Recommendations From Iron & Steel & Other Financial Services

The scrips in this column have been recommended with a 15-day investment horizon in mind and carry high risk. Therefore, investors are advised to take into account their risk appetite before investing, as fundamentals may or may not back the recommendations. 

JSW STEEL 

CMP - Rs 341.85
BSE CODE 500228
Volume 154927
Face Value Rs 1
Target Rs 377
Stoploss Rs 313 

JSW, a part of O.P. Jindal Group which produces and distributes iron and steel, generated revenue from domestic (82.4%) and exports (17.6%) in FY18. Apart from steel, it is also engaged in cement, mining and construction activities and power, which is majorly used for captive consumption. JSW Steel is expected to replace Lupin in the Nifty index in the upcoming review and, thereafter, it could also witness ETF buying of nearly Rs 360 crore. On the financial front, the company posted 8 per cent crude steel output growth to 13.78 lakh tonnes along with 41 per cent and 1 per cent growth in long rolled and flat rolled products output, respectively, in July. Its FY18 revenue and PAT posted a growth of 26.3 per cent and 76 per cent, respectively. The company’s D/E at 1.4x while interest coverage at 3.7x provides financial stability. The operating leverage benefits are on the back of company’s higher grip in the long products. The company is currently quoted at attractive valuation of P/E and P/B at 10.2x and 2.7x. It is likely to bear fruits of the higher realisation (Rs 3500-3500/t) as prices of coated products are likely to boom. We recommend a BUY. 

CAPF 

CMP - Rs 597.90
BSE CODE 532938
Volume 58227
Face Value Rs 10
Target Rs 650
Stoploss Rs 539 

The company, promoted by the FPIs Cloverdell Investment and Dayside Investment, is engaged in debt financing of MSMEs and other consumers totalling 6.08 million. The company’s FY18 AUM grew 36 per cent to Rs 26,997 crore, with retail loans forming 94%, while real estate and corporate loans forming just 6%. This judicious mix of lending portfolio assures superior asset quality with GNPAs and NNPAs at 1.57 per cent and 1.72 per cent, respectively, in Q1FY19. The company’s total Income and PAT registered growth of 48% and 36.8%, respectively, in FY18. The company's strong hand in providing low ticket loans to salaried class will ensure strong growth going forward. The rising sales of automobiles and white consumer goods and blossoming of the MSME industry bode well for higher lending growth. Lastly, its merger with IDBI will drive synergies to penetrate further in different regions and aid better capital efficiency for the company. On the valuation front, the company is trading at P/BV of 2.0x on book value of Rs 288 per share and RoE of 15.93 per cent, giving strong return confidence going forward. We recommend a BUY.