Daljeet recommended a buy of Capital First on 16th July 2014 when it was quoting at Rs. 223. He promised a target price of Rs. 257. That got effortlessly taken out with a few days. Undaunted, on 8th August 2014, Daljeet increased the target price to Rs. 300. On 9th September, Daljeet was back on the drawing board with a target price of Rs. 360. This got increased to Rs. 400 a few weeks later.
Daljeet also put Capital First in his “5 Diwali Dhamaka Stock Picks”. Later, he also put the stock in his “Top 10 stocks for 2015”. He also gave an interview in which he called Capital First “the next Bajaj Finance” because it is walking on the same path as its illustrious peer did.
V. Vaidyanathan, the whiz-kid CEO of Capital First, boosted everybody’s confidence level by promising growth of 25 to 30% “for several years”. The Company also issued an impressive corporate presentation which tells you everything you need to know about their business model.
Anyway, today, Capital First is at Rs. 414 giving Daljeet and his vast legion of followers fabulous gains of 76% in just about six months.
HDFC Securities’ research report assumes great significance now because it points out that that the Indian consumer finance market could witness 17-18% CAGR till 2020. This implies that consumer lending can be a significant growth driver for NBFCs like Capital First in the coming years.
The report also points out that falling interest rates (as hinted by the latest repo rate cut) should accelerate growth in demand for loans and in disbursements.
As to valuations, HDFC Sec points out that Capital First is quoting at ~2.3x FY16E ABV and 19.5xFY16E EPS which compares favourable with its larger peers Bajaj Finance (3.4-3.5xFY16E BV and 16-17xFY16E EPS) and Sundaram Finance (3.6-3.7xFY16E BV and 19.5-20xFY16E EPS). Of course, the larger peers deserve the premium because they have higher RoEs and RoAs. However, there is a chance for the gap to narrow under the stewardship of whiz-kid V. Vaidyanathan. The report foresees a target price of Rs. 476.