corporate presentation – fy14 - capital first first... · entrepreneurs or entry level salaried...

Corporate Presentation – FY14

Agenda

2

Overview of the Company

Changing Asset Composition

Product Offering

Credit Processes

Liability Profile

Board of Directors

Corporate Presentation

Shareholding Pattern

Financial Results

Overview

• Capital First Ltd. (NSE Code CAPF) is an NBFC with record of consistent growth & profitability.

• CAPF focuses on providing financial services to retail and MSME customers.

• The company has increased its retail financing contribution from 10% in FY 10, to 28% in FY11to 56% in FY12, 74% in FY13 and 81% as on March 31, 2014.

• CAPF has loan assets under management of Rs. 96.79 bn as on March 31, 2014.

• CAPF has a strong distribution network of 164 branches and 1,089 employees across Indiacovering 40 cities as on March 31, 2014

• The Net Worth of CAPF is Rs. 11.72 bn as on March 31, 2014. The Capital Adequacy is 22.16%as on March 31, 2014.

• The Gross and Net NPA of the Company stood at 0.45% and 0.08% respectively as on March31, 2014.

• The Company long term credit rating including NCD and Subordinated Debt is rated highly atAA+ by rating agencies.

Corporate Presentation 3

Company’s Vision

To provide Micro, Small and Medium Enterprises in India with debt capital and services to support the growth of the MSME sector.

To finance the growing consumption needs of the Indian consumers, which is driven by increased affluence, growing aspirations and favourable demographics.

To be a leading financial services provider, admired and respected for ethics, values and corporate governance.


Agenda

5



Product Offering

Credit Processes

Liability Profile

Board of Directors



Financial Results

56%44%

Increasing Share of Retail Assets

6

FY10 FY11 FY12 FY13

Wholesale Credit Assets(%) Retail Credit Assets (%)

Rs. 9.35 bn Rs. 27.51 bn Rs. 61.86 bn Rs. 75.10 bn

10%

90% 74%

26%


28%

72%

AUM (Rs. Bn)

FY14

Rs. 96.79 bn

81%

19%

Agenda

7



Product Offering

Credit Processes

Liability Profile

Board of Directors



Financial Results

Mortgage loans to SMEs

• SME Loan is the main line of business for the Company and contributes 81% of the retail assets.

• Under this product, the Company provides long-term secured loans to SMEs, self-employed individualsand professionals against collateral of Residential or Commercial property.

• SME Financing is a large and growing opportunity in India’s growing economy. The SME segment islargely underserved in India, and hence shortfall of financing presents a significant business potential.

• The Loan to value (LTV) offered to customers is in the range of 50%-60%.

• These are monthly amortising products with no moratorium for Interest or Principal repayment. Theactuarial tenor of the loans is usually between 4 - 5 years. SMEs usually prepay these facilities beforetime based on their cash accruals.

• The Company understands that the following “ Challenges and Risks” are inherent in this business, andtakes preventive measures in terms of processes and controls to address the same.


Challenges• Evaluation of the cash flow of an SME can be challenging considering the low transparency, large cash based

income, seasonality, low disclosures among SMEs etc.

Risks• Since SME loans are primarily provided to the MSME players based on the cash flow analysis of their

businesses, downturn during the economic cycles may affect their cash flows. The other risk associated issudden crash in real estate prices, although this risk is low in India.

Gold Loans

• The Company provides Loans against Gold Jewellery to customers for various personal uses likemedical emergency, down payment for home purchase or renovation of their home. Often, traders andsmall businesses avail gold loans to finance short-term business requirements.

• The Company provides Gold Loans through its extensive network of branches across 22 tier-1 and tier-2 cities in 10 states. Since inception in January 2011, Capital First has grown the Gold Jewelleryfinancing business by reaching customers who reside in the neighbourhood of its branches, throughlocal promotions , strong valuation processes, quick turnaround and efficient customer services.

• The ticket size is usually Rs. 1, 00,000 to Rs. 1, 20,000. The Loan to Value is 75% on the value of thejewellery.

• The Company understands that the following “ Challenges and Risks” are inherent in this business, andtakes preventive measures in terms of processes and controls to address the same.


Challenges• Gold loan is a branch led business through customer walk-ins which requires local branch set-ups. Achieving

critical mass in terms of AUM at each of these branches is a challenge.

• Further, correct assessment of the Gold quality of the collaterals is one of the key challenges in the business.

Risks• The Gold Loans are subject to the Gold Price fluctuations in the market. Any sudden and significant drop in

the gold prices can trigger collateral value risk.

