IIFL picks 13 lucky must-have stocks in 2013

IIFL picks 13 lucky must-have stocks in 2013
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IIFL picks 13 lucky must-have stocks in 2013
  • 
	ACC

	Current Market Price (CMP): Rs 1,432

	18-month Target: Rs 1,755

	Upside: 22.6%

	 

	Rationale: Despite a strong balance sheet, ACC trades at a 20% discount compared to its peers like Ultratech on EV/ton basis. Return ratios, which were on a declining mode, are expected to improve in CY13 and CY14. Debt/equity continues to remain low as most of the recent expansion has been funded through internal accruals.

	 

	Key risks
	=>Fall in cement prices,
	=>Government interference in the form of price caps, hike in duties etc and
	=>Drought like situation leading to subdued demand.

    ACC Current Market Price (CMP): Rs 1,432 18-month Target: Rs 1,755 Upside: 22.6%   Rationale: Despite a strong balance sheet, ACC trades at a 20% discount compared to its peers like Ultratech on EV/ton basis. Return ratios, which were on a declining mode, are expected to improve in CY13 and CY14. Debt/equity continues to remain low as most of the recent expansion has been funded through internal accruals.   Key risks =>Fall in cement prices, =>Government interference in the form of price caps, hike in duties etc and =>Drought like situation leading to subdued demand.

  • 
	DEN Networks

	CMP: Rs 200

	18-month Target: Rs 290

	Upside: 45.0%

	 

	Rationale: Backed by factual subscriber statistics and lower content cost, Den Networks being one of the leading cable distribution companies is likely to see a meaningful impact on its profitability. This was partially evident in sharp operating margin improvement during H1 FY13, from 7.3% in FY12 to 20.2%.

	 

	Key risks
	=>If digitization does not progresses as expected, significant growth in revenue may not be realized within the expected time frame.
	=>Fierce competition from DTH players (via better services at competitive price) may devour MSOs share in the revenue pie.

    DEN Networks CMP: Rs 200 18-month Target: Rs 290 Upside: 45.0%   Rationale: Backed by factual subscriber statistics and lower content cost, Den Networks being one of the leading cable distribution companies is likely to see a meaningful impact on its profitability. This was partially evident in sharp operating margin improvement during H1 FY13, from 7.3% in FY12 to 20.2%.   Key risks =>If digitization does not progresses as expected, significant growth in revenue may not be realized within the expected time frame. =>Fierce competition from DTH players (via better services at competitive price) may devour MSOs share in the revenue pie.

  • 
	Dr Reddy's

	CMP: Rs1,834

	18-month Target: Rs 2,358

	Upside: 28.6%

	 

	Rationale: In next two years, IIFL believes the company will gain maximum from the patent cliff. Robust domestic and international generic market growth along with improving outlook of PSAI (muted growth in PSAI segment was a challenge in the past) provides us comfort. “We expect Revenue and PAT to witness a CAGR of 17% and 21% over FY12-15E, respectively,” IIFL report says.

	 

	Key risks
	=>Forex risks: revenue except for India is dollar dominated
	=>Legal risks associate with patent challenges and delay in product approval.
	=>Risk associated with policy changes in domestic and international market.

    Dr Reddy's CMP: Rs1,834 18-month Target: Rs 2,358 Upside: 28.6%   Rationale: In next two years, IIFL believes the company will gain maximum from the patent cliff. Robust domestic and international generic market growth along with improving outlook of PSAI (muted growth in PSAI segment was a challenge in the past) provides us comfort. “We expect Revenue and PAT to witness a CAGR of 17% and 21% over FY12-15E, respectively,” IIFL report says.   Key risks =>Forex risks: revenue except for India is dollar dominated =>Legal risks associate with patent challenges and delay in product approval. =>Risk associated with policy changes in domestic and international market.

  • 
	Financial Tech

	CMP: Rs 1,138

	18-month Target: Rs 1,510

	Upside: 32.7%

	 

	Rationale: Regulation mandated stake sale is expected to lead to equity sale of 5% (2.5% through MCX) in MCX-SX and 8% in IEX within next 18 months. Established market leadership of these exchanges and their nascent growth stage are expected to help FTIL effectively monetize its investments in these ventures. Also, further stake sale in MCX-SX and other incubating ventures can provide additional upsides.

