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Note: The artciles are not research reports but assimilation of information available on public domain and it should not be treated as a research report.

Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”

Disclosure: It is safe to assume that I might have the dkiscussed companies in my portfolio and hence my point of view can be biased.Readers should consult registered consultants before making any investments
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Wednesday, July 16, 2014

Capital First Ltd:-My gift to blog readers.Profit from this amazing NBFC with multibagger potential

 Quote:Recommended to members hardly 2 days ago at 204.At present its quoting around 223-224,can be bought for amazing long term gains.


Multibagger Business idea:-

Scripscan:Capital First Ltd
Traded in:Nse-Bse
Cmp:204rs
Target:800rs
Duration:3-4 years
Return percentage:400%

Disclosure:I had 9000rs in my account on last Friday.Bought 44 shares at 209 and then it closed at 204.Intent to buy a lot more in near future.

Note:A great business idea is one where you can make others understand it in few lines.Capital first is all about it.

Company is owned by:Warburg Pincus-Private equity player-40bln USD of AUM.They have had Massive success stories like Havells,Kotak bank,Bharti in past.So capital which is mostly the constraint of the NBFC to grow,will never be a problem here.

MD and CEO:Vembu Vaidyanathan-The same guy whom Kishore Biyani snatched from ICICI bank by offering a 50crs salary.Ya 50crs-much more than anyone else in the country.This MD is one of the main reasons why I bought the shares of the company.He is simply the best.More about him
http://www.indiasgreatest.com/v_vaidyanathan.html

Business:Provides Mortgage Loans,Gold Loans,Two-Wheeler Loans,Durable Loans,Personal loans etc.Mortgage loans contributes around 70% of the total loan book.Over 80% of the total loan book of 9600crs are of retail.Check their corporate presentation to know everything about them.http://www.capfirst.com/pdfs/investor-relations/Capital%20First%20-%20Corporate%20Presentation%20-%20%20FY14.pdf

It takes a lot of time to have such gigantic loan book.Retails are considered much safer than any other ones.A lot of insurance or mfs or wealth management products can be sold to them which would help capital first in incremental ROA without implementing any capital.

Industry outlook:Generally the well managed NBFC's with their reach and experience manages to grow at 3.5-4 times the GDP.So this companies will easily grow by 20-25% for the next 20-25 years,resulting into huge gains for the shareholders.

Its cost of Funds and NIM:For the NBFC industry as a whole probably well rated NBFCs of the AA or AA+ or may be even A+, they all borrow in the range of about 11.5 to may be 11.75. In case of the company, it is much lesser because of the strong asset quality and capital adequacy over 22 percent, it is just around 10.5%.NIM stands at around 5.5% which the management is confident of sustaining.

NPA:The non-performing assets (NPA) of the company has come down to as low as 0.4 percent on a gross basis and 0.1 percent on a net basis.Infact for the last four years it has remained very stable.Management is confident of maintaining the same in the coming years.

Numbers:Net profit of Capital First rose 193.40% to Rs 44.04 crore in the quarter ended March 2014 as against Rs 15.01 crore during the previous quarter ended March 2013. Sales rose 37.74% to Rs 285.67 crore in the quarter ended March 2014 as against Rs 207.40 crore during the previous quarter ended March 2013.For the full year,net profit declined 47.00% to Rs 36.98 crore in the year ended March 2014 as against Rs 69.77 crore during the previous year ended March 2013. Sales rose 32.69% to Rs 1052.41 crore in the year ended March 2014 as against Rs 793.16 crore during the previous year ended March 2013. Profitability has decreased because of high fixed costs associated with building a retail franchise and change in its accounting policy.

Management's guidance for fy14-15:They expect the company to more than double their profits in the present fiscal.

Other points:Promoters own around 72% stake in the company as on date.The company recently declared a dividend of 2 bucks.

Outlook:Over the last five years its portfolio has changed from wholesale (90%) to retail (81%).Led by mortgage loans to SMEs (LAP),loan book has grown at 100% CAGR over FY10-13.This is a 3-4 years call,so what it would do this year or next year is useless.The operating leverage will take care of it as it gets in the higher scale zone.Present loan book of 9600crs.It aims at 30000crs of loan book by fy19-ROA of 2.5%.Presently its leveraged by 10x probably.Even considering 8x leverage with a ROA of 2.5% gives me ROE of 20%.Anything about over 1.5% ROA and 15% ROE with such a gigantic retail book is incredibly amazing.

