CAPITAL FIRST LTD - MUST BUY

If we prepare an industry wise list of listed companies ,no doubt Financial Service Sector will be at the top by number .At the same time if the list is based on quality of promoters the same sector will be always at the bottom.Lot of bogus paper companies without any business operations are listed in our stock exchanges especially in BSE from this sector.So selecting a quality company from this sector warrant a close screening of its promoters integrity,executives quality  and the standard and professionalism  of its governing board etc ... 

So far I recommended very rarely from this sector and the only  recommended stock from money lending business ( excluding housing finance)  – Cholamandalam Finance – already turned as a five bagger ( Recommended @ Rs.82 , touched a high of Rs.445 and currently trading @ Rs.405 Rec. Link HERE) . After a long gap ,recommending one stock from this sector which I believe as a stock with immense potential and led by quality management by all means .

Capital First limited – ( formerly known as Future capital Holdings)  came out with an IPO in 2008 and allotted shares at a price of Rs.765 per share.This company was originally promoted by Future group of Biyani’s .Later future group had lot of debt related issues mainly in their flagship – Pantaloon retail business.Due to this ,future group decided to exit from this company and same acquired by US based private equity investment firm  Warburg Pincus.Since this  company’s business is simple and similar in line with  other NBFC’s , I don’t think much explanation is needed about its business side .Why this company is special to me and what distinguishing it from other companies from the  same sector is –the people behind it.Before looking into this  important factor ,just few lines about its business. Company is an NBFC offering personal loan,Loan for consumer durables,gold loan,two wheeler loan,loan against property and distributing various insurance products.CAPF is present in 40 cities through its 164 branches . As on 31 March 2014 , assets under management (AUM) of company increased to  Rs.97 billion from Rs. 75.10 billion compared with just previous year and capital adequacy ratio  is healthy at 24 %. Due to management’s prudent decision to concentrate in retail lending , its gross NPA is just 0.45 %  and net NPA is only 0.08 % .This is one of the best among any listed NBFC’s. CAPF recently received license to start housing finance business through its subsidiary Capital First Home Finance Private Limited and it is expected to contribute from this year itself .
 

The real Differentiators

As I mentioned at the beginning itself , while selecting a stock from NBFC sector for investment purpose there is lot of options in this space.But if we look in detail ,many of them are only for name sake and quality wise very few companies deserves a serious look .Quality of people behind any company will surely reflect in quality of business.So let us look behind the curtain to get an idea about the people behind it . 

First of all , For a business like NBFC , promoters ability to infuse funds is core point for business growth . CAPF is currently owned  by one of world’s largest and most reputed  US based private equity investment firm Warburg Pincus through its affiliate Cloverdell Investment Ltd. Warburg Pincus’ AUM is about $48 billion and invested in more than  700 companies in 35 countries.I think ,with such  a strong hand behind it , fund raising for expansion is not at all an issue for CAPF. Promoters currently holding about 72 % stake in CAPF . In addition to this ,recently HDFC Standard Life Insurance Company Ltd infused Rs.50 Cr by subscribing a 4% stake in this company.

 

 

In a business concentrating in financing retail clents , experience and expertise of leader is another important factor.MD of CAPF Mr V. Vaidyanathan is the best choice for this position.Mr .Vaidyanathan  need no introduction to banking and finance circles in India .He started his career with Citibank India Consumer Banking Division in 1990 and worked there till 2000 .Later he moved to ICICI Bank and appointed as Executive Director on the Board of ICICI Bank at the age of 38. He was also the Chairman of ICICI Home Finance Co. Ltd., and served on the Board of ICICI Lombard General Insurance Company and CIBIL.During his tenure with ICICI Bank he played  key role in Senior Management responsible for transition of ICICI from a Domestic Financial Institution to a Universal Bank. He launched the Retail Banking Business for ICICI , and transformed it into a large retail bank  in the country. He also built the SME business and Rural Banking Business for ICICI Bank.During his tenure ICICI received many awards including "Best Retail bank in Asia 2001", "Excellence in Retail Banking Award" 2002, "Best Retail Bank in India 2003, 2004, and 2005 from the Asian Banker", "Most Innovative Bank" 2007, and was nominated "Retail Banker of the Year" by EFMA Europe for 2008 and 2009. Whoever take the credit ,I believe ,Vaidyanathan is the master brain  who  make ICICI bank  as one of the top retail bank in the country . From May 2009 to August 2010 he served as the Chief Executive Officer and Managing Director of ICICI Prudential Life Insurance Company.The then promoter of CAPF Mr,Kishore Biyani brought Vaidyanathan into CAPF in 2010 .Leadership of such an experienced retail banker is one of the biggest asset of CAPF .

        LATEST INTERVIEW WITH V VAIDYANATHAN   Video - 6 Min . ( Courtesy : CNBC TV 18)

Let us look into the board of CAPF which consists only top class professionals. Their brief profile as follows

Mr. N. C. Singhal – Former VC & MD, SCICI Ltd. (Later  merged with ICICI Ltd.)

Mr . M S SUNDARA RAJAN - Former Chairman & MD, Indian Bank

Mr .ANIL SINGHVI - Former MD & CEO, Ambuja Cements Ltd

Mr. HEMANG RAJA - Former MD & CEO, IL&FS Investmart Ltd.

Mr VISHAL MAHADEVIA - MD & Co-Head, Warburg Pincus India Private Ltd

Conclusion

After some difficult period under the Future group ,CAPF is now moving to the high growth path .Company reported an income from operations of Rs.1067 Cr and a net profit of Rs.53 Cr in FY 2014.In a recent interview MD of the company mentioned that the company's  profit will expand substantially  in FY 2015 compared with what it achieved in FY 2014. . In nut shell – there is everything in this company to emerge as one of the most successful NBFC in future and Capital First  is my top pick and a must buy from NBFC sector for any small/mid cap portfolio.Stock is listed in both exchanges and trading around  Rs.204.


Suggested Readings 

 1) Power sprinter

2) Future CEO Vaidyanathan talks of future with Warburg

3) Exit of Vaidyanathan - Video 

4) Latest Annual Report for FY 2013-14

Disc: It is safe to assume that I have vested interest in CAPF
# Part of above data re-produced from publicly available sources.