	 

	Key Risks
	=> Failure to garner volumes at newly developed exchanges
	=>Inability to monetize investments done in various exchanges and related ventures
	=>Adverse regulatory ruling for any of the exchange ventures can be risk to our growth estimates

    Financial Tech CMP: Rs 1,138 18-month Target: Rs 1,510 Upside: 32.7%   Rationale: Regulation mandated stake sale is expected to lead to equity sale of 5% (2.5% through MCX) in MCX-SX and 8% in IEX within next 18 months. Established market leadership of these exchanges and their nascent growth stage are expected to help FTIL effectively monetize its investments in these ventures. Also, further stake sale in MCX-SX and other incubating ventures can provide additional upsides.   Key Risks => Failure to garner volumes at newly developed exchanges =>Inability to monetize investments done in various exchanges and related ventures =>Adverse regulatory ruling for any of the exchange ventures can be risk to our growth estimates

  • 
	ITC

	CMP: Rs 287

	18-month Target: Rs 353

	Upside: 23.0%

	 

	Rationale: ITC remains one of IIFL's top picks in the sector given the strong resilience in its core cigarette business. "We believe with the ban on gutka and paan masala by almost thirteen states, some demand will shift from these tobacco products to cigarettes, which will partly help ITC improve cigarette volume growth. We see no major risks from plain packaging norms as India is primarily a single stick / loose cigarette market. ITC is gaining traction in noncigarette businesses as well, making it a well diversified growth company," the report said.  

	 

	Key risks
	=> Disruptive change in cigarette taxation structure could impact volumes and margins adversely.
	=>Significant decline in cigarette volumes on the back of price hikes could dent profitability and valuations.
	=>Delay in FMCG breakeven or rise in losses due to gestation for new ventures.

    ITC CMP: Rs 287 18-month Target: Rs 353 Upside: 23.0%   Rationale: ITC remains one of IIFL's top picks in the sector given the strong resilience in its core cigarette business. "We believe with the ban on gutka and paan masala by almost thirteen states, some demand will shift from these tobacco products to cigarettes, which will partly help ITC improve cigarette volume growth. We see no major risks from plain packaging norms as India is primarily a single stick / loose cigarette market. ITC is gaining traction in noncigarette businesses as well, making it a well diversified growth company," the report said.     Key risks => Disruptive change in cigarette taxation structure could impact volumes and margins adversely. =>Significant decline in cigarette volumes on the back of price hikes could dent profitability and valuations. =>Delay in FMCG breakeven or rise in losses due to gestation for new ventures.

  • 
	Petronet LNG

	CMP: Rs 158

	18-month Target: Rs 208

	Upside: 31.9%

	 

	Rationale: With complete ramp-up in Kochi facility in FY15 along with higher operational capacity at Dahej, FY15E earnings are expected to jump 29.4% (following a flattish FY14). "On FY15E EPS of Rs19.8, the stock trades at a P/E multiple of 8x, which we find attractive given robust earnings growth, healthy balance sheet and 20%+ return ratios,” IIFL said.

	 

	Key risks
	=>Regulations over marketing margins could dent profitability
	=>Incapability of increasing re‐gas tariffs at Dahej will dent earning estimates for the company
	=>Higher than expected domestic gas production can negatively impact demand for LNG

	% %%%%% 

    Petronet LNG CMP: Rs 158 18-month Target: Rs 208 Upside: 31.9%   Rationale: With complete ramp-up in Kochi facility in FY15 along with higher operational capacity at Dahej, FY15E earnings are expected to jump 29.4% (following a flattish FY14). "On FY15E EPS of Rs19.8, the stock trades at a P/E multiple of 8x, which we find attractive given robust earnings growth, healthy balance sheet and 20%+ return ratios,” IIFL said.   Key risks =>Regulations over marketing margins could dent profitability =>Incapability of increasing re‐gas tariffs at Dahej will dent earning estimates for the company =>Higher than expected domestic gas production can negatively impact demand for LNG % %%%%% 

  • 
	United Spirits

	CMP: Rs 1,953

	18-month Target: Rs 2,400

	Upside: 22.9%

	 

	Rationale: Over the next 2-3 years, United Spirits is likely to sharpen its focus on selling of premium brands while backward integration steps taken in past 1-2 years could probably keep raw material cost inflation under control. “We forecast ~2.6x jump in PAT driven by margin uptick and interest cost reduction over FY13‐15; at 17.5x FY15E EV/EBIDTA, we believe potential exists for rerating in the medium term,” IIFL said in its report.

