The idea before picking up stocks was that there were three-four macro concerns out there. One was a geopolitical concern which is panning out. The other was global macroeconomic uncertainty and third was the elections, both state and general elections coming into the way. So, the idea was to pick up stocks which remain fairly or largely insulated from such factors and are driven by their own internals of the business.
So, from that perspective, Reliance made the cut and if you look at all the verticals, be it the Jio platform or the retail vertical or oil to gas – these three verticals have been firing very well. We expect Jio platform to give a CAGR of around 20% on the operating profit for next two to three years, retail 12%, and gas around 12% to 13%, like 30 MMSCMD production, they are very near to it. They did 29 MMSCMD in the last quarter, so it is likely to hit 30 and plus on that. Only the oil to chemical (O2C) is an area of concern where we are expecting 2% to 4% downward revision on the earnings contribution. So, if you do a SOTP kind of a valuation, around Rs 1,05,000 crore of profit is expected by FY26. It is available at 14 or 15 times PE multiple. So, 20-30% kind of an upside is very much on the cards and here we have not discounted the valuation or earning from the clean energy business. We have set aside for further delta. So, we will do that as and when the opportunity arises. The risk reward ratio is very favourable with the kind of correction we have seen in Reliance Industries and it is poised for a good up move if you have a holding period of one to two years.
The entire micro lending space has seen quite a bit of perk up. What makes you so confident about Poonawalla Fincorp?
There has been a change in earlier Magma management to Poonawalla. Under the earlier management, the AUM growth for the last four-five quarters have been very consistent with around 15% to 17% sequential AUM growth this company has been clocking and that too comes on the top of a better asset quality. So, asset quality has improved sequentially over the last two years and now the net NPA is 0.72% which is one of the best in the industry and this comes at the top of very high ROAs.
So, even if you strip the exceptional gain which happened in the last quarter, after stripping that they have reported an ROA of around 5% and NIMs of 11.42% which is sequentially two basis point higher. Given the impetus the promoters are having on this company and the pace at which they are growing the AUM, for higher valuation multiples it will keep on commanding and there would be multiple re-rating going forward in this stock.
So, it ticks boxes for all the growth factors. This is a growth buy and we are on the top of the interest rate cycle. So from here, any cut in the interest rate will further fuel the lending side of the business and that is the reason why we have picked it up. From a target perspective, around Rs 450 is the target we are expecting on Poonawalla Fincorp from at least a year of holding. Price to book, compared with peers, is expensive but that is how it is with the companies which are growing at a scorching pace.
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