Shriram Transport Finance

LIC Housing Finance is on a tear. I had sold it late July - my rationale was that the stock wont do anything till 2Q earnings unless company does a QIP around 650. Seems like thats what they did today - selling stock at 658.

So now, here we have a company trading at 10x PE and around 2x PB. 3 years back, the company was a basket case on account of souring loans. Has the culture of the company changed that much that it will not be making bad loans today in its hyper charged growth environment? Don't know, but I will not bet on the culture change thing in LIC. Maybe the stock goes up 50% to close the valuation gap with HDFC. But this stock will give me sleepness nights. It is in 2011-2012 that we will really come to know how smart LICHF was in 2009.

My preference is with Shriram Transport Finance. Trading at 12x PE, 3x P/B, quasi monopoly in commercial vehicle lending. The company survived the CV downturn of last 18 months without too many scratches => they know how to lend to this segment profitably. Having seen the downturn, they will be managing risks carefully. The stock is expensive compared to LICHF, but the lending biz is probably much better quality. In banking, numbers can be very deceptive, so it is better to pay up for a good quality lender.

Disclosure: Own Shriram Transport Finance