MOSL: CAPITAL FIRST (INITIATING COVERAGE)-Capitalizing on multiple opportunities-Becoming a formidable player in multiple segments
​CAPITAL FIRST (INITIATING COVERAGE): Capitalizing on multiple opportunities; Becoming a formidable player in multiple segments
(CAFL IN, Mkt Cap USD1.1b, INR766, TP INR925, 21% Upside, Buy)
Founded in 2012 via management buyout of an existing NBFC, Capital First (CAFL) is a non-deposit-taking NBFC focusing largely on retail lending. Over the past six years, CAFL has transformed itself from a predominantly wholesale financier to a well-diversified retail financier with impeccable asset quality.
CAFL is a niche play in the retail NBFC space with a diversified loan portfolio. While secured MSME financing is the largest product in the portfolio, CAFL targets to increase the share of higher-yielding consumer durables (CD) and two-wheeler (2W) financing from 13%/10% currently to 16-17% each by FY19. Additionally, the company has built a large unsecured MSME financing book (18% of total) by cross-selling to existing customers.
Margins are expected to expand significantly (~90bp over FY17-20E), driven by incremental share of higher-yielding products, combined with declining cost of funds (CoF). This, coupled with 23% AUM CAGR, should drive 29% NII CAGR over FY17-20.
Over the past few years, CAFL has made significant investments in building new product segments. With the investment phase now largely behind, the benefits are expected to accrue over the medium term. We expect RoA/RoE to improve from 1.6%/12% in FY17 to 1.9%/17% in FY20. Against this favorable backdrop, we initiate coverage on CAFL with a Buy rating and a target price of INR925 (3.0x FY19E 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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