Gurmeet Chadha, Managing Partner & CIO, Complete Circle Consultants, says one can now look at some of the tier II banks like Federal Bank, which at around 1-1.1 book value is making good progress. RBL is also expected to make a turnaround and it is showing some signs of that although it may still be a couple of quarters away. Also some good NBFCs in consumer lending like Poonawalla UGRO can be considered now.”.
PFC, REC have been the darlings of the stock market along with other power companies and power financiers and even IREDA. They took a tumble on Monday because of the news flow. Would you be a buyer in these dips?
Gurmeet Chadha: See, you have to differentiate between different NBFCs. One is an infrastructure lender like IREDA. Then, you have companies like REC, PFC which are more linked to project finance and power related lending and then you have the normal NBFCs. You have to understand the asset classification and the provisioning norms are very different for a normal bank and NBFC versus these entities and any tightening by RBI, now today there are just norms of project finance provisioning being increased of, let us say 5% once the project starts and if you are in a consortium, you have to have, let us say, have a 10% kind of an exposure, all of them does increase your capital adequacy and provisioning requirements and they have run up if you see from the lows I think quite a bit.
So, these kinds of events can happen and that is one risk you always run when you go for these entities. So, my sense is that you got to be very selective. I think IREDA still looks good to me in terms of the pipeline they have. Secondly, I think I would be better off going into banks right now because you get, let us say, these players at two-three book value and you get good banks at, let us say, two book value, so what would you prefer?
So, it is again a question of relative valuations. You can also look at some of the tier II banks like Federal Bank, around 1-1.1 book value doing good progress. I hope RBL will also see the turnaround, it is showing some signs, although probably I think it is still a couple of quarters away. And maybe some good NBFCs, proper NBFCs into consumer lending like Poonawalla. We added one, which we discussed last time, which is UGRO. They just raised a lot of capital from family offices and funds. It will probably be raising more, almost 45% of the book is with banks, very good ROAs and controlled credit costs.So, these are the spaces we like more. In this pocket of power finance companies, state lenders, there is no harm in taking some money off the table.
Have you tracked any of the primary action candidates of late? This week, of course, Aadhar, TBO, Indegene come to the market. Anything that you have tracked and liked?
Gurmeet Chadha: Adhar is creating a lot of excitement in the market. We have been speaking to a lot of merchant bankers, family offices. There is a lot of excitement even on the book building side, so that is something we are keenly watching. But being a PMS, we have restrictions in terms of applying for the IPO. So, we may look at Aadhar post listing and there are some counter cyclical names we are looking at, something that probably have seen bottom, whether in chemical, whether in IT and maybe selectively in healthcare. We are trying to be a little counter cyclical there, hoping that maybe a lot of bad news is in the price.
