy at any valuation and we thing 5 times book is fair to put a cap on fresh entry. Let's also forget IPO valuations for now as we know how IPOs are priced these days, in the interest of selling shareholders.

      Btw, Canfin trades at 2.75 times book and so 5 times book for Aptus discounts its best-in-class metrics and ability to earn more (high Yield on loans, NIM, RoA, RoE).

      So, take some money out and hold is the call. Btw, if you already have low allocation to this stock in your portfolio, you can ride as such with same allocation.

      The call (book profit & hold) has more to do with risk management and still keeping the upside open on the stock rather than booking profit outright

      Hope this clarifies

      Thank you

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