Two Wheeler Loans• Capital First provides financing for Two-Wheelers through easy EMIs to self employed customers like small

traders, suppliers, shop keepers with good credit profiles, and to salaried employees, usually taking up theirfirst job in the organised sector.

• From a distribution point of view, this is a highly fragmented market. The loans are originated through anextensive network of Two-Wheeler Dealers. Since inception in October 2011, Capital First has grown the Two-Wheeler financing business with the help of extensive reach, robust credit processes, quick turnaround andefficient customer services.

• Two-Wheeler loans are relatively small ticket size loans of about Rs. 30,000 - Rs. 40,000. The Door to Doortenure for the loan is around 2 years.

• The Company understands that the following “ Challenges and Risks” are inherent in this business, and takespreventive measures in terms of processes and controls to address the same.


Challenges• The Two-Wheeler business is challenging as the ticket size of loans is low, the tenor is short (average actuarial

tenor is 1 year), and requires relationship with hundreds of dealerships across remote geographies leading tohigh operating and distribution costs. It is a challenge to build the required critical mass for this business.Further, the collection effort and collections cost involved for collecting the small EMIs from large number ofcustomers distributed across the country is a key challenge.

Risks• A significant number of the Two-Wheeler loan customers are first time borrowers with low surplus income.

Any economic downturn may affect the repayment capabilities, as these borrowers are usually smallentrepreneurs or entry level salaried employees.

Consumer Durable Loans• Capital First provides financing for consumer electronic goods like LED, LCD TVs, Washing

Machine, Laptops, Furniture through easy EMIs to salaried and self employed customers.

• From a distribution point of view, this is a highly fragmented market. Since inception in FY10, Capital First hastied up with all leading Consumer Durable manufacturers and has grown the business with the help ofextensive reach, robust credit processes, quick turnaround and efficient customer services.

• The Average Ticket Size is Rs. 28,000. The average Loan to Value ratio is ~70%. The Door to Door tenure forthe loan is around 8 months.

• The Company checks the application with the Credit Bureau (Bureau Score), and evaluates the applicationusing the Application Score (AS) in parallel. The decision is conveyed to the customer and dealership within 3minutes.


Challenges• Like in the case of Two-Wheelers, this business is complex, as the ticket size of loans is low, and the tenor is

short (average actuarial tenor is 4 months), and requires relationship with thousands of dealerships acrossremote geographies leading to high operating and distribution costs. It is a challenge to build the requiredcritical mass for this business. The collection effort and collection cost involved for collecting the small EMIsfrom large number of customers is a key challenge.

Risks• The on-boarding process is prone to identity frauds which affect portfolio quality. CFL has invested in fraud

management systems, identity authentication processes to minimize such instances. The scoring systemneeds to be validated and recalibrated on an ongoing basis.

Agenda

12



Product Offering

Credit Processes

Liability Profile

Board of Directors



Financial Results

Credit Processes


• Sales, credit, operations and collections are independent of each other, with independent reporting lines

Credit Policy(Defining

Lending Norms)

Business Origination

Team

Credit Underwriting

Team

Loan Booking and Operations

Team

Portfolio Monitoring &

Collections

Mortgages – Credit Underwriting Process


100

29-30

5-7

35-40

4-65-10

10-15

Application Logged in

CIBIL Rejections

Rejections due to

Insufficient Cashflow

Rejections after

Personal Interview

Rejections due to

Defective Title Deeds

Valuation&

Others Rejections

Net Disbursals

In Mortgages, about 29-30% of the total applications aredisbursed after passing through several levels of scrutinyand checks, mainly centred around cash flowevaluation, credit bureau and reference checks

Rigorous and robust credit assessment processes in Capital First help in maintaining the highasset quality and low NPA levels

✘✘

✘

✘✘

Agenda

15



Product Offering

Credit Processes

Liability Profile

Board of Directors



Financial Results

Credit Rating


• The long term credit rating of the company is AA+, which recognizes the experienced management team, strongbusiness model, strong controls and processes, high credit quality, conservative asset liability management withno tenor mismatches and strong promoters.

Long term Credit Rating

A+ A+

AA-

AA+ AA+

FY10 FY11 FY12 FY13 FY14

3 notch Rating upgrade

received since FY11

Borrowing Composition – (as on 31 Mar 2014)


The Company has access to a wide range of funding options, including reputed Mutual Funds, Provident Funds, Banks through NCDs, CPs, and long term loans.

