Leading Aspirant of the Financial Sector- Capital First

Capital First has caught the eyes of the investors after it saw a tremendous rise of 87.91% post the Budget, 2016. It touched a high of Rs.797.60 on 29th July and the has kept its momentum which is well displayed in it FY17 Q1 results. The company is currently trading at a one year forward PB of 3.2x which is a considerable premium (46%) to the last one year average. Shares of Capital First rose 4 percent intraday Tuesday, 9th August on approval of fund raising plan by debenture committee of the company.

About the Company:

Capital First Ltd (NSE: CAPF) is a leading Financial Institution in India which has focused on providing debt financing services to MSMEs (Micro Small and Medium Enterprises) and Indian consumers. Capital First was founded in its current form in 2012 by Mr. V. Vaidyanathan by securing an equity backing of Rs. 8.10 Bn from global Private Equity player Warburg Pincus, by way of buyout of an already existing listed NBFC (Non-Banking Financial Company is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business), and in the process the company got new shareholders, reconstituted a new board, started new business lines, and created a new brand and entity called Capital First.

The founding theme of this financial Giant is to finance India’s 50 million MSMEs and its emerging middle class, with a differentiated model, based on new technologies providing a large and unique opportunity.

The product lines are as follows:

• Personal loan
• Loan Against Property
• Two Wheeler loan
• Business Loan
• Used Car loan
• Insurance
• Durable Loan

Solutions Provided Are:

• Customized credit assessment and operations processes to meet the needs of the MSME segment against the security of property or cash flow of the customers.
• Provide debt finance products to MSMEs and developing processes tailored to the MSME and consumer segment.

Highlights:

• Credit Analysis & Research Limited ("CARE") has assigned ‘CARE AA’ (Double A) rating for fresh limit of Rs. 50 Crores to the Company’s Perpetual Debt Issue.
• It has a long term credit rating of ‘AA+’ which not many companies in the Indian market have attained.
• CAPF is a LAP player (loan against property) and to believe so there are multiple factors. It is just not the book value, it is the operating metrics of the company the cost to asset under management (AUM), the cost of funds, the net interest margin (NIMs). Expectations are such that the net interest margins are to inch up by another 150-200 basis points from where it already is and that itself has been a remarkable improvement.
• In this quarter they grew their NIMs by 3 basis points. So, its cost coming under control, deleveraging of the gold portfolio, which is anyway doing well for them, a very fast growing area and coming to investors at fairly decent valuations with compelling return ratios.
• Within a short span of time, Capital First has built a large network and provides financing in 222 locations across the length and breadth of the country with an employee base of 1694.
• It has transformed from a wholesale lending NBFC to a strong Retail lending NBFC within 5 years.

Company Expectations:

• Only 15% of financial markets rely on EMI’s which are expected to rise to 40-50% creating prospects for the company within two to three years.
• Overall AUM is possible to double under the next few years.

Capital First Financial Analysis:

• The Q1 profits were in line with estimates as stronger net interest income (NII) growth and lower cost to income negated higher credit cost. Capital First reported 45.7 per cent rise in net profit to Rs 45.18 crores for the first quarter ended June 30.
• The CAR has fallen from 19.81% in last FY16 to 18.68% in Q1 in FY17.
• It has grown phenomenally in terms of capital to 28183 in Q1 FY17.
• A rise in total income is seen in terms of 13.04% compared to previous quarter Q4 FY16 at 3458Mn. Coming to PBT it rose to 5.46% to 753 Mn in Q1 FY17.
• An increase of 49% is seen in PAT in Q1 FY16 compared to Q1 FY17.
• It Displayed a Gross NPA of 1.18% and Net NPA of 0.6% as on 30th June 2016 which is commendable.

Investment Opinion:

We recommend buy in Capital First at Rs.675 with a short term target of Rs.755. There was a good delivery position which took place in the stock at per www.nseindia.com for 266000 shares on 4th August, 2016 in a range of Rs.672 to Rs.722. Therefore, Rs.672 can act as a very good buying area for the investment.

Meanwhile, Capital First share price is trading at Rs 699.95 and up by 3.18%.

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