Q1FY19 RESULT UPDATE RETAIL EQUITY RESEARCH Capital First Ltd. NBFC BSE CODE:532938 NSE CODE: CAPF Bloomberg CODE: CAPF:IN SENSEX: 37,887 Buy Rating as per Midcap 12months investment period CMP Rs. 554 TARGET Rs.653 RETURN 18% 9 th August 2018 Merger to bring growth. Capital First (CAPF) is a leading NBFC specialized in providing debt financing to Self-employed Entrepreneurs, MSMEs and consumers in India. CAPF has financed over 4 million customers in more than 225 locations across India and built loan assets of ~Rs30,000cr. Merger with IDFC bank may benefit from low cost CASA. Interest income grew by 49% in Q1FY19 and NII grew by 51% YoY. Q1FY19 PAT grew by 57% YoY, supported by robust 83% YoY growth in Loan book. Gross/ Net NPA improved to 1.57%/1% against 1.72% /1.04% in Q1 FY18. On the back of strong PAT growth & healthy earnings outlook, we value Capital First at 2.4 x FY19E Adj. BV and recommend Buy with a target price of Rs 653. Merger to push growth... The management of CAPF and IDFC Bank have agreed for the merger of two companies at 139:10 swap ratio where shareholders of CAPF will receive 139 shares of IDFC Bank for every 10 shares held. RBI approval have received for the voluntary amalgamation of Capital First Ltd, Capital First Home Finance Ltd and Capital First Securities Ltd with IDFC Bank on June 4 th 2018. However the merger related procedures expected to be over by 4 to 6 months as the final approval from shareholders and National Company Law Tribunal (NCLT) pending. The merger with IDFC Bank may improve the growth prospects on the paybacks form low cost CASA deposits and high growth retail business trajectory of Capital First. Mr. Vaidyanathan s leadership is giving extra vibe to support the positive outlook on the performance of the merged entity. Strong earnings trajectory... Interest income grew by 49% from Rs.660cr in Q1FY18 to Rs.981cr in Q1FY19 and PAT grew by 57% from Rs.65cr to Rs.102cr in same period on the back of robust loan growth at 83% YoY. NII is up by 50%YoY to Rs.528cr against Rs.351cr a year ago supported by strong margins. Provision has reduced by 8% to 154cr against Rs.167cr in the same quarter mainly on account of improvement in asset quality. Healthy loan growth... Loan book is sustaining strong loan growth trajectory supported by SME and consumer financing. Loan book witnessed a growth of 57% YoY in Q3FY18. It is expected that the merged entity will have ~88000cr AUM. We expect that the merger would bring benefit to the new entity on account of combined urban and rural reach of the two amalgamating entities. Stable asset quality... Capital First has consistently maintained high asset quality over the years. The GNPA/NPA has improved to 1.57%/1.00% respectively as of 30 June 2018 as compared to GNPA/NNPA of 1.72%/1.04% respectively as of 30 June 2017. Valuations... We are positive on the back of strong earnings of Capital first and growth prospects of merged entity. We value Capital First at 2.4x of Adj. BV of FY19E on the ground of merger to complete in next 4-6 months and recommend Buy rating with a target price of Rs.653. Company Data Market Cap (cr) Rs. 5,638 Outstanding Shares (cr) 9.9 Free Float 64.5% Dividend Yield 0.5% 52 week high Rs. 902 52 week low Rs.475 6m average volume (cr) 0.06 Beta 1.45 Face value Rs10 Shareholding (%) Q3FY18 Q4FY18 Q1FY19 Promoters 35.6 35.6 35.5 FII s 24.0 20.7 20.7 MFs/Insti 11.2 14.4 11.6 Public 29.2 29.3 32.2 Total 100.0 100.0 100.0 Price Performance 3 month 6 month 1 Year Absolute Return -8.3% -17.0% -29.0% Absolute Sensex 7.0% 10.6% 16.8% Relative Return -15.4% -27.6% -45.8% *over or under performance to benchmark index Standalone (Rs.cr) FY17A FY18A FY19E NII 1,228 1,806 2,275 Growth (%) 59% 47% 26% NIM (%) 6.8% 7.7% 7.3% PAT Adj 240 329 397 Growth (%) 43% 37% 21% Adj.EPS 24.6 33.3 40.1 Growth (%) 34% 35% 21% P/E 22.7 16.8 14.0 P/B 2.4 2.1 1.9 Adj. P/B 2.5 2.3 2.1 ROE % 12% 13.4% 15.6% Sreenish S R Analyst