Bank Borrowing, 74.7%

(Long Term)

NCDs, 6.7%(Long Term)

Sub-Debt, 5.0%(Long Term)

Perpetual Debt, 1.5%(Long Term)

Equity, 12.2%

Asset Liability Management – (as on 31 Mar 2014)


• The Company follows a prudent policy of matched funding for all assets.

• As a conservative strategy, the Company borrows for a longer tenor than its actuarial maturity of its assets. Hence, the total inflow in each maturity bucket is higher than the total outflows in the respective buckets which provides the Company adequate liquidity at all times.

• Even though the company has CP Limits of Rs. 900 Crores, and even though interest rates in the Commercial Paper market are often lower than longer term funding lines by 100-150 bps, yet in order to maintain a strong Asset- Liability matched book, the Company uses the CP instrument sparingly, if at all. During Q3 and Q4 of FY14, the Company did not raise any funding by way of Commercial Paper.

All figures are in Rs. Mn unless specified

48,7

00

33,3

90

29,4

84

15,7

62

8,08

5 18,0

39 31

,574

15,4

38

17,8

69

12,3

87

5,60

0

18,0

39

-

10,000

20,000

30,000

40,000

50,000

60,000

Upto 1 year

1-2 year 2-3 year 3-4 year 4-5 year More than 5 year

Total Inflows Total Outflows

Capital – (as on 31 Mar 2014)


28.97% 23.50% 18.63% 23.53% 22.16%Capital Adequacy Ratio (%)

* The Total Capital includes Networth, Perpetual Debt and Subordinated Debt

All figures are in Rs. Mn unless specified

7,377 7,828

10,316

15,107

17,869

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

FY10 FY11 FY12 FY13 FY14

Agenda

20



Product Offering

Credit Processes

Liability Profile

Board of Directors



Financial Results

In 2010, the company had Rs. 9.35 bn of assets, of which 10% was in retail assets. He has changed the composition of the loan book to dominantlyretail (80% retail) and grew the company’s assets to Rs. 96.79 billion (Mar ’14). Since his joining Capital First, he has successfully launched a numberof retail businesses including MSME financing, Gold Loans, Two Wheeler loans, Consumer Durable loans and has implemented latest cutting edgetechnologies and scoring solutions in the company. He has built a large retail franchise of over 150 branches, 1000 employees covering across 218locations, and has made Capital First a leading player in lending to MSMEs.

Prior to joining Capital First Limited he was the Managing Director and CEO of ICICI Prudential Life Insurance Company since 2009. He joined ICICIBank in early 2000 and was one of the Senior Management responsible for transition of ICICI from a Domestic Financial Institution (DFI) to aUniversal Bank. He launched the Retail Banking Business, and helped the change of ICICI bank into a large retail powerhouse in the country. He builta network of over 1400 ICICI Bank branches across 800+ cities including 25 million customers, built a vast deposit base and a retail loan book of US$30 billion in Mortgages, Auto loans, Commercial Vehicles, Consumer loans credit cards and Personal Loans. He also built the SME business (since2003) and Rural Banking Business (since 2007) for ICICI Bank. His key passion is the usage of new age technology to expand organized retail lendingand deposits to a vast expanse of India.

He was appointed as Executive Director on the Board of ICICI Bank at the age of 38. He was also the Chairman of ICICI Home Finance Co. Ltd, andserved on the Board of ICICI Lombard General Insurance Company and CIBIL, India’s first credit bureau. He started his career with Citibank IndiaConsumer Banking Division in 1990 and worked there till 2000.

His contribution won him many domestic and international awards including “Best Retail bank in Asia 2001”, “Excellence in Retail Banking Award”2002, “Best Retail Bank in India 2003, 2004, and 2005 from the Asian Banker”, “Most Innovative Bank, 2007”, “Young EntrepreneurAward, 2011”, “Greatest Corporate Leaders of India, 2014” and was nominated “Retail Banker of the Year” by EFMA Europe for 2008 and 2009. Heis an alumnus of Birla Institute of Technology and Harvard Business School.

He is a regular marathoner and has run 7 full marathons and 10 half marathons. He lives in Mumbai with his family of father, wife and threechildren.


Mr. V. Vaidyanathan is the Chairman and Managing Director of Capital First Limited (CFL). He concluded India’slargest Management Buyout of a listed company which is one of his most significant professional achievements. Aspart of this MBO, Warburg Pincus, one of the world’s most reputed Private Equity players, with funds of over US$

In 2010, in order to take an entrepreneurial role, he joined Capital First from ICICI Prudential Life InsuranceCompany, where he was the Managing Director and CEO. Under his leadership, the company’s long term creditrating has been re-rated thrice from A+ to AA+ within 3 years.

