Further to my earlier post on fundamental attributes of HFC, here are a few charts about valuations. These are price charts for last 2 years along with movement in TTM EPS and Nifty as these are two most important factors that drive stock price.
Stock price & Nifty 50 is on right hand scale and EPS is on Left hand scale.
Blue line is stock price
Pink line with triangle markers is TTM EPS line.
Grey line is Nifty indexed to stock price.
TG = Trend Growth in EPS. This is the slope of a log linear regression line of the TTM EPS numbers. This number shows short term (2 years) trend growth rate in EPS.
PE = Current (Dec 2, 2016) Price / TTM EPS.
FPE = Fair PE calculated using DCF valuation for each company.
In general, if the price line is below the EPS line the stock is undervalued. For each company, a DCF valuation is done to determine the intrinsic value and this value is divided by adjusted EPS to arrive at a Fair PE ratio. Generally, but not necessarily, fair PE is close to trend growth rate for average quality companies. for better quality companies, market is willing to pay up so fair PE is higher than trend growth and for lower quality companies, fair PE is generally lower than trend growth mainly due to higher discount rate used in valuation. When fair PE is revised upwards (downwards), EPS line will move higher (lower). In the long run, shareholder returns will be close to trend growth in EPS if you manage to buy at the fair price and sell it at a fair price.
My Analysis -
LIC - Trend growth rate is medium 16%, somewhat undervalued.
CanFin - High growth rate (42%), fairly valued.
Indiabulls - Trend growth is low at 6% mainly because of a QIP issue in 2015. growth should pick up in 2017. Fairly valued.
Repco - Trend Growth is high 21%, stock is overvalued despite recent fall due to high PE and lower fundamental ratios
Dewan - Trend growth is low 9% somewhat cyclical. Stock is volatile. Fairly valued.
GIC - Trend growth is medium 18%. Picking up. If this rate sustains, stock will be re-rated. Undervalued.
Gruh - Trend growth is medium-high 20%. Stock is overvalued as PE is much higher than fair value. This stock continues to trade above fair value due to strong fundamentals and growth opportunities.
HDFC - Trend growth is lowest 12% reflecting it's big size. EPS growth is stable however stock is not. Fairly valued.
Overall, HFCs have a consistent growth in EPS over the last 2 years (compared to other companies) but stock price has shown volatility possibly due to problems elsewhere in financial sector.