When Daljeet Kohli confidently declared that Capital First, the mid-cap NBFC promoted by Warburg Pincus, is “the next Bajaj Finance”, it was the cue for us to shed our inhibitions and buy the stock aggressively.
This is because few stocks have traversed the glorious path that Bajaj Finance has. The stock has created incalculable wealth for shareholders over the years.
The noteworthy aspect is that despite the lofty valuations at which Bajaj Finance is trading, savvy investors are in no mood to let it go.
Hiren Ved of Alchemy Capital gave cogent reasons a short while ago about why stocks like Bajaj Finance have to form the core part of every sensible investor’s portfolio.
Early indications are that Capital First is walking on the same path as that of its illustrious peer.
V Vaidyanathan, the CMD, exuded confidence that the business will grow at a “35 percent and 40 percent over the next three-four years”. He also stated that the ROE has increased from 1% to 11% and that the profits have grown at a CAGR of 50% for the last three years. He added that for the next few years also, the loan book should compound by 25 percent and the profit number after tax should grow by upward of that number. He also emphasized that the AUM is growing by leaps and bounds. Last year the AUM was Rs 12,000 crore. As of 31st March 2016, it has touched Rs 16,000 crore and is expected to soar to Rs 20,000 crore by FY17.
Predictibly, the brokerages are beginning to warm up to the prospects of Capital First.
Sharekhan issued a report a few days ago it which it recommended a buy on the logic that “Going forward, CAPF should continue with a strong operating performance”.
Now, Edelweiss has issued an initiating coverage report in which it has called Capital First an “out-performer” and recommended a buy with a target price of Rs. 767 which amounts to a hefty upside of 25% from the CMP of Rs. 612. The logic is as follows:
“Capital First (CAFL) has emerged stronger post structurally transforming its business model by prudently focusing on high-growth retail financing and downsizing wholesale book post FY10. The company has clocked commendable >40% CAGR in retail financing over FY12-16. Though subdued returns (<10% RoE) is a natural corollary of inevitable investments for retail transition, we perceive minimal scalability risk to the business model given strategic diversification in potent opportunity space and highly process-driven model driving expansion. We anticipate an optimal product strategy anchored by stringent risk mitigants to fuel a smart J-shaped surge in return ratios —RoA/RoE of 1.9%/18-19% by FY19E. Initiate coverage with ‘BUY’ and target price of INR767.”
Kunal Shah of Edelweiss also gave a video talk in which he amplified on the prospects of Capital First and the reasons for the bullishness about its prospects.
Now, we have to sit back and eagerly watch whether Capital First does achieve the exalted title of “next Bajaj Finance” and if so by what time!