CIFC: CIFC on analysts of IIFL Capital Services RISQ valuation framework

23 Oct 2023 , 10:22 AM

Recommendation: Buy; Target price: Rs 1400

 

CIFC’s is set to deliver higher growth (27% AUM Cagr vs LTA of 20%) led by renewed focus in HL and LAP and foray into new segments. CIFC was amongst the first large NBFC (save for BAF) to embark on diversification, a strategy adopted by other large NBFCs as highlighted in analysts of IIFL Capital Services recent report: Out of the shadows. On analysts of IIFL Capital Services qualitative scorecard for NBFCs, CIFC ranks second highest, next only to BAF. While absolute valuations are rich at 4.8x 1YF P/B, they are reasonable adj. for superior profitability and growth (0.8x PEG). Analysts of IIFL Capital Services re-instate coverage on CIFC with BUY and TP of Rs1,400 using their RISQ valuation framework. 

CIFC ranks second-highest on analysts of IIFL Capital Services RISQ valuation framework: 

Under analysts of IIFL Capital Services RISQ valuation framework, we first calculate FV of the stock using residual income and then ascribe premium (if any) based on co’s qualitative asset and liability score (RISQ quadrant). CIFC ranks the second highest on their qualitative scorecard, behind BAF, scoring high on asset score (competitive intensity, customer segment, historical track record on underwriting and of building new growth verticals). 

NIMs to improve from tough: 

CIFC’s COF is likely to rise 15-20bps over M9FY24. But, analysts of IIFL Capital Services expect NIMs to bottom out in Q2FY24 and recover from there on as: endowment benefit (Rs20bn QIP) flows through, share of higher rate VF book increases, 30bps rate hike of July starts reflecting and share of higher yielding new businesses increase. Consequently, we expect overall NIM compression of 25bps YoY for FY24, before recovering 20bps YoY in FY25. For FY26, analysts of IIFL Capital Services expect NIMs to expand another 30bps aided by equity conversion of Rs20bn CCDs. 

Retain BUY with TP of Rs1,400: 

CIFC is well placed to deliver 27% AUM Cagr and 30% earnings Cagr on back of distribution expansion for HL and LAP and scale up of new businesses. Re-instate analysts of IIFL Capital Services coverage on CIFC with BUY rating and TP of Rs1,400 based on their RISQ valuation framework. Analysts of IIFL Capital Services have revised their estimates to reflect Rs20bn of equity fund raise and another Rs20bn in FY26 on CCD conversion.