Buy Capital First; target of Rs 942: Cholamandalam securities

Cholamandalam Securities' research report on Capital First

Capital First Ltd (erstwhile Future Capital Holdings Ltd) is a non-deposit taking NBFC with large focus on retail lending. Capital First provides loans to retail customers (in the form of secured and unsecured loans to small and medium enterprises (MSME), consumer durables loans, two-wheelers loans and housing loans) and corporate customers (loans to real estate developers) on a selective basis. AUM (Asset under Management) stood at INR 198bn as of FY17 with a mix of Retail- 93% and Wholesale- 7%. The company has transformed into a large retail financing institution with operations in 264 locations across India and has financed over 4.1mn customers.

Outlook

For CAFL, MSME has remained a key focus area and it has created a niche for itself in the segment. Going forward with more focus laid on 2W/CD financing which remains highly under-penetrated offering growth potential, we expect a robust 24% CAGR (over FY17-20E) AUM growth along with 70bps margin expansion. Considering such strong growth potential and the RoE improvement (from 11.9% in FY17 to 17.1% by FY20E) we initiate coverage on CAFL with a BUY rating and an 18-month target price of INR 942 (an upside potential of 31%), assigning a P/BV of 2.6x of FY20E.