Centrum Broking

IndoStar Capital (Buy)

CMP: ₹459.1

Target: ₹600

IndoStar Capital Finance has embarked on a transformational journey and with the right mix of people, product portfolio, processes and the required infrastructure, we believe the business model is on the right growth path.

We expect IndoStar Capital to report a) strong earnings profile (38 per cent/ 22 per cent CAGR in revenue/ earnings over FY18-20E); b) limited asset quality risks (given the history of near zero NPAs); and c) superior returns profile (RoA at 2.7 per cent, RoE at 10 per cent+ by end-FY20E).

Healthy capital position (CAR at 28 per cent+) will supplement sturdy 45 per cent CAGR in AUM over FY18-20E. Further, proficient senior management with an element of skin in the game through ESOPs and superior board composition is an added positive.

Valuations at 1.2x FY20E ABV are undemanding. We initiate coverage on IndoStar Capital with ‘Buy’ and target price of ₹600 (valuing at 1.7x FY20E ABV). We see valuation mutliples expand as investors draw greater comfort in the transformation journey.

Key risks: Lower than expected growth, margin pressures or rise in NPAs.