First Leasing Company

 

 

This is a very old company. It's a 35 year old company, which was incorporated in 1973. True to its name, it was the first leasing company in India and they were the one who introduced the concept of leasing in India. The business of this company is primarily focused at the corporate sector. They are involved in various financing deals including different types of leases like operating lease, short-term lease, sale and lease back arrangements and also hire purchase and consumer credit. 

This company has got credit rating ranging from high safety, which is AA and AA+ to highest safety which is PR1+ for different debt instruments, which they have issued. This rating is from CARE and company has got a capital adequacy ratio of about 16.45 as against 12% which is stipulated by Reserve Bank of India (RBI). The net non-performing asset (NPA) of the company as on March 31, 2009 is zero. If you look at the financials of the company for FY10, the total income is about Rs 187 crore which is almost same as last year, profit after tax is about Rs 35 crore and the company has got equity capital of close to Rs 23 crore, which means earnings per share (EPS) of about Rs 15. 

At the current price of Rs 55 this stock is traded at a price to earning multiple of less than 3.5. The good thing about this company is that this company has got track record of an interruptive dividend for the last 35 years, right from its inception and right from the first year this company has been paying dividends and at the current price of Rs 55 it is a safe stock to invest. This is a stock which won't give nightmares in case the market falls. At a PE of 3.5 and as against the book value of about 110 the stock price is just about 50% of the book value. Dividend for this year is about 18%, which means a dividend yield of close to 3.5%. 

The best part is that the profit of Rs 35 crore is understated to the extent of about Rs 9 crore because they have provided for a deferred tax of about Rs 9 crore. The deferred tax is okay in case of manufacturing companies but in leasing companies where they are incurring capital expenditure on a monthly basis, this doesn't make sense but as per accounting standard 22 they have to provide for it. 

So if you include that back into the profit, you are getting a stock at a price to earning multiple of about less than 3. From these levels, I do not see investors losing much. Even though this may not be a multi bagger, it may give you returns which are linked to the market. This is a one for one who wants an exposure in equity but doesn't want to take much risk this is a stock for that profile of investor.