Chairman & Managing Director

40 billion in 36 countries, has acquired a majority stake (71.99%) in Capital First Limited.

Board of Directors


Vishal MahadeviaNon-Executive

Director

Anil SinghviIndependent Director

N.C. SinghalIndependent Director

Hemang RajaIndependent Director

M S Sundar RajanIndependent Director

Mr. Vishal Mahadevia joined Warburg Pincus in 2006, is co-head of the firm's Mumbai office. Previously, he was a principal at Greenbriar Equity Group, a fund focused on private equity investments. Prior to that, Mr. Mahadevia worked at Three Cities Research, Inc., a New York-based private equity fund, and with McKinsey & Company

Mr. Anil Singhvi is the Chairman of Ican Investments Advisors Pvt Ltd. Prior to establishing Ican Investments, he was the Advisor to Reliance ADA Group. Mr. Singhvi was the Managing Director of Ambuja Cements Ltd. He played a key role in the growth of the company from 0.7 million tonnes to 17 million tonnes.

Mr. N. C. Singhal was a Banking Expert to the Industrial Development Bank of Afghanistan, for the World Bank project and a Consultant and Management Specialist with the ADB. He was the founder Chief Executive Officer of The Shipping Credit & Investment Corporation of India Limited.

Mr. Hemang Raja has a vast experience of over thirty three years in financial services encompassing Project Finance and Corporate Banking with IL&FS. He has been involved in the Private Equity and Fund Management business with Credit Suisse and Asia Growth Capital Advisers in India as MD and Head-India

Mr. Sundar Rajan was Chairman and Managing Director (CMD) of Indian Bank and has total experience of over 38 years in the Banking Industry. He has also earlier worked with Union Bank of India for over 33 years. During his Stewardship as CMD of Indian Bank, the Bank has won many accolades and awards

Prof

ile

Agenda

23



Product Offering

Credit Processes

Liability Profile

Board of Directors



Financial Results

Equity Shareholding Pattern – (as on 31 Mar 2014)


Promoters (Warburg Pincus-

Affiliated Companies), 71.99

%

FII, 0.79%

Financial Institutions, 4.08%Bodies

Corporate, 15.66%

Individuals, 5.97%

Others, 1.52%

Agenda

25



Product Offering

Credit Processes

Liability Profile

Board of Directors



Financial Results

Significant Changes in Accounting Policy in FY 13

During FY13, the company changed the accounting policy for recognition of income from certainincome lines. These changes and its impact on the P&L are described below.

• Earlier, the company had followed a policy of booking income from Processing Fees receivedfrom customers and other such income as upfront income. As per the changed policy, thisincome is being amortized over the average tenure of loans, and therefore the profits willaccrue to the P&L of the company over the life of the loan.

• As a result, the accounting income from these activities is expected to reduce by about Rs. 180-200 Mn per quarter, compared to the prior years, on account of the change in Accounting Policy.

• Whether such income is booked upfront (earlier accounting policy) or amortised (currentaccounting policy), its economic value is the same under both accounting methods.

• Hence, in the initial years after this change of accounting policy, the company may report lowerprofits compared to prior years, but the amortised income will reflect in the P and L of thefuture years over the life of the loan.

• The financials of the Company is already reflecting the effect of this change as the PBT over thelast 5 quarters has sequentially increased as shown in the subsequent slides.


Consolidated Profit & LossCorresponding quarter (Q4-FY14 vs. Q4-FY13)

All figures are in Rs. mn

27Corporate Presentation

The Net Interest Income was up 40% over the corresponding quarter in previous year reflecting a healthy growthof key lines of businesses.

Particulars Q4-FY14 Q4-FY13 % Change

Interest Income 2,692 1,986 36%

Less: Interest Expense 1,732 1,302 33%

Net Interest Income (NII) 960 684 40%

Income from Assignment -32 -13 -

Fee income 238 129 85%

Other Income -9 45 -

Total Income 1,157 845 37%

Opex 863 668 29%

Provision 62 140 -55%

PBT 232 37 -

Exceptional Items - -11 -

Tax -66 -56 18%

PAT 298 82 266%

Consolidated Profit & LossCorresponding Year (FY14 vs. FY13)



The Net Interest Income was up 35% over the previous year reflecting a healthy growth of key lines of businesses.

