MOSL: CAPITAL FIRST (Buy)-Grinding along-Return ratios to improve with scale and mix
​CAPITAL FIRST: Grinding along; Return ratios to improve with scale and mix
(CAFL IN, Mkt Cap USD1.2b, CMP INR698, TP INR925, 33% Upside, Buy)
We recently met management of Capital First (CAFL) at our ‘Midcap Conference’.
- The company’s growth prospects appear bullish to us. Given the strong performance in 1HFY18, coupled with better-than-expected demand in the festive season, AUM growth in FY18 should comfortably exceed management’s guidance of 23-25% and could possibly be north of 30%, in our view. We expect 28% AUM growth, driven by growth of 50% in consumer durables (CD) loans and 30% in two-wheeler (2W) loans.
- Management targets a 400-500bp improvement in RoE over three years from FY17 levels (12%). There are three key factors driving this improvement: (1) Improving RoE in the CD financing business. (2) Mix shift toward CD and 2W financing segments, which generate higher RoE than LAP. (3) Break-even in profitability in the new ventures (affordable housing and used auto financing) over the next 1-2 years.
- With our estimates, we arrive at RoA/RoE of 1.9%/17% for FY20. Our estimates do not factor in any capital raise (which could be possible over the next 12-18 months). The stock trades at 2.1x Sep’19E BVPS, which we believe is attractive from a risk-reward perspective, considering 25%+ AUM growth and 15%+ RoE in the near-to-medium term. Buy with a target price of INR925 (2.8x Sep’19E BVPS).
Capital First Ltd. Capital First Limited is an India-based financial company, which is focused on providing debt financing to micro, small and medium enterprises (MSMEs) and Indian consumers. The Company's products include personal loans, business loans, loan against property, two wheeler loans, pre-owned car loan and insurance. The Company also provides other credit granting services. The Company provides financing for various purposes, such as business expansion, loans for plant and machinery, office furniture, display panels, office automation (such as personal computers), laptops and printers. The Company offers consumer durable loans for digital products, such as cameras and accessories, laptops and desktops, and mobiles and tablets, and non-digital products, such as television, refrigerator, air conditioner, microwave, washing machine and audio. The Company, as a corporate agent, also distributes life insurance products and general insurance products offered by insurance companies.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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