Here is my quick projections based on company’s current fundamentals, industry averages and my projections.
Few notes:
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All numbers are per share (except ratios) as that is what matters to shareholders.
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These are long term projections and not annual point estimates.
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I am assuming further issuance of shares to fund growth as financial companies have to maintain capital adequacy ratios.
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Even after factoring a 10 Yr CAGR of 23% & 21% in earnings and assets resp. share price is expected to grow at a CAGR of 13% mainly because much of this expected growth in assets and earnings is already priced in.
Doubling assets in 3 years will result in CAGR of 25% (approx) which is slowdown from 45% growth rate in last 3 years. Canfin has also seen a slowdown in its growth rate from 51% to 25% over last 5 years. Look at my post below.
- If growth is expected to be 25% oer next 3 years despite industry tailwinds, growth will most likely taper off from there. I think it is conservative to assume that growth will taper off to 15% from year 4 to 10.
- This looks optimistic to me. For EPS to grow to 218, company’s ROE has to be in the mid 20s whereas it only has earned average 15% ROE in last 3 years. ROE over next 3 years will be lower as equity has gone up substantially after IPO. It will take long time for all this additional equity to generate returns.
- At 25 times PE, this stock will sell at a P/B value of over 4 and that will make it more expensive than HDFC in terms of P/B. Based on my projections, stock will sell at P/B 3.2 which is still expensive for a commodity lender that is earning a low ROA and ROE.
At least there is a mention of some risk factors. PNB in order to grow its loan book is lax on credit quality. this can come back to bite.