Capital First to deliver an earnings growth of 57% CAGR over FY2014-17

We expect Capital First to deliver an earnings growth of 57% CAGR over FY2014- 17 led by a 35% compounded annual growth in the net interest income. Due to the recent capital raising the return on equity (RoE) estimates for FY2016 and FY2017 may get diluted by 200-250 basis points though the RoA may continue to improve. A likely easing of interest rates or a pick-up in the economy will boost the company’s growth. Considering the robust growth outlook, healthy asset quality and experienced management team, we believe that the stock trades at reasonable valuations (2.0x FY2017E book value). We maintain our Buy rating on the stock with an unchanged price target of Rs485 (2.3x FY2017 BV).

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