CAPITAL FIRST LIMITED - INVEST FOR LONG TERM

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 promoter’s integrity, executive’s quality and the standard and professionalism of its governing board etc...

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 31march 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 deserve 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. Promoter’s 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.

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 f.y 2014.

In a recent interview md of the company mentioned that the company's profit will expand substantially in f.y 2015 compared with what it achieved in f.y 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.

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