RBI raises FII investment limit in Capital First to 50%
Cholamandalam Equities has initiated coverage on Capital First with an 18 month price target of Rs. 942. Here is the report:
Disc: Tracking and no position
Good performance can be expected from Muthoot capital and Ceejay finance
Could someone please guide why despite good and stable results QnQ the Stock refuses to get rerated? Last 12m return has been flat. In current Qtr even the ROE is seen going upto 13%.
It fundamentally has all ingredients to go up higher. Management is ethical and has now revised upwards its growth at 30-35% for current year
I’m a long term investor and it sometimes does get a bit frustrating to see market scaling new highs and this scrip refuses to go up. Though it gives me fantastic opportunities to load up.
I ask this to check and pick any holes in my investment rationale.
Disc: Invested since 250 levels and is highest allocation in my PF.
I am in the same dilemma. I have been holding since over a year and I have been angry at myself for not choosing Bajaj Fin since at that time valuation seemed stretched to me. I have held on, and I hope market rerates the consistent performance.
Some Notes from CapF Q2’FY18 presentation:
- 7% AUM growth from INR 214,097 Mn to INR 229,735 Mn between Q1 and Q2.
- Good ~600,000 new customer addition (12% growth). Average ticket size works out to be ~26,000 per customer implying loan book getting more granular and retail focused.
- Housing Finance growing well with 5.80% of total AUM from 4.43% a quarter back.
- Gross and Net NPA coming down sequential to 1.63% and 1.00% respectively. Honestly, I was anticipating a jump in NPA for this quarter. However, the way they are managing on the NPA in the backdrop of DeMo, GST roll out and 90 DPD transition withing the same time frame is something commendable, unless proven otherwise.
- Again good marks on walking the talk when it comes to ROE acceleration. They seems to be putting house in order without slowing down on growth. Consistent ROE improvement. Latest update is shift from 11.46% to 13.06%. Will be interesting to see if they have the decisive skill to cover the proverbial last yard hurdle towards target of 16%+ ROE.
- NCD based borrowing improved from 35.60% to 43.50% of total borrowing pie. Good that they have avenues open for NCD instead of equity dilution.
- Happen to notice huge jump in ‘investments’ under B/S. March 17 was 437 M and now for Sep 17 it is 4815 Mn. Is this something to do with CapF investment in Satin for 4% stake at 350 Crs?
- True that AUM is growing and NPA are reasonable however Provisioning has grown by 53%. Is this something that can reflect adversely with a lag of few quarters is worth keeping an eye.
- Other big issue with CapF, (though slowing down now) is equity dilution. Total number of share increased from 9.74 CR to 9.78 Cr.
Overall, on the price action front this is testing patience big time, however, underlying business seems to shaping up very well- brick by brick.
Disc: Invested, no action in last ~6 months. I may be tempting to buy if opportunity permits.
Reading this adds to my conviction.
Investment in Satin is only for 35 crores.Will have to dive deeper to understand huge jump. Is this number for Standalone or Consolidated B/s?
In 2010, DHFL was at 150, it was again around same level 150 in Feb 2016. But since last one and half yr it has moved 4 times.
Consumer finance is a tough business with competition and high cost of acquisition but should reward capital first in the long term.
Holding both Capital First and DHFL.
Also at 3 times current price/book its not exactly at cheap valuations. But comparing recent IPOs like MAS, AU Finance and some other NBFCs ruling at above 5 times and we obviously have ‘the’ Bajaj Finance.
One more thing, I observed after Warburg divested 25% this year the Zing in the stock is lost. I guess lot of supply in the market and it needs a trigger. Could be anything like a big player accumulating , stellar results.
I just want to know current slack is not due to some key concern we are ignoring.
It has been a great wealth creator for me no doubt though. Enteted originally from 250 levels.
This article shows that NBFCs are no more cheap… But if you look at table 3, it looks like Capital First is still cheaper compared to other NBFCs, specially w.r.t to median historical PE… i.e. Median PE/Current PE ratio… Also 1 year and 3 year growth is better than many many costlier NBFCs…
Investment thesis looks great with good earnings, good management and reasonable valuations.
It needs a trigger which is currently not there. Volumes are low. Hopefully will cross 1000 soon.
If some senior broader can help point flaws in investment thesis that can help us all.
Its not exactly a Bajaj Finance yet though at its valuations and growth trajectory I believe should quote higher. Maybe the inflection point is missing
Reason being bad portfolio quality of Capital First. When you see an optically good GNPA at 1.63%, it has been achieved after consistently writing off big chunks of portfolio from their loan book.
If you just add back their write-offs for FY17 to their GNPA and portfolio outstanding, you will get the real picture of how bad the portfolio quality is in reality. Also, if you further incorporate the base effect and high loan book growth over the last 3-4 years, it gives you further clarity.
Also, it is not a Capital First specific issue - it is a SME segment related issue where they built a large book during 2014-16.
Disc: Not invested. Monitoring right now.
Looks like Capital first is no longer a darling stock of FII
Capital first made 52 week high when 50% investment was allowed to FII in 2017.
one primary reason can be that Capital First is moved out of MSCI Index (in Aug2017) which is used by FIIs as a guide to make investment in India.
Another concern is some analyst think that with recapitalization bonds public banks will resume lending in microfinance and MSME segment which will pose new challenges for companies like Capital first.
However current results and commentary from Capital first management promises good future for capital first.
Disc… Invested and ready to buy more below 690.
ae03568e-eff7-4da0-acea-565dee1fa980.pdf (614.9 KB)
Strangely CAPF has now acquired by way of creation of pledge 5% of Talwalkars Value Fitness. Looks they had done some lending to Talkwalkar promoters and they have now not repaid and effectively given up their shares? Am I reading it correct?
What business did Capital First have lending such big amts to a listed lender? Is it the legacy loan book? It needs answers from the management. I was reading on Talwalkar forum discussion. Their management cannot be called ethical and very stakeholder friendly.
What you are saying is true if a company “Invokes” the pledge. This is “Creation” of pledge which means, Talwalkars have either borrowed more amount or Capital First has asked for more shares to pledge (e.g. due to share price fall or internal risk policy change).
Nothing unusual here, I guess.
Got it, its increase in pledge of shares. But how did Capital First get into this sort of lending? Can Talkwalkars be classified as MSME? And 5% of Talkwalkars mkt cap is around 38cr at present. I think their MSME portfolio ticket size is much smaller.
This is most likely part of their “Real Estate & Corporate Loan” segment (7% of their loan book right now) and not the retail/MSME one.