	Key risks
	Higher than estimated rise in ENA costs and working capital expenses could lead to margin pressures and rise in leverage and thus impact our EPS estimates adversely

    United Spirits CMP: Rs 1,953 18-month Target: Rs 2,400 Upside: 22.9%   Rationale: Over the next 2-3 years, United Spirits is likely to sharpen its focus on selling of premium brands while backward integration steps taken in past 1-2 years could probably keep raw material cost inflation under control. “We forecast ~2.6x jump in PAT driven by margin uptick and interest cost reduction over FY13‐15; at 17.5x FY15E EV/EBIDTA, we believe potential exists for rerating in the medium term,” IIFL said in its report. Key risks Higher than estimated rise in ENA costs and working capital expenses could lead to margin pressures and rise in leverage and thus impact our EPS estimates adversely

  • 
	Wipro

	CMP: Rs 397

	18-month Target: Rs 495

	Upside: 24.7%

	Rationale: Though the consensus growth expectations remain modest (at best), we believe headroom for surprise exists as Wipro’s IT services growth differential with peers is expected to narrow. Also, with the impending de-merger, valuation for the standalone IT business would gradually improve. We expect dollar revenue/rupee EPS CAGR of 8%/9% over FY13‐15E. Valuation at 12.1x FY15E earnings provides a decent entry.

	Key Risks
	=>Significant slowdown in demand from key geographies of US and Europe
	=>Sharp appreciation in rupee (vis-à-vis USD) can be a risk to our margin estimates
	=>Adverse regulation on offshoring in key markets esp. US

    Wipro CMP: Rs 397 18-month Target: Rs 495 Upside: 24.7% Rationale: Though the consensus growth expectations remain modest (at best), we believe headroom for surprise exists as Wipro’s IT services growth differential with peers is expected to narrow. Also, with the impending de-merger, valuation for the standalone IT business would gradually improve. We expect dollar revenue/rupee EPS CAGR of 8%/9% over FY13‐15E. Valuation at 12.1x FY15E earnings provides a decent entry. Key Risks =>Significant slowdown in demand from key geographies of US and Europe =>Sharp appreciation in rupee (vis-à-vis USD) can be a risk to our margin estimates =>Adverse regulation on offshoring in key markets esp. US

  • 
	Wockhardt

	CMP: Rs 1,562

	18-month Target: Rs 2,089

	Upside: 33.7%

	 

	Rationale: The company had defaulted on FFCB worth USD 110 mn in 2009, but now, Wockhardt is out of debt trap as it has settled all its FCCB and forex derivative liabilities. Wockhardt has also beaten the street expectations consequently for four quarter by delivering strong sales growth and margin expansion. With better operating cash flows and balance sheet, Wockhardt is expected to witness a gradual valuation re-rating henceforth.

	 

	Key risks
	=> Sharp price erosion in Toprol XL and other key molecules
	=>Unexpected competition in the key drugs and delay in launches and approvals in the US
	=>Amortisation of EU assets and Unfavourable currency

    Wockhardt CMP: Rs 1,562 18-month Target: Rs 2,089 Upside: 33.7%   Rationale: The company had defaulted on FFCB worth USD 110 mn in 2009, but now, Wockhardt is out of debt trap as it has settled all its FCCB and forex derivative liabilities. Wockhardt has also beaten the street expectations consequently for four quarter by delivering strong sales growth and margin expansion. With better operating cash flows and balance sheet, Wockhardt is expected to witness a gradual valuation re-rating henceforth.   Key risks => Sharp price erosion in Toprol XL and other key molecules =>Unexpected competition in the key drugs and delay in launches and approvals in the US =>Amortisation of EU assets and Unfavourable currency

  • 
	HDFC Bank

	CMP: Rs 685

	18-month Target: Rs 850

	Upside: 24.1%

	 

	Rationale: With the bank estimated to deliver 24% earnings CAGR over FY12-15, valuation would continue to command premium both on absolute and relative basis. In our view, there is high probability of the bank outperforming equity market return over the next couple of years.