Quarterly Financials Profit & Loss Account (Rscr) Q1FY19 Q1FY18 YoY Growth % Q4FY18 QoQ Growth % Interest Income 981 660 49 976 1 Interest Expense 453 309 47 393 15 Net Interest Income (NII) 528 351 50 583-9 Fee and Other Income 74 110-33 129-43 Total Income 602 460 31 712-15 Expenditure 282 191 48 386-27 Depreciation 6 6-9 -33 Pre Provision Profit 314 263 19 143 120 Provision 154 167-8 174-11 Other Income - - - PBT 160 96 67 143 12 Tax 58 31 87 48 21 Reported PAT 102 65 57 95 7 Adjustment - - Adjusted PAT 102 65 57 95 7 Diluted EPS (Rs) 9.8 6.6 48 9.5 3 Change in estimates Old estimates New estimates Change % Year / Rs cr FY19E FY20E FY19E FY20E FY19E FY20E Net Interest Income (NII) 2,137-2,275 - +6.5% - NIM (%) 7.2-7.3 - +10bps - Fee and Other Income 630-639 - +1.4% - Adj PAT 391-397 - +1.5% - Diluted EPS (Rs) 40.1-40.1 - - -
Standalone Financials Profit & Loss Account Y.E March (Rs cr) FY15 FY16 FY17 FY18 FY19E Interest Income 1,289 1,668 2,389 3,188 4,392 Interest Expense 788 897 1,161 1,382 2,117 Net Int. Income 501 771 1,228 1,806 2,275 % Change 53% 54% 59% 47% 26% Non Int. Income 24 11 280 414 639 Operating Income 526 782 1,508 2,220 2,914 % Change 51% 49% 93% 47% 22% Pre Prov. Profit 265 488 782 1,094 1,279 Prov. & Conting. 105 236 453 642 740 PBT 166 252 357 494 602 % Change 182% 52% 42% 38% 22% Tax 52 85 117 188 205 Tax Rate (%) 31% 34% 33% 34% 34% Reported PAT 114 168 240 328 397 Adj* 0 0 0-9 0 Adj PAT 114 168 240 329 397 % change 117% 47% 43% 37% 21% No. of shares (cr) 9 9 10 10 10 EPS (Rs) 13 18 25 33 40. % change 96% 46% 34% 35% 34% DPS (Rs) 2 2 2 2 2 CEPS (Rs) 14 19 26 36 47 Ratios Y.E March (Rs cr) FY15 FY16 FY17 FY18 FY19E Profitability & Return Ratios Interest yield (%) 15.9 15.5 17.2 16.5 16.6 Cost of funds (%) 9.3 8.8 8.9 7.7 8.2 Net int. spread (%) 6.5 6.7 8.3 8.8 8.4 NIM (%) 4.6 5.5 6.8 7.7 7.3 ROE (%) 8.3 10.2 12.0 13.4 14.2 ROA (%) 1.1 1.3 1.5 1.5 1.3 Loan (growth) 25 43 20 55 26 Total Fund (growth) -6 39 30 56 25 Asset Quality GNPA (%) 0.8 1.7 1.7 1.6 1.5 NNPA (%) 0.2 1.2 1.0 1.0 1.0 Capital Cap adeq ratio (%) 22.2 22.5 20.2 16.5 16.0 Valuation ratios P/E (x) 44.6 30.5 22.7 16.8 14.0 P/BV (x) 3.2 3.0 2.4 2.1 1.9 P/ABV (x) 3.3 3.3 2.5 2.3 2.1 Balance Sheet Y.E March (Rscr) FY15 FY16 FY17 FY18 FY19E Cash and cash eq 1,057 1,113 1,594 1,426 4,455 Accounts Rec. 10 27 62 67 83 Loan Book 8,709 12,446 14,987 23,450 29,426 Other Curr.Assets 466 559 522 448 689 Investments 99 142 215 287 316 Gross Fixed Assets 36 48 81 112 128 Net Fixed Assets 14 19 48 61 58 CWIP 0 0 0 0 0 Intangible Assets 5 10 17 22 17 Def.Tax (Net) 42 55 72 98 98 Other Assets 279 156 138 307 353 Total assets 10,682 14,525 17,655 26,168 35,497 Current Liabilities 2,766 3,593 3,465 4,083 8,120 Provisions 185 219 263 399 289 Debt Funds 6,110 8,945 11,543 18,937 23,946 Other Liabilities 46 65 80 131 155 Equity Capital 91 91 97 99 99 Reserves&surplus 1,483 1,612 2,206 2,519 2,889 Shareholder's Fund 1,574 1,704 2,304 2,618 2,988 Total liabilities 10,682 14,525 17,655 26,168 35,497 BVPS (Rs) 173 187 236 264 302 Adj. BVPS 171 179 232 241 272
Recommendation Summary (last 3 years) Dates Rating Target 28-August -14 Accumulate 329 22-May -15 Accumulate 450 24-May -16 Hold 528 09-August -16 Reduce 690 23-November- 16 Buy 635 07-February- 17 Hold 750 15-May-17 Hold 786 02-November-17 Buy 864 09-February -18 Neutral NA 09-August-18 Buy 653 Source: Bloomberg, Geojit Research Investment Rating Criteria Large Cap Stocks; Buy - Upside is above 10%. Hold - Upside is between 0% - 10%. Reduce - Downside is more than 0%. Neutral - Not Applicable Mid Cap and Small Cap; Buy - Upside is above 15%. Accumulate - Upside is between 10% - 15%. Hold - Upside is between 0% - 10%. Reduce/Sell - Downside is more than 0%. Neutral - Not Applicable To satisfy regulatory requirements, we attribute Accumulate as Buy and Reduce as Sell. The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being upgraded to BUY or downgraded to a HOLD, REDUCE or SELL. Neutral- The analyst has no investment opinion on the stock under review. General Disclosures and Disclaimers CERTIFICATION I, Sreenish S R, author of this Report, hereby certify that all the views expressed in this research report reflect our personal views about any or all of the subject issuer or securities. This report has been prepared by the Research Team of Geojit Financial Services Limited, hereinafter referred to as Geojit. COMPANY OVERVIEW Geojit Financial Services Limited (hereinafter Geojit), a publically listed company, is engaged in services of retail broking, depository services, portfolio management and marketing investment products including mutual funds, insurance and properties. Geojit