DSIJ Mindshare

Capital First is on the track of growth

As per the report by Edelweiss, Capital First is the attractive investment option for long term investors holding a diversified product portfolio. It has been predicted that the company will outperform the sector within three to four years. The NBFC based company Capital First has registered a revenue of Rs 9719 crore in FY16 and the bottom line stands at Rs 1569 crore.

The company is focused on its wholesale financing book through selective lending, which reduced its proportion to as low as 40% CAGR over FY12-16 to Rs 137 billion. To further improve its retail narrative, the company prudently shifted strategy—post initial focus on relatively low-risk secured SME (small & medium size enterprises) lending segment (Rs 41 billion book by FY13), it invested in building processes, systems and infrastructure to make inroads into high-growth, high-yielding segments—consumer durables (CD), 2-wheeler and unsecured BL—with retail finance portfolio becoming much stronger now.

Within the retail finance book, Capital First has consciously shifted from low-yielding secured SME to high-yielding high-growth CD, 2-wheeler financing and unsecured BL, which is bound to boost overall yield despite rising competition and falling interest rates. 

Capital First has also started issuing an Easy Buy Card (EBC) which provides customer loyalty, and those entitled do not have to pay processing fees for subsequent loans. Once the client is onboard, the company benefits by cross-selling its other financing and insurance products. Return from such cross-sell is critical for the company to increase its RoA/RoE. With an AUM (Assets under management) of Rs 76.5 billion i.e. 48 per cent of AUM, secured SME loans have been the predominant business segment for the company sourced from 222 locations.

However, over the past 1 year, the Street is incrementally getting apprehensive about players who have grown their secured SME books, given the evolving industry dynamics. The space has become extremely competitive, leading to over-heating with increased focus of NBFCs/HFCs as well as banks on gaining market share.eased focus of NBFCs/HFCs as well as banks on gaining market share.

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