	 

	Key risks to our view
	=>A sharp slowdown in the consumption momentum could moderate bank’s loan growth
	=>Onset of an adverse retail NPL cycle could affect the asset quality of the bank

    HDFC Bank CMP: Rs 685 18-month Target: Rs 850 Upside: 24.1%   Rationale: With the bank estimated to deliver 24% earnings CAGR over FY12-15, valuation would continue to command premium both on absolute and relative basis. In our view, there is high probability of the bank outperforming equity market return over the next couple of years.   Key risks to our view =>A sharp slowdown in the consumption momentum could moderate bank’s loan growth =>Onset of an adverse retail NPL cycle could affect the asset quality of the bank

  • 
	ICICI Bank

	CMP: Rs 1,159

	18-month Target: Rs 1,500

	Upside: 29.4%

	 

	Rationale: Notwithstanding weakness in fee income growth and some stress on asset quality, IIFL expects core RoA to remain above 1.5% and RoE to impove on the back of increasing leverage. Amid stabilising macro conditions, continuance of healthy asset quality performance would dispel exaggerated fears around the bank and drive a steep valuation re-rating.

	 

	Key risks
	=> Persistent weakness in corporate loan demand could hamper loan and fee income growth
	=>Increase in wholesale rates would impair projected margin trajectory
	=>A sharp deterioration in asset quality would impact earnings growth/projected RoAs

    ICICI Bank CMP: Rs 1,159 18-month Target: Rs 1,500 Upside: 29.4%   Rationale: Notwithstanding weakness in fee income growth and some stress on asset quality, IIFL expects core RoA to remain above 1.5% and RoE to impove on the back of increasing leverage. Amid stabilising macro conditions, continuance of healthy asset quality performance would dispel exaggerated fears around the bank and drive a steep valuation re-rating.   Key risks => Persistent weakness in corporate loan demand could hamper loan and fee income growth =>Increase in wholesale rates would impair projected margin trajectory =>A sharp deterioration in asset quality would impact earnings growth/projected RoAs

  • 
	LIC Housing Fin

	CMP: Rs 297

	18-month Target: Rs 390

	Upside: 31.3%

	 

	Rationale: Aided by margin recovery, LICHF would revert back to high earnings growth trajectory over FY13‐15 (estimated 30% CAGR). This along with improving return ratios should drive a structural valuation re‐rating over the medium term. Further, the stock is currently trading at attractive discount to its larger peer HDFC.
	 

	Key risks to our view
	=>Intensified competition in the home loan market would affect growth and profitability
	=>A slower-than-anticipated decline in interest rates would elongate LICHF’s margin expansion

    LIC Housing Fin CMP: Rs 297 18-month Target: Rs 390 Upside: 31.3%   Rationale: Aided by margin recovery, LICHF would revert back to high earnings growth trajectory over FY13‐15 (estimated 30% CAGR). This along with improving return ratios should drive a structural valuation re‐rating over the medium term. Further, the stock is currently trading at attractive discount to its larger peer HDFC.   Key risks to our view =>Intensified competition in the home loan market would affect growth and profitability =>A slower-than-anticipated decline in interest rates would elongate LICHF’s margin expansion

  • 
	Shriram Trans Fin

	CMP: Rs 754

	18-month Target: Rs 950
	 
	Upside: 26.0%

	 

	Rationale: Given secured nature of business, ease in liquidation of asset, resilient customer segment and default-linked incentive structure for field officers, STFC has traditionally seen moderate delinquencies across CV/rate cycles. Even after absorbing the full impact of new regulations, RoA/RoE would settle at healthy levels of 2.5‐2.7%/17‐19% in the longer term. Such return ratios should support at least the current level of valuation.

	 

	Key risks to our view
	=> Elongation of CV recovery cycle and rate down cycle would impact company’s performance
	=>NPLs could increase higher than estimated if company fails to respond effectively to new recognition norms

    Shriram Trans Fin CMP: Rs 754 18-month Target: Rs 950   Upside: 26.0%   Rationale: Given secured nature of business, ease in liquidation of asset, resilient customer segment and default-linked incentive structure for field officers, STFC has traditionally seen moderate delinquencies across CV/rate cycles. Even after absorbing the full impact of new regulations, RoA/RoE would settle at healthy levels of 2.5‐2.7%/17‐19% in the longer term. Such return ratios should support at least the current level of valuation.   Key risks to our view => Elongation of CV recovery cycle and rate down cycle would impact company’s performance =>NPLs could increase higher than estimated if company fails to respond effectively to new recognition norms

  • 
	ACC

	Current Market Price (CMP): Rs 1,432

	18-month Target: Rs 1,755

	Upside: 22.6%

	 

	Rationale: Despite a strong balance sheet, ACC trades at a 20% discount compared to its peers like Ultratech on EV/ton basis. Return ratios, which were on a declining mode, are expected to improve in CY13 and CY14. Debt/equity continues to remain low as most of the recent expansion has been funded through internal accruals.

