Capital Trust Limited - Can we trust it with our money?

Hi Naveen,

Not checked with the borrowers or employees, etc. But, this company has earned 9% ROA for FY 15. Its ROE was 54% (approx). These figures supports the lending rate of 36%. I have arrived at the lending rate based on the balance sheet numbers. Also, this company operates in Uttar Pradesh and Uttarakhand areas and cater to small Kiranas and such low profile clients. The risk is high here and hence the lending rates also i guess. However, you are correct that we should cross verify the lending rates. As we know we should not rely on eicher motors for its sales figures, rather we should cross verify it with its dealers. We get 100% assurance after that only.

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Hi Abhishek,

Good analysis. Though I have not gone deeper into the business, there are some fundamental questions that remains unanswered to me.My assumption here is the the lending, borrowing rate and ROE/ROA are correct as presented

  • First of all the story seems too good to be true. What I have observed over years (both in investing and other walks of life) is that if something is too good to be true, it usually is! Hence, the moment I come across a company where it sounds too good to be true…I am extremely circumspect. One may call this pessimism but that is one mental model that I find very useful. Hence, how would we digest the fact that some of the best banks/NBFC/MFIs will be very happy to generate 25%+ ROE and grow at 25-30%. Except for Gruh, I have yet to come across any sizable company in FS business generating ROE in excess of 25%+ consistently. Capital Trust on the other hand has been generating 40%+ ROE for 3 years now. Now combine that with 100%+ growth rates…uncanny, isn’t it?

  • Secondly, if we were to logically think through the lending rate of 36%…how many SME (which seems to be focus area as mentioned) will be able to borrow at that rate and still make decent money in their business? In order for SME owners to make some money, the may have to generate margins in excess of 45-50%+. How many SME businesses we know can make this margin. At the end of the day most of the sectors that they lend money to operate in competitive markets and are far from monopolies. And not only that they have found many borrowers making kind of margins but also they continue to find many more as their growth rate indicates. Again, I will take this with pinch of salt.

My central point here is that we must endeavor to understand why and how of this “too good” a story and also assess the sustainability of our assumptions this going forward.

My personal view is that FS business is prone to extreme negative black swans and hence one must be extremely cautious while investing in these businesses. Key things that I look for in such businesses is the management integrity, long track record and and the conservative/risk averse approach demonstrated through actions towards business scale up. Hence, I personally am much more comfortable with FS stories growing at decent 25%-30% over 80-100%+ growth stories.

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Hi Dhwanil,

Thanks a lot for pointing out these issues. Even I was skeptic here (my first post). But then, I thought this rate might be prevailing in those areas. But I think you are correct with your skepticism. Why not rather go for the MFIs who are growing at 40% CAGR. I had doubts about its valuations. But, after getting insights from others, I feel this stock is overvalued. Also, I feel we should re visit this stock story post November (once all the warrants are converted).

Disc - Not yet invested.

Results are out.

AUM growth Y-on-Y - 70%
Mcap/AUM - 2.18 times
Price to book - 3.70 times
Gross Income Growth - 43%
Net profit Growth - 110%

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thats what gives me the courage in Indian NBFC’s

update : Capital Trust Ltd has informed BSE that a meeting the of Board of Directors of the Company will be held on June 10, 2016, inter alia, to consider and take on records the proposal of takeover of an NBFC registered with Reserve Bank of India, Delhi.

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Charging 36% interest an annum to me is immoral.

They are not lending with tenors of 5-10 years and thus comparing it with traditional loans isn’t justified.

I like NBFC and Private Bank sector in general as it aligns with my philosophy to invest in long term growth of India.
NBFC lease & hire sector in general have produced several multi-baggers.
Keeping other financials aside if I just see the returns this sector has given over last 15 years it looks like this:

  • Bajaj Finance: 200 Bagger at 40k crore market cap
  • Sriram Trans: 200 Bagger at 26k crore market cap
  • Sundaram: 50 Bagger at 16k crore market cap
  • Cholamandalam: 18 Bagger at 14k crore market cap
  • Sriram city: 100 Bagger at 10k crore market cap
  • Mannapuram: 300 Bagger at 5k crore market cap
  • Srei: 6 Bagger at 3k crore market cap
  • Magma: 40 Bagger at 2.5k crore market cap
  • Capital Trust: 100 Bagger at 600 crore market cap

Capital Trust is not even 1/100th of sector leader Bajaj Finance and yet has become a 100 bagger in last 15 years.

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The growth juggernaut of capital trust continues :slight_smile:

Income 24cr vs 12cr
Operating Profit 17cr Vs 8cr
Profit 9cr vs 3cr

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its priced
at 18-20 times price to book

@sajay_agarwal e[quote=“sanjay_agarwal, post:31, topic:3650, full:true”]
its priced
at 18-20 times price to book
[/quote]

equity or networth 200cr
market cap 880cr
p/b 4.4 times (not 18-20 times)
capital adquacey of 50+ (indicates potential upside in loan book and therefore profits and book value)

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can some explain the logic behind this growth

Sale growth almost 66% but finance cost increased by just ~4%. how can it be possible :smirk:

@narayana526 it raises lot of equity funds end of march2016. reduced debt and hence lower finance cost.

Capital Trust Ltd has informed BSE that the Company has sent an application for listing of its equity shares at the National Stock Exchange Limited.

I love this model as it lends to those who can pay back. The NPA’s have been very low and the commissions are reasonable. I feel its the best in the pack and can give mind blowing returns if we stay invested as this model needs no new branches and the word of mouth can spread its business rapidly but in the region it wants, not becoming so large that India will become is playground like SKS or Equitas.

I feel that mgmt. is of nice quality and they are looking for a partner like the ones they already got to get scale.

Disc: Heavily invested i.e 20% of Portfolio

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Anyone knows what could be the reason for http://www.bseindia.com/corporates/anndet_new.aspx?newsid=7232887e-436e-4bc8-8fff-47580e4c0885 ?

It is a very common practice for management to inform BSE regarding meeting various prospective investor.

Has anybody received the dividend from Capital trust ? Any idea what should be done if I don’t receive the dividend ?

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I got it credited on 19th of October.

They cancelled quarterly result by giving a reason that independent directors could not make it for the meeting. Does not look very professional scenario.