Stocks of Max Financial Services Ltd and CreditAccess Grameen Ltd were recommended for buy by HDFC Securities Limited, a brokerage firm. The brokerage has set a target price of Rs 1,205 for Max Financial Services Ltd's stock, representing a gain of 21% over the current market price of Rs 993. Whereas the brokerage has set a target price of Rs 845 for CreditAccess Grameen Ltd's shares, representing a gain of over 41% over the current market price of Rs 604.
Buy Max Financial Services Ltd with a target price of Rs 1,205
According to the brokerage's report, Max Financial Services Ltd's "total APE was in line with our estimate at INR12.8bn (2y CAGR 10.8%); however, the company delivered a significant beat on VNB margin. The share of protection business in the overall mix further moderated to 14%, as individual protection declined 37% YoY (strong base from Q2FY21), partially offset by a pick-up in group credit and GTI business."
According to HDFC Securities "MAXL printed better-than-anticipated VNB margin at 29.2% (665bps beat vs. estimate), driven by improving share of high-margin NPAR business (Smart Wealth plan) in the mix, leading to VNB clocking in at INR3.7bn (2y CAGR of 28%). COVID-19 claims in Q2 were 1.5x higher than in Q1; however, the claims environment is softening, and these should be viewed as one-offs."
The brokerage has claimed in its research report that "Given the company's focused efforts to raise its share of protection business and our expectation of better fixed cost absorption during H2FY22, we expect MAXL to deliver VNB margins of 25.4-25.7% over FY22E-24E. We expect APE/VNB CAGRs of 15.3/16.1% and operating RoEVs in the range 20-21% over FY21-24E. We retain our ADD rating with a target price of INR1,205 (Sep22E EV + 20.2x Sep-23E VNB; MAXF remains our high conviction pick within LI portfolio with an implied P/EV multiple at 4% premium to IPRU)."
Buy CreditAccess Grameen Ltd (CREDAG) with a target price of Rs 845
The brokerage has claimed that "CREDAG reported steady NII/PPOP growth of 9%/10% YoY on the back of stable NIM (11.2%) and strong AUM growth (+19% YoY). Disbursals were stronger in the quarter (+136% YoY) and are now back to pre-COVID levels. Consolidated GNPA/NNPA inched up marginally (+10bps QoQ) to 7.7%/3.4%. The stressed pool (PAR-0) dropped sharply from 31% to 12% for the standalone CAGL and increased for MMFL from 15.4% to 19.7%, while the restructured book was muted (1.3%). With a sharp reduction in the stressed pool and healthy ECL provisions (~6%), we expect credit costs to be contained at ~4% of AUM and normalise in FY23."
HDFC Securities has said "As expected, the portfolio's transient stress from Q1FY22 decreased significantly with PAR-0 falling sharply from 30.6% to 11.5% sequentially (9.9% in Oct-21 for the standalone entity). GNPA increased marginally from 7.6% to 7.7% for the consolidated entity, despite MMFL aligning to 60dpd NPA recognition, in line with the standalone entity. With collection efficiencies on the rise (99% including arrears) and a low number of borrowers (4.4% of AUM) with zero payments, management has guided for a credit cost of ~4.8% and RoA of ~2% in FY22."
The brokerage has further claimed in its research report that "We reduce our FY22/FY23 earnings estimates by 18%/4% to account for higher credit costs and maintain BUY with a revised target price of INR845 (2.7x Sep'23 ABVPS). We believe that our implied multiple reflects CREDAG's high cross-cycle potential RoE and a relatively conservative approach to an inherently risky business."
The above stocks are picked from the brokerage report of HDFC Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.