is a SEBI registered Research Entity and as such prepares and shares research data and reports periodically with clients, investors, stake holders and general public in compliance with Securities and Exchange Board of India Act, 1992, Securities And Exchange Board Of India (Research Analysts) Regulations, 2014 and/or any other applicable directives, instructions or guidelines issued by the Regulators from time to time. DISTRIBUTION OF REPORTS This document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person. Geojit will not treat the recipients of this report as clients by virtue of their receiving this report. GENERAL REPRESENTATION The research reports do not constitute an offer or solicitation for the purchase or sale of any financial instruments, inducements, promise, guarantee, warranty, or as an official confirmation of any transaction or contractual obligations of any kind. This report is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied on as such. We have also reviewed the research report for any untrue statements of material facts or any false or misleading information. While we endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. RISK DISCLOSURE Geojit and/or its Affiliates and its officers, directors and employees including the analyst/authors shall not be in any way be responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Investors may lose his/her entire investment under certain market conditions so before acting on any advice or recommendation in these material, investors should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. This report does not take into account the specific investment objectives, financial situation/circumstances and the particular needs of any specific person who may receive this document. The user assumes the entire risk of any use made of this information. Each recipient of this report should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this report (including the merits and risks involved). The price, volume and income of the investments referred to in this report may fluctuate and investors may realize losses that may exceed their original capital. FUNDAMENTAL DISCLAIMER We have prepared this report based on information believed to be reliable. The recommendations herein are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium
term, there could be a temporary mismatch to rating. For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. The stocks always carry the risk of being upgraded to buy or downgraded to a hold, reduce or sell. The opinions expressed are subject to change but we have no obligation to tell our clients when our opinions or recommendations change. This report is non-inclusive and does not consider all the information that the recipients may consider material to investments. This report is issued by Geojit without any liability/undertaking/commitment on the part of itself or any of its entities. We may have issued or may issue on the companies covered herein, reports, recommendations or information which is contrary to those contained in this report. The projections and forecasts described in this report should be evaluated keeping in mind the fact that these are based on estimates and assumptions and will vary from actual results over a period of time. The actual performance of the companies represented in the report may vary from those projected. These are not scientifically proven to guarantee certain intended results and hence, are not published as a warranty and do not carry any evidentiary value whatsoever. These are not to be relied on in or as contractual, legal or tax advice. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice. JURISDICTION The securities described herein may not be eligible for sale in all jurisdictions or to all categories of investors. The countries in which the companies mentioned in this report are organized may have restrictions on investments, voting rights or dealings in securities by nationals of other countries. Distributing/taking/sending/dispatching/transmitting this document in certain foreign jurisdictions may be restricted by law, and persons into whose possession this document comes should inform themselves about, and observe any such restrictions. Failure to comply with this restriction may constitute