Hi @sameer_patel18in, I am considering this as an opportunity, for the following reasons:
The current valuations seem to be very attractive. Even if we assume a moderate profit growth of 5% QoQ over the next 4 quarters, the EPS after Q3 results next year would be Rs. 4.72. That would mean an EPS of Rs. 17.56 for the whole period from Jan-18 to Dec-18.
Emkay had attained a P/E of close to 40 during Sep-17, when its stock price had reached Rs.321. Subsequently, the stock underperformed. I do not see any reason for the above under-performance, except for the fact that investors were not finding the overall NBFC sector (especially the companies that do lending) very hot, unlike the earlier few quarters. This can be attributed to the rising bond yields and the realization that the interest rates have already bottomed out.
As companies like Emkay and Arihant Capital Markets do very little lending (unlike IIFL, Edelweiss, Motilal etc.) and bulk of their revenues come from brokerage services, I feel that, rising interest rates will have lesser impact on them, as compared to the other companies in the NBFC sector.
Emkay’s current TTM P/E is 19.21 (for an EPS of Rs.11.42). Both Motilal & Geojit have a P/E of 37+, IIFL has 29 and Edelweiss has 33. Some of these companies had more than 50 P/E during Sep-17. Considering its performance over the past few quarters and the expactation that the current bull run in the stock market will continue for a long period, I feel, it is justifiable to expect a P/E of 25 for Emkay, especially after its recent excellent Q3 numbers. For an EPS of Rs. 17.56 and P/E of 25, the price derived would be Rs. 439 (after the Dec-18 Quarter results). On the other end, if Emkay is able to achieve 10% QoQ growth and a P/E of 30, the stock price could reach Rs. 594.
Please note that, I have derived the above figures just for illustration purpose and request you to use your own judgement while making any investment decisions. I feel, the key risks involved would be the continued overall negative sentiments (relatively speaking) by the markets over the NBFC sector and any unforeseeable chance of the bull run ending in the Indian stock market.
I do feel that, there is a good chance of a prolonged bull run in the Indian market. Please refer to the following discussion thread for more of my thought process on that:
Disc: Invested today