The stock of Indostar Capital, a mid-cap nonbanking financial company (NBFC), has nearly halved from its IPO listing price of Rs 600 on May 21 following liquidity crunch in the banking system and rising concerns over the asset quality of the sector. The stock is now available at a pricebook (P/B) multiple of one, which looks attractive given the company’s focus on the retail book, stable asset quality, adequate fund availability due to the recent initial public offering, strong management, and gradual improvement in liquidity in the system. Over the past two months, the stocks of several NBFCs have taken a hit after the default of Infrastructure Leasing and Financial Services (ILFS) on several bank loans and commercial papers and subsequent downgrading of its loans to junk status by credit rating agencies from the investment grade rating earlier. A major concern is the asset-liability mismatch of these lenders, wherein short-term borrowings tend to support their long-term loan assets such as mortgages. While asset-liability mismatch casts a shadow on the lending sector, the management of Indostar Capital claims to be on a better footing.

“Our ALM position is robust with positive cash and equivalents projected until FY20,” said R Sridhar, executive vice-chairman and CEO, Indostar Capital Finance. According to him, the cash on the company’s books stands at Rs 1,062 crore, which is sufficient to cover its loan disbursements over two-and-a-half months. Indostar has also improved asset quality over the past few quarters.

Its gross nonperforming assets (GNPA) ratio stood at 0.9 per cent in the quarter ended September, compared with 1.9 per cent in the corresponding quarter a year ago. The proportion of the retail segment in the assets under management increased to 37 per cent during the quarter from 22 per cent during the yearago quarter. Its retail exposure consists of vehicle finance, affordable housing loans and lending to small and medium enterprises. The company’s debt-equity ratio was at two at the end of the September quarter, which is low compared with levels of 5 or 6 for some of its peers. The low leverage gives comfort amid the scenario of tight liquidity.

At the stock price of Rs 316, Indostar’s price-book multiple is one, making it inexpensive given the low level of non-performing loans, healthy net interest margin of 8.6 per cent and sustained growth in its assets under management. This may bring the stock back on the radar of long term investors.