Buy Capital First; target of Rs 952: Cholamandalam securities

Cholamandalam Securities' research report on Capital First

CAFL’s overall AUM grew by 28.1% YoY (7.3% QoQ) to INR 229.74bn, largely driven by MSME- secured and unsecured (82.5% YoY and 9.2% QoQ), Home loans (76.1% YoY,47.5% QoQ) and Consumer durables (28.1% YoY,23.8% QoQ) segments. Going forward, the company expects the AUM to grow to INR 300bn (31%) by FY19E, by tapping the emerging affordable housing segments. Consequently it expects the share of home loans in overall AUM to double from current levels of 5%. Asset quality improved and GNPA stood at 1.63% vs 1.73% in 1QFY18, which is well below the industry (NBFC) average of 5.3%. NNPA was at 1% and PCR stood at 39%.The company’s securitized assets stands at INR 45bn as of 1HFY18 (no change since FY17).  The company’s total borrowings stood at INR 175bn, with 43.5% being funded by NCDs, 52% from banks (term loans and cash credits) and the rest from CP. Averages cost of funds stood at 7.8%, declining by 90bps YoY (20bps QoQ). The yield on overall portfolio is currently at 18%, which grew by 40bps YoY. The management aims at taking the share of NCDs to ~50% by FY18E.

Outlook
The stock is currently trading at P/BV of 2.3X, P/E of 13.3X FY19E. Considering the strong growth potential, we maintain the BUY rating, with a revised (18 month) target price of INR 952, assigning a P/BV of 2.95X on FY19E and 2.5X on FY20E. Risk: Weakness on the asset quality from the MSME segment, higher than estimated operating cost could put pressure on RoA, leading to slower improvement in the ROE.

For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.