This non-banking financial company is engaged in mortgage financing for micro, medium and small enterprises (MSME), consumer durable loans and wholesale credit.
Though the counter is not quoting cheap (PE of 33), valuations are justified because of high earnings growth.
Even after the downgrade in estimates due to demonetisation, the NBFC’s loan book and net profit is expected see an annualised growth of 30 and 38% respectively between 2015-16 and 2017-18. Since Capital First focuses on MSMEs and consumer durable loans, it enjoys a high net interest margin (NIM).
The expected fall in the interest rate structure will reduce its cost of capital and may result in higher NIM. Capital First was also able to maintain its gross NPA and net NPA levels at 0.98 and 0.45% respectively (as on September 2016) and since cash transaction mix in its loans portfolio is low, there may not be big risk to asset quality on account of demonitisation.
Its consumer durable finance segment is doing well and Capital First plans to get into home loan in tier-2 and tier-3 cities. A very high capital adequacy ratio (CAR) is another positive aspect for this counter.
With its CAR estimated to be at 22% by March 2017, there is no limit in its growth prospects.