Particulars FY14 FY13 % Change



Net Interest Income (NII) 3,361 2,499 35%

Income from Assignment * 33 299 -89%


Other Income 10 134 -92%

Total Income 4,222 3,362 26%

Opex 3,122 2,623 19%

Provision 510 220 132%

PBT 590 519 14%

Exceptional Items - 213 -

Tax 64 101 -37%

PAT 526 631 -17%

All figures are in Rs. mn unless specified


The Net Interest Income was up 9% over the sequential quarter (Q3-FY14) reflecting a healthy growth of keylines of businesses. The Q4 Consolidated Profit Before Tax grew from Rs. 169 million in FY13 to Rs. 232 million inFY14.

Particulars Q4-FY14 Q3-FY14 % Change



Net Interest Income (NII) 960 883 9%

Income from Assignment -32 29 -


Other Income -9 3 -

Total Income 1,157 1,098 5%

Opex 863 746 16%

Provision 62 183 -66%

PBT 232 169 37%

Exceptional Items - - -

Tax -66 68 -

PAT 298 101 195%

Consolidated Profit & LossSequential quarter (Q4-FY14 vs. Q3-FY14)



Particulars Q4-FY13 Q1-FY14 Q2-FY14 Q3-FY14 Q4-FY14

Interest Income 1,986 2,203 2,381 2,551 2,692

Less: Interest Expense 1,302 1,481 1,587 1,668 1,732

Net Interest Income (NII) 684 722 794 883 960

Income from Assignment -13 9 27 29 -32

Fee income 129 195 202 183 238

Other Income 45 17 1 3 -9

Total Income 844 943 1,024 1,098 1,157

Opex 668 736 777 746 863

Provision 140 133 132 183 62

PBT 36 74 115 169 232

Exceptional Items -11 - - - -

Tax -56 19 43 68 -66

PAT 82 55 72 101 298

Consolidated Profit & LossTrailing 5 quarters

The company saw a one time reduction in profits when the accounting policy was changed in FY 13. Since then thetotal income of the company has steadily grown over the last 5 quarters from Rs. 845 million in Q4 FY 13 to Rs.1,157 million in Q4 FY 14.

This has resulted in steady increase in Profit before Tax (PBT) of the Company from Rs. 36 million in Q4 FY 13 to Rs.232 million in Q4 FY 14.

684 722

794

883 960

-

200

400

600

800

1,000

1,200

Q4-FY13 Q1-FY14 Q2-FY14 Q3-FY14 Q4-FY14

Net Interest Income


Key FinancialsTrailing 5 quarters

9%

Sequential Quarterly Average Growth Rate All figures are in Rs. mn unless specified

844

943 1,024

1,097 1,157

-

200

400

600

800

1,000

1,200

1,400


Total Income



8%


36

74

115

169

232

-

50

100

150

200

250


Profit Before Tax



59%


Consolidated Balance SheetAll figures are in Rs. mn unless specified


Particulars As on March 31, 2014

As onMarch 31, 2013

SOURCES OF FUNDS

Net worth 11,719 9,607

Loan funds 84,220 62,301

Total 95,939 71,908

APPLICATION OF FUNDS

Goodwill 64 64

Fixed Assets 276 326

Deferred Tax Asset (net) 171 87

Investments 3,474 11

Current Assets, Loans & Advances

Loan Book 69,444 55,902

Other current assets and advances 27,890 19,009

Less: Current liabilities and provisions (5,380) (3,491)

Net current assets 91,953 71,420

Total 95,939 71,908

Way Forward

With a strong foundation in place, Capital First looks forward to achieving thefollowing goals by FY19

• The company aims to build Assets Under Management (AUM) of Rs.250.00 - 300.00 billion.

• With scaling up of business, the company expects to get the benefits ofscale and significant improvement in Operating Leverage over the years

• The company expects to get higher profitability through a diversified loanbook, low operating costs, high portfolio quality and fee income throughcross sell.

• Through the right mix of products and services, and judicious use ofcapital, the company aims to Achieve Return on Assets (RoA) of about2.5% and deliver Return on Equity (RoE) of about 18-20% on a sustainablebasis.


Investor ContactSAPTARSHI BAPARI+91 22 4042 3534, +91 99200 [email protected]

Capital First LimitedIndia Bulls Finance CentreTower II, 15th FloorSenapati Bapat MargElphinston (West)Mumbai 400 013

Websitewww.capfirst.com


Kindly provide feedback about the presentation at [email protected] or [email protected]

mailto:[email protected]

http://www.capitalfirst.com/





corporate presentation – fy14 - capital first first... · entrepreneurs or entry level salaried...

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