Buy Capital First; target of Rs 952: Cholamandalam securities

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26 Aug, 2025 12:21

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Cholamandalam Securities' research report on Capital First

CAFL’s overall AUM grew by 28.1% YoY (7.3% QoQ) to INR 229.74bn, largely driven by MSME- secured and unsecured (82.5% YoY and 9.2% QoQ), Home loans (76.1% YoY,47.5% QoQ) and Consumer durables (28.1% YoY,23.8% QoQ) segments. Going forward, the company expects the AUM to grow to INR 300bn (31%) 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 improved and GNPA stood at 1.63% vs 1.73% in 1QFY18, which is well below the industry (NBFC) average of 5.3%. NNPA was at 1% and PCR stood at 39%.The company’s securitized assets stands at INR 45bn as of 1HFY18 (no change since FY17).  The company’s total borrowings stood at INR 175bn, with 43.5% being funded by NCDs, 52% from banks (term loans and cash credits) and the rest from CP. Averages cost of funds stood at 7.8%, declining by 90bps YoY (20bps QoQ). The yield on overall portfolio is currently at 18%, which grew by 40bps YoY. The management aims at taking the share of NCDs to ~50% by FY18E.

Outlook
The stock is currently trading at P/BV of 2.3X, P/E of 13.3X FY19E. Considering the strong growth potential, we maintain the BUY rating, with a revised (18 month) target price of INR 952, assigning a P/BV of 2.95X on FY19E and 2.5X on FY20E. Risk: Weakness on the asset quality from the MSME segment, higher than estimated operating cost could put pressure on RoA, leading to slower improvement in the ROE.
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