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Prabhudas Lilladher
Capital First (Accumulate)
CMP: ₹377.15
Target: ₹425
Capital First (CFL) is Warburg Pincus promoted systemically important NBFC. The company offers MSME loans, two-wheeler and consumer durable financing and wholesale loans. CFL has steadily increased the composition of retail financing to 84 per cent in FY15 from 10 per cent in FY10, while it has grown its assets at 25 per cent CAGR over FY12- FY15. It is well capitalised at 23.5 per cent, has robust asset quality with net non-performing loan ratios at 0.17 per cent and is rated AA+ by the rating agencies.
The company has strong underwriting skills which enables it to lend to MSMEs in a quick, affordable and convenient manner.
CFL has built a strong niche for itself in lending to MSME customers — segment which accounts for 45 per cent of country’s industrial output and which has been overlooked by other lenders for several reasons.
CFL is relatively smaller in size than most peers and its businesses are yet to achieve scale. We expect return ratios to improve significantly over the next few years as the scale improves and leverage kicks in.
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