	 

	Key risks
	=>Fall in cement prices,
	=>Government interference in the form of price caps, hike in duties etc and
	=>Drought like situation leading to subdued demand.
  • 
	DEN Networks

	CMP: Rs 200

	18-month Target: Rs 290

	Upside: 45.0%

	 

	Rationale: Backed by factual subscriber statistics and lower content cost, Den Networks being one of the leading cable distribution companies is likely to see a meaningful impact on its profitability. This was partially evident in sharp operating margin improvement during H1 FY13, from 7.3% in FY12 to 20.2%.

	 

	Key risks
	=>If digitization does not progresses as expected, significant growth in revenue may not be realized within the expected time frame.
	=>Fierce competition from DTH players (via better services at competitive price) may devour MSOs share in the revenue pie.
  • 
	Dr Reddy's

	CMP: Rs1,834

	18-month Target: Rs 2,358

	Upside: 28.6%

	 

	Rationale: In next two years, IIFL believes the company will gain maximum from the patent cliff. Robust domestic and international generic market growth along with improving outlook of PSAI (muted growth in PSAI segment was a challenge in the past) provides us comfort. “We expect Revenue and PAT to witness a CAGR of 17% and 21% over FY12-15E, respectively,” IIFL report says.

	 

	Key risks
	=>Forex risks: revenue except for India is dollar dominated
	=>Legal risks associate with patent challenges and delay in product approval.
	=>Risk associated with policy changes in domestic and international market.
  • 
	Financial Tech

	CMP: Rs 1,138

	18-month Target: Rs 1,510

	Upside: 32.7%

	 

	Rationale: Regulation mandated stake sale is expected to lead to equity sale of 5% (2.5% through MCX) in MCX-SX and 8% in IEX within next 18 months. Established market leadership of these exchanges and their nascent growth stage are expected to help FTIL effectively monetize its investments in these ventures. Also, further stake sale in MCX-SX and other incubating ventures can provide additional upsides.

	 

	Key Risks
	=> Failure to garner volumes at newly developed exchanges
	=>Inability to monetize investments done in various exchanges and related ventures
	=>Adverse regulatory ruling for any of the exchange ventures can be risk to our growth estimates
  • 
	ITC

	CMP: Rs 287

	18-month Target: Rs 353

	Upside: 23.0%

	 

	Rationale: ITC remains one of IIFL's top picks in the sector given the strong resilience in its core cigarette business. "We believe with the ban on gutka and paan masala by almost thirteen states, some demand will shift from these tobacco products to cigarettes, which will partly help ITC improve cigarette volume growth. We see no major risks from plain packaging norms as India is primarily a single stick / loose cigarette market. ITC is gaining traction in noncigarette businesses as well, making it a well diversified growth company," the report said.  

	 

	Key risks
	=> Disruptive change in cigarette taxation structure could impact volumes and margins adversely.
	=>Significant decline in cigarette volumes on the back of price hikes could dent profitability and valuations.
	=>Delay in FMCG breakeven or rise in losses due to gestation for new ventures.
  • 
	Petronet LNG

	CMP: Rs 158

	18-month Target: Rs 208

	Upside: 31.9%

	 

	Rationale: With complete ramp-up in Kochi facility in FY15 along with higher operational capacity at Dahej, FY15E earnings are expected to jump 29.4% (following a flattish FY14). "On FY15E EPS of Rs19.8, the stock trades at a P/E multiple of 8x, which we find attractive given robust earnings growth, healthy balance sheet and 20%+ return ratios,” IIFL said.

	 

	Key risks
	=>Regulations over marketing margins could dent profitability
	=>Incapability of increasing re‐gas tariffs at Dahej will dent earning estimates for the company
	=>Higher than expected domestic gas production can negatively impact demand for LNG

	% %%%%% 
  • 
	United Spirits

	CMP: Rs 1,953

	18-month Target: Rs 2,400

	Upside: 22.9%

	 

	Rationale: Over the next 2-3 years, United Spirits is likely to sharpen its focus on selling of premium brands while backward integration steps taken in past 1-2 years could probably keep raw material cost inflation under control. “We forecast ~2.6x jump in PAT driven by margin uptick and interest cost reduction over FY13‐15; at 17.5x FY15E EV/EBIDTA, we believe potential exists for rerating in the medium term,” IIFL said in its report.

