Sakthi Finanace 511066 : Buy at CMP of Rs 39- 40 one year Target Price Rs 55

  Sakthi Finance Ltd. was incorporated in the year 1955 as a Non-banking finance company [NBFC] initially towards catering the hire purchase financial requirements of the group's TELCO dealership units.

 Sakthi Finance is one of the leading non-banking finance company with over 49 branches in Tamilnadu, Kerala, Karnataka & Andhra Pradesh, Haryana  Sakthi Finance has positioned itself as a niche player by introducing refinancing for commercial vehicles and construction equipments. The company offers various financing  and refinancing schemes to cater to the funding requirements of commercial vehicle operators.

Year	2018-E	2017	2016	2015	2014	2013
Revenue-Rs Cr	180	167.81	168.03	146.79	131.83	122.05
Other Income	3	2.74	4.04	3.83	6.27	6.67
Total Income	183	170.55	172.07	150.62	138.11	128.72
Expenditure	158	-146.22	-46.21	-36.6	-34.23	-31.93
Interest	0	--	-102.61	-90.32	-78.64	-72.59
PBDT	25	21.12	23.25	23.7	25.24	24.2
Depreciation		--	-2.85	-2.41	-2.46	-2.87
PBT	25	21.12	20.4	21.29	22.79	21.33
Tax	4.75	-4.36	-7.87	-5.44	-8.63	-7.33
Net Profit	20.25	16.76	12.53	15.85	14.16	14
Equity	50	50	50	50	50	50
EPS	4	3.2	2.5	3.2	2.8	2.8
NPM %	11.25	9.98	7.45	10.8	10.74	11.47

According to global research firm ICRA, the Medium & Heavy Commercial Vehicles (M&HCV -Truck) segment in India is likely to register a growth of 12-14%  driven by continuing trend towards replacement of ageing fleet and expectations of pick-up in demand from infrastructure and industrial sectors in view of reforms being initiated by the Government.

Over the medium term, the demand for new CVs will also be driven by gradual acceptance of advance trucking platforms, progression to BS-V emission norms in coming years and introduction of technologies such as Anti-Lock Braking System (ABS), which may lead to some advance purchases by fleet operators

Target Price:

With expected growth in demand of trucks in next 2 years truck financing business can experience improved growth. Falling interest scenario should further help business in improving margins. Company has consistently paid dividend of 10% for last 5 years and recently announced 10% dividend

At a conservative growth estimate of approx 10% and improvement in margins could result in EPS of approx 4 for year 2017-18.Based on the estimated performance stock is available at forward PE multiple of 10 , which is quite attractive. A PE multiple of 13 could take this stock at 52 plus levels.

Stock has recently touched 48 and from that level has come back to 40 levels. Approximately 65% promoter’s stake and strong holding by cooperate and foreign investors hardly 9% stock is floating with public.

Long term investors can buy this fundamentally strong stock at current levels of Rs 39-40 with one year target of Rs 55 with a scope of  40% appreciation from current levels

Wish all my readers and followers a very good health and prosperity on Ganesh Chaturthi...stay blessed