Conclusion:How I arrived at the target price:P/BV is the metric applied in valuing NBFC's.Estimating book value is a mean task as equity dilution to maintain CAR is a ritual norm of the NBFC business.Book value is 142 presently.Sharekhan's estimate for fy16 is around 162rs.For fy19,veterans tracking it say would be around 220-230.Multiplying 230 with 3.5x gives me the price of around 800 bucks.You can ask me how I arrived at 3.5x of BV and not more or less?Let me try to the answer it the simplest manner.Say you make a FD somewhere,you get post tax interest of 5.6%.You want that 5.6% safety net too when you are valuing your nbfc stock.So divide the ROE which in this case is 20 by 5.6 to get your P/BV for the stock which comes at 3.5 to have the figure of 800.Gruh finance like traded at 8 P/BV last year, coz of its management and quality.Market has its own unique way of valuing quality companies.Capital first is an amazing company with an equally amazing parent and pedigree,a masterclass for your core long term portfolio.
BTW:People looking for midcap/smallcap positional call professional service may rush a mail at my mail id arunsharemarket@gmail.com to know more about it.

18 comments:

Arun Mukherjee said...

Last 100 comments got deleted unfortunately as some were spam.Hope you people had read the answers before.If any more query persists,do post.

Arun Mukherjee said...

Last query was some mentioned couple of scrip stuck and rs only doing well.When will you learn to respect businesses?If you are greedy,go and gamble,stock market is not the place for you.Can you start up a firm and provide me return from the next day?Stocks are wonderful businesses where by click of a mouse you can own.It demands nothing from you barring loyalty and patience.

When banks pay you double in 8 years,what makes you feel stocks will perform from day 1 onwards?Greedy guys dont post anything here.

Anonymous said...

Sir your views on Igl please?

Anonymous said...

Arun sir plz share your view on PINC .Is it a value pick?

sunilagarwal01 said...

Your view on charms industries for long term at Rs 2.5
Equity only 41 lacs
Face value Rs 10

sk said...

Sir, which is a better bet.
CRISIL or CARE. For a period of year or two.

Anonymous said...

with respect sir , i am a bit worried with spicejet bought at rs 20 .is it a gone story , or should ? seek a comment from you

Anonymous said...

Hello.....what is ur view on fluidomat....last qtr they showed decline in sales.....do u think the story is unfolding in fluidomat....

Anonymous said...

hi , whats ur view of ybrant digi after stellar results

Anonymous said...

hi , whats ur view of ybrant digi after stellar results

Anonymous said...

any inputs on Shree Rama Newsprint...

Anonymous said...

Whats ur view on Goodyear? do u see further upside from CMP?

Arun Mukherjee said...

1)I dont track lgl,so cant comment.

2)Pioneer investcorp was an old favorite of mine.Was inspired by the dynamic gaurang to look into it.It was once touted to be the next big thing and people were talking of placement at 100 bucks.Since then it went to dust and never recovered.Msybe a bull market can make it roar again.

3)Charms can be a good medium for a reverse merger and listing for any entity.I planned it once for a client but somehow it didnt materialize.

4)Airline is a tough business to survive.They probably are in lot of trouble.Exit at rallies.

5)Where there's too much noise and excitement,I tend to avoid.Ybrant is such a story.

6)I dont like the paper sector or any company involved with it.

7)Fluidomat is a hot favorite of mine,owned since 55 levels.A great small cap monopoly play.

8)Not in favour of suggesting tyre stocks at present levels.

srinivas said...

Hi arun, what is your view on JVL AGRO and PATEL ENGG? can invest at CMP for long term?

sanjay mundada said...

Market seems to be poised for the next bull run, can anyone suggest me few multibagger stocks?

KLSE Stock Recommendations said...

MALAYSIAN shares ended lower on Friday with the Kuala Lumpur Composite Index slipping 0.92 points to close at 1,781.26.

Currency Derivatives said...

Have some patience as patience counts. If you are sure that you would get good benefits by investing in the company, then you can go for it.

Pakhi Jain said...

Can you tell me about future performance of reliance power? Will it bring me profit in future?
Best Stock tips in India

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