	Key risks
	Higher than estimated rise in ENA costs and working capital expenses could lead to margin pressures and rise in leverage and thus impact our EPS estimates adversely
  • 
	Wipro

	CMP: Rs 397

	18-month Target: Rs 495

	Upside: 24.7%

	Rationale: Though the consensus growth expectations remain modest (at best), we believe headroom for surprise exists as Wipro’s IT services growth differential with peers is expected to narrow. Also, with the impending de-merger, valuation for the standalone IT business would gradually improve. We expect dollar revenue/rupee EPS CAGR of 8%/9% over FY13‐15E. Valuation at 12.1x FY15E earnings provides a decent entry.

	Key Risks
	=>Significant slowdown in demand from key geographies of US and Europe
	=>Sharp appreciation in rupee (vis-à-vis USD) can be a risk to our margin estimates
	=>Adverse regulation on offshoring in key markets esp. US
  • 
	Wockhardt

	CMP: Rs 1,562

	18-month Target: Rs 2,089

	Upside: 33.7%

	 

	Rationale: The company had defaulted on FFCB worth USD 110 mn in 2009, but now, Wockhardt is out of debt trap as it has settled all its FCCB and forex derivative liabilities. Wockhardt has also beaten the street expectations consequently for four quarter by delivering strong sales growth and margin expansion. With better operating cash flows and balance sheet, Wockhardt is expected to witness a gradual valuation re-rating henceforth.

	 

	Key risks
	=> Sharp price erosion in Toprol XL and other key molecules
	=>Unexpected competition in the key drugs and delay in launches and approvals in the US
	=>Amortisation of EU assets and Unfavourable currency
  • 
	HDFC Bank

	CMP: Rs 685

	18-month Target: Rs 850

	Upside: 24.1%

	 

	Rationale: With the bank estimated to deliver 24% earnings CAGR over FY12-15, valuation would continue to command premium both on absolute and relative basis. In our view, there is high probability of the bank outperforming equity market return over the next couple of years.

	 

	Key risks to our view
	=>A sharp slowdown in the consumption momentum could moderate bank’s loan growth
	=>Onset of an adverse retail NPL cycle could affect the asset quality of the bank
  • 
	ICICI Bank

	CMP: Rs 1,159

	18-month Target: Rs 1,500

	Upside: 29.4%

	 

	Rationale: Notwithstanding weakness in fee income growth and some stress on asset quality, IIFL expects core RoA to remain above 1.5% and RoE to impove on the back of increasing leverage. Amid stabilising macro conditions, continuance of healthy asset quality performance would dispel exaggerated fears around the bank and drive a steep valuation re-rating.

	 

	Key risks
	=> Persistent weakness in corporate loan demand could hamper loan and fee income growth
	=>Increase in wholesale rates would impair projected margin trajectory
	=>A sharp deterioration in asset quality would impact earnings growth/projected RoAs
  • 
	LIC Housing Fin

	CMP: Rs 297

	18-month Target: Rs 390

	Upside: 31.3%

	 

	Rationale: Aided by margin recovery, LICHF would revert back to high earnings growth trajectory over FY13‐15 (estimated 30% CAGR). This along with improving return ratios should drive a structural valuation re‐rating over the medium term. Further, the stock is currently trading at attractive discount to its larger peer HDFC.
	 

	Key risks to our view
	=>Intensified competition in the home loan market would affect growth and profitability
	=>A slower-than-anticipated decline in interest rates would elongate LICHF’s margin expansion
  • 
	Shriram Trans Fin

	CMP: Rs 754

	18-month Target: Rs 950
	 
	Upside: 26.0%

	 

	Rationale: Given secured nature of business, ease in liquidation of asset, resilient customer segment and default-linked incentive structure for field officers, STFC has traditionally seen moderate delinquencies across CV/rate cycles. Even after absorbing the full impact of new regulations, RoA/RoE would settle at healthy levels of 2.5‐2.7%/17‐19% in the longer term. Such return ratios should support at least the current level of valuation.

	 

	Key risks to our view
	=> Elongation of CV recovery cycle and rate down cycle would impact company’s performance
	=>NPLs could increase higher than estimated if company fails to respond effectively to new recognition norms

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