Ashika Monthly Insight Flip July 2016

FDI - WINDOW OF OPPORTUNITY
Capital First Ltd.
CMP: Rs 557
Rating: BUY Target: Rs 650
Company Information
BSE Code 532938
NSE Code
Bloomberg Code
ISIN
CAPF
CAFL
INE688I01017
Market Cap (Rs. Cr) 5182
Outstanding shares(Cr) 9.1
52-wk Hi/Lo (Rs.) 584.4 / 321
Avg. daily volume (1yr. on NSE) 115,608
Face Value(Rs.) 10
Book Value 172.5
150
140
130
120
110
100
90
80
70
60
50
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
CAFL vs. Nifty
Nov-15
Dec-15
Share holding pattern as on Mar 2016 (%)
Particulars (in Rs. Cr.) FY15 FY16 FY17E FY18E
Net interest Income 536 818 1,145 1,469
NIM (%) 5.5 6.7 6.8 7.0
Operating Profit 272 489 706 919
PAT 114 167 249 340
EPS (Rs) 12.5 18.3 27.3 37.3
BV (Rs) 172 185 210 242
GNPA (%) 0.7 1.1 1.3 1.4
Jan-16
Consensus Estimate: Ashika Research
Feb-16
Mar-16
Apr-16
May-16
Volume('000)RHS CAFL Nifty
Others
17.6
DII
9.9
FII
7.3
Promoters
65.2
1200
1000
800
600
400
200
0
Company Overview
Capital First Ltd (CAFL), erstwhile Future Capital Holdings is
one of the fastest growing NBFCs in the country which has
successfully created a niche position in MSME financing, a
huge potential market but largely underpenetrated. Future
Capital Holdings was acquired by leading global private
equity player, Warburg Pincus, from Future Group in Sept
2012. It is managed by Mr.V.Vaidyanathan (ex employee of
ICICI) and also has 14% stake (including options) in the
company. CAFL provides Loan against Property (LAP) for
MSMEs having an average ticket size of Rs 96 lakh. The
other segments are two-wheeler loans having average
ticket size of Rs 44,000 and loans for consumer durables
with average ticket size of Rs 30,000. As of FY16, the
company has a total AUM of Rs 160bn (retail AUM of Rs
138bn) with strong distribution network across India
spanning over 222 towns and has employee strength of
1412.
Investment Rationale
Retail focused business model
Over the past six years, Capital First has transformed itself
from being a wholesale lending NBFC to a strong retail
lender. Mr. V. Vaidyanathan, chairman of the company has
also been instrumental in revamping the company’s
business model and strategically exited the broking
business back in FY14 and gold loan business in FY15. In
the early days, the company used to provide wholesale
loans to corporates, primarily loans to real estate
developers, against the security of underlying assets.
However, understanding the inherent risks and lumpy
nature, management changed focus for good. CAFL has
thereby emerged as a significant player in the retail
finance space with retail loan book standing at INR 138
bn. The retail business forms 85% of loan book now
compared to 10% in FY10. Of the total loan book, SME
financing comprises of ~69%, consumer durable financing
is 7-8% while two wheeler loans accounts for another 8%.
The balance is wholesale book (largely builder financing)
accounting for 15-16%. Between FY10-16, under Mr. V.
Vaidyanathan, total AUM grew at a CAGR of 61% (from Rs
9,347 mn to Rs 1,60,408 mn) while retail AUM grew at a
staggering 129% CAGR during the same period.
MSME Segment to drive growth
The MSME (micro, small and medium enterprises) sector in
India contributes 37.5% to gross domestic product (GDP)
and provides employment to 111.4 million persons while
accounts for more than 40% of India’s exports. This sector
has often been ignored by the conventional banking
industry and been considered risky and distressed.
11