Capital First Initiating Coverage Research Report By Edelweiss

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.