Buy Capital First; target of Rs 655: Centrum

Centrum's research report on Capital First

Capital First Ltd (CFL) reported yet another quarter of good results with net interest income (NII) growing 75% YoY to Rs 390 crore on the back of 32% AUM growth. This was led by robust growth in MSME business, consumer durables and 2-Wheeler loans, taking the retail contribution to 90% of AUM (88.5% in Q1). Net profit grew 41%. Asset quality improved with gross non-performing assets (NPA) declining 20bps QoQ to 0.98% as on September 30, 2016.

Post Q1 results, we had a Hold rating on the stock due to its rich valuations (2.9x FY18E ABV). The stock has corrected 16% post Nov. 8, 2016 and offers a good investment opportunity at current valuations of 2.4x FY18E ABV. In the near term the overall business growth is likely to be impacted by the recent demonetization of currency. Also, the asset quality may be weak in the H2FY17. However, with stabilisation of cash flows in the economy, businesses would pick up in a quarter or two. The long term growth is expected to be driven by increasing demand in CFL’s key segments and we expect a loan book CAGR of 33% to Rs 22,409 crore, over FY16-18E. Hence, we remain positive on the stock from long term perspective and recommend Buy at current levels with a target price of Rs 655, valuing the stock at 2.8x its FY18E ABV.