Buy Capital First; target of Rs 916: Cholamandalam Securities

Cholamandalam Securities' research report on Capital First

CAFL’s overall AUM recorded a robust growth of 36.2% YoY (9.1% QoQ), largely driven by MSME- secured and unsecured, Home loans, and Consumer durables segments. Going forward, the company expects the AUM to grow by ~25% by FY19E, by tapping the emerging affordable housing segments. Consequently it expects the share of home loans in overall AUM to double from current levels of 5%. Asset quality witnessed marginal deterioration sequentially and GNPA stood at 1.62% vs 1.59% in 3QFY18, which is still well below the industry (NBFC) average of 5.3%. NNPA rose to 1% from 0.93% in 3QFY18 and PCR stood at 38.3%.  The company’s total borrowings stood at INR 217bn, with 45% being funded by NCDs, 46% from banks (term loans and cash credits) and the rest from CP. The management aims at taking the share of NCDs to ~50% by FY19E. Net Interest Income was at INR 5.8bn, growing at 55.7% YoY(10.8% QoQ). Other income saw an overall growth of 26.5%YoY (14.2% QoQ), owing to growth in distribution services and income from loyalty cards and stood at INR 1.3bn.

Outlook

The stock is currently trading at P/BV of 1.4X, P/E of 6X FY20E. Considering the strong growth potential, we maintain the BUY rating, with a target price of INR 916, assigning a P/BV of 2.1X on FY20E.