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Capital First, Wonderla and MPS: Views on Growth Slowdown and PEG - Views on News from Equitymaster
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  • Nov 25, 2016 - Capital First, Wonderla and MPS: Views on Growth Slowdown and PEG

Capital First, Wonderla and MPS: Views on Growth Slowdown and PEG
Nov 25, 2016

Demonetisation and the accompanying economic slowdown have already begun to take a toll on stock valuations. Stocks at 52 week lows give the impression of deep discount in valuations. However, we must remember that for stocks recommended in The India Letter we look at two key aspects.

Whether the tailwinds of the megatrend we identified for a particular stock will continue to drive growth.

Whether the valuation of the stock in the context of its earnings growth looks attractive.

Based on the above parameters we decide whether the stock still qualifies to be a Megatrend stock and warrants an additional exposure.

Capital First

Talking about growth, Capital First has not disappointed us at all on this front all this while. In fact the NBFC has outperformed our initial estimates on asset growth by a wide margin.

The NBFC's unique focus on the underpenetrated segment of non-salaried borrowers has helped it grow the loan well above sector average. Capital First is banking on factors like rise in per capita income, replacement demand for vehicles and two wheelers, urbanization, rise in organized retail the market for white goods for its long term credit growth. Meanwhile, its asset quality and margin performance have also been better than most of its peers.

However, we believe that the economic slowdown and financial entities' conservative approach towards loans against property could impact the entity's growth in the near term. The demand for two wheelers and passenger cars have also taken a hit post demonetization.

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