Sharekhan 's report on Capital First
“Capital First has raised about Rs300 crore via a qualified institutional placement issue at a price of Rs 390 per share. The capital raising exercise will add to the book value (2x FY2017E book value) and lift the company’s capital adequacy ratio from about 20% to 23.5%, which should be sufficient to support a growth of over 25% in loans over the next couple of years. The company aims for assets under management (AUM) of Rs 25,000-30,000 crore by FY2019 (that is a growth of 25% CAGR) and return on assets (RoA) of about 2.5%.”
“Capital First has a diversified loan book with loans to small and medium enterprises and retail loans (for consumer durables, two-wheelers and mortgages) contributing 84% of the total AUMs. With a scale-up in the key businesses, the company will benefit significantly from operating leverage leading to an improvement in the return ratios. Its asset quality remains among the best in the industry due to its stringent underwriting practices and robust technology-enabled initiatives.”
“We expect Capital First to deliver an earnings growth of 57% CAGR over FY2014- 17 led by a 35% compounded annual growth in the net interest income. Due to the recent capital raising the return on equity (RoE) estimates for FY2016 and FY2017 may get diluted by 200-250 basis points though the RoA may continue to improve. A likely easing of interest rates or a pick-up in the economy will boost the company’s growth. Considering the robust growth outlook, healthy asset quality and experienced management team, we believe that the stock trades at reasonable valuations (2.0x FY2017E book value). We maintain our Buy rating on the stock with an unchanged price target of Rs 485 (2.3x FY2017 BV)”, says Sharekhan’s research report.
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