Capital First (CFL) is a non-deposit-taking NBFC primarily focusing on retail
lending. Post management buyout (2012), Mr Vaidynathan, the current
chairman, transformed the company’s focus from wholesale financier to
diversified retail financier. Warburg Pincus in 2012 acquired a majority stake in
the company. Focused approached led to decline in wholesale financing to 7%
now from 90% in FY2010 and stringent underwriting resulting into GNPA of
5.3% in FY2010 to 1% in FY2017.
Outlook and valuation: Strong capital adequacy and pick up in retail credit will
ensure 24% loan growth over FY2017-20. Favorable loan mix coupled with
expansion in NIM would drive 32% earnings CAGR over the same period. Given
improving return ratios we believe the stock is poised for further re-rating. The
stock is trading at 2.2x it FY2020 ABV. We have valued the stock at 2.7x its
FY2020E ABV and recommend BUY with a target price of `850 over the next 12

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