a violation of any foreign jurisdiction laws. Foreign currencies denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the investment. Investors in securities such as ADRs, the value of which are influenced by foreign currencies effectively assume currency risk. REGULATORY DISCLOSURES: Geojit s Associates consists of privately held companies such as Geojit Technologies Private Limited (GTPL- Software Solutions provider), Geojit Credits Private Limited (GCPL- NBFC Services provider), Geojit Investment Services Limited (GISL- Corporate Agent for Insurance products), Geojit Financial Management Services Private Limited (GFMSL) & Geojit Financial Distribution Private Limited (GFDPL), (Distributors of Insurance and MF Units).In the context of the SEBI Regulations on Research Analysts (2014), Geojit affirms that we are a SEBI registered Research Entity and in the course of our business as a stock market intermediary, we issue research reports /research analysis etc that are prepared by our Research Analysts. We also affirm and undertake that no disciplinary action has been taken against us or our Analysts in connection with our business activities. In compliance with the above mentioned SEBI Regulations, the following additional disclosures are also provided which may be considered by the reader before making an investment decision: 1. Disclosures regarding Ownership*: Geojit confirms that: (i) It/its associates have no financial interest or any other material conflict in relation to the subject company (ies) covered herein. (ii) It/its associates have no actual beneficial ownership greater than 1% in relation to the subject company (ies) covered herein. Further, the Analyst confirms that: (i) He, his associates and his relatives have no financial interest in the subject company (ies) covered herein, and they have no other material conflict in the subject company. (ii) He, his associates and his relatives have no actual/beneficial ownership greater than 1% in the subject company covered 2. Disclosures regarding Compensation: During the past 12 months, Geojit or its Associates: (a) Have not received any compensation from the subject company; (b) Have not managed or co-managed public offering of securities for the subject company (c) Have not * received any compensation for investment banking or merchant banking or brokerage services from the subject company. (d) Have not received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company (e) Have not received any compensation or other benefits from the subject company or third party in connection with the research report (f) The subject company is / was not a client during twelve months preceding the date of distribution of the research report. 3. Disclosure by Geojit regarding the compensation paid to its Research Analyst: Geojit hereby confirms that no part of the compensation paid to the persons employed by it as Research Analysts is based on any specific brokerage services or transactions pertaining to trading in securities of companies contained in the Research Reports. 4. Disclosure regarding the Research Analyst s connection with the subject company: It is affirmed that I, Sreenish S R, Research Analyst(s) of Geojit have not served as an officer, director or employee of the subject company 5. Disclosure regarding Market Making activity: Neither Geojit/its Analysts have engaged in market making activities for the subject company. Please ensure that you have read the Risk Disclosure Documents for Capital Market and Derivatives Segments as prescribed by the Securities and Exchange Board of India before investing. Geojit Financial Services Ltd. (formerly known as Geojit BNP Paribas Financial Services Ltd.), Registered Office: 34/659-P, Civil Line Road, Padivattom, Kochi-682024, Kerala, India. Phone: +91 484-2901000, Website: www.geojit.com. For investor queries: customercare@geojit.com, For grievances: grievances@geojit.com, For compliance officer: compliance@geojit.com. Corporate Identity Number: L67120KL1994PLC008403, SEBI Stock Broker Registration No INZ000104737, Research Entity SEBI Reg No: INH200000345, Investment Adviser SEBI Reg No: INA200002817, Portfolio Manager: INP000003203, Depository Participant: IN-DP-325-2017, ARN Regn.Nos:0098, IRDA Corporate Agent (Composite) No.: CA0226