India focused Portfolio Advisory - Exp of 40+years, Das Capital Management and Advisors

Arun Thirumalai

India focused Portfolio Advisory - Exp of 40+years

Das Capital Management and Advisors

Das Capital is a research boutique with an aim to continuously map and plan the investment needs of investors focused on India. We have a six member research team with a combined experience of over 40 years as a part of our investment wing. Our team assisted in the setup of Premji Investments, which was one of India’s first family offices focused to managing Mr.Azim Premji personal wealth. We also serve as a research team to two Indian private equity energy funds “Small is Beautiful” and “KSK Emerging India Energy Fund”.

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/18082" target="_blank" data-smartkarma-citation="entities:18082:1">Capital First Ltd (CAFL IN)</a> is a fast-growing NBFC that is focussed on high yield retail credit segment in India. The company successfully transitioned its loan book from wholesale to retail in a very short span of 5 years. It is also among the few NBFCs to get a AAA rating by the credit agencies due to its high asset quality, healthy liquidity, and strong leadership. The company is led by Mr. Vaidyanathan who is a reputed name in the banking space and was responsible for growing the retail segment of ICICI bank in his earlier tenure.Key growth drivers<ul class=""><li>Under penetration of household credit- India is among the countries with a low household credit penetration at just 10% of GDP.</li><li>NBFCs low market share- The NBFC sector’s market share is only 16% as on FY16 in comparison to 84% enjoyed by the commercial banks.</li><li>Focus on high yield- Capital First is increasingly focussing on high-yielding retail segments like Consumer durables, 2 wheelers that have long term growth potential in line with the growth in Indian consumption and rapid urbanization.</li></ul>Key risks<ul class=""><li>The company being young is yet to face a serious economic downturn to test the resilience of its processes and asset quality. However, the company was successful in controlling the NPAs in the recent past (2012-2015) when rest of the industry was plagued with asset quality issues.</li><li>We believe that the company is a one man show with Mr. Vaidyanathan as the anchor. The company’s performance may be affected if he decides to move on, although it is highly unlikely as he holds a significant stake in the firm.</li></ul>The company trades at a P/BV of 3.2x FY17, 2.9x FY18e and 2.1x FY19e and PE of 30x FY17, 31x FY18e and 20x FY19e which we believe is fairly valued in comparison to its peers given its superior asset quality despite  robust growth in the book and a strong leadership.

Capital First Ltd (CAFL IN) is a fast-growing NBFC that is focussed on high yield retail credit segment in India. The company successfully transitioned its loan book from wholesale to retail in a very short span of 5 years. It is also among the few NBFCs to get a AAA rating by the credit agencies due to its high asset quality, healthy liquidity, and strong leadership. The company is led by Mr. Vaidyanathan who is a reputed name in the banking space and was responsible for growing the retail segment of ICICI bank in his earlier tenure.Key growth driversUnder penetration of household credit- India is among the countries with a low household credit penetration at just 10% of GDP.NBFCs low market share- The NBFC sector’s market share is only 16% as on FY16 in comparison to 84% enjoyed by the commercial banks.Focus on high yield- Capital First is increasingly focussing on high-yielding retail segments like Consumer durables, 2 wheelers that have long term growth potential in line with the growth in Indian consumption and rapid urbanization.Key risksThe company being young is yet to face a serious economic downturn to test the resilience of its processes and asset quality. However, the company was successful in controlling the NPAs in the recent past (2012-2015) when rest of the industry was plagued with asset quality issues.We believe that the company is a one man show with Mr. Vaidyanathan as the anchor. The company’s performance may be affected if he decides to move on, although it is highly unlikely as he holds a significant stake in the firm.The company trades at a P/BV of 3.2x FY17, 2.9x FY18e and 2.1x FY19e and PE of 30x FY17, 31x FY18e and 20x FY19e which we believe is fairly valued in comparison to its peers given its superior asset quality despite  robust growth in the book and a strong leadership.

Capital First - Among the Best in the Fast Growing NBFC Space