Corporate Presentation – FY14
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.
Corporate Presentation 4
Agenda
5
Overview of the Company
Changing Asset Composition
Product Offering
Credit Processes
Liability Profile
Board of Directors
Corporate Presentation
Shareholding Pattern
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%
Corporate Presentation
28%
72%
AUM (Rs. Bn)
FY14
Rs. 96.79 bn
81%
19%
Agenda
7
Overview of the Company
Changing Asset Composition
Product Offering
Credit Processes
Liability Profile
Board of Directors
Corporate Presentation
Shareholding Pattern
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.
Corporate Presentation 8
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.
Corporate Presentation 9
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.
Corporate Presentation 10
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.
Corporate Presentation 11
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
Overview of the Company
Changing Asset Composition
Product Offering
Credit Processes
Liability Profile
Board of Directors
Corporate Presentation
Shareholding Pattern
Financial Results
Credit Processes
Corporate Presentation 13
• 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
Corporate Presentation 14
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
Overview of the Company
Changing Asset Composition
Product Offering
Credit Processes
Liability Profile
Board of Directors
Corporate Presentation
Shareholding Pattern
Financial Results
Credit Rating
Corporate Presentation 16
• 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)
Corporate Presentation 17
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)
Corporate Presentation 18
• 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)
Corporate Presentation 19
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
Overview of the Company
Changing Asset Composition
Product Offering
Credit Processes
Liability Profile
Board of Directors
Corporate Presentation
Shareholding Pattern
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$30 billion in Mortgages, Auto loans, Commercial Vehicles, Consumer loans credit cards and Personal Loans. He also built the SME business (since2003) and Rural Banking Business (since 2007) for ICICI Bank. His key passion is the usage of new age technology to expand organized retail lendingand deposits to a vast expanse of India.
He was appointed as Executive Director on the Board of ICICI Bank at the age of 38. He was also the Chairman of ICICI Home Finance Co. Ltd, andserved on the Board of ICICI Lombard General Insurance Company and CIBIL, India’s first credit bureau. He started his career with Citibank IndiaConsumer Banking Division in 1990 and worked there till 2000.
His contribution won him many domestic and international awards including “Best Retail bank in Asia 2001”, “Excellence in Retail Banking Award”2002, “Best Retail Bank in India 2003, 2004, and 2005 from the Asian Banker”, “Most Innovative Bank, 2007”, “Young EntrepreneurAward, 2011”, “Greatest Corporate Leaders of India, 2014” and was nominated “Retail Banker of the Year” by EFMA Europe for 2008 and 2009. Heis an alumnus of Birla Institute of Technology and Harvard Business School.
He is a regular marathoner and has run 7 full marathons and 10 half marathons. He lives in Mumbai with his family of father, wife and threechildren.
Corporate Presentation 21
Mr. V. Vaidyanathan is the Chairman and Managing Director of Capital First Limited (CFL). He concluded India’slargest Management Buyout of a listed company which is one of his most significant professional achievements. Aspart of this MBO, Warburg Pincus, one of the world’s most reputed Private Equity players, with funds of over US$
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
Corporate Presentation 22
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
Overview of the Company
Changing Asset Composition
Product Offering
Credit Processes
Liability Profile
Board of Directors
Corporate Presentation
Shareholding Pattern
Financial Results
Equity Shareholding Pattern – (as on 31 Mar 2014)
Corporate Presentation 24
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
Overview of the Company
Changing Asset Composition
Product Offering
Credit Processes
Liability Profile
Board of Directors
Corporate Presentation
Shareholding Pattern
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.
Corporate Presentation 26
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)
All figures are in Rs. mn
28Corporate Presentation
The Net Interest Income was up 35% over the previous year reflecting a healthy growth of key lines of businesses.
Particulars FY14 FY13 % Change
Interest Income 9,829 7,333 34%
Less: Interest Expense 6,468 4,834 34%
Net Interest Income (NII) 3,361 2,499 35%
Income from Assignment * 33 299 -89%
Fee income 818 430 90%
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
29Corporate Presentation
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
Interest Income 2,692 2,551 6%
Less: Interest Expense 1,732 1,668 4%
Net Interest Income (NII) 960 883 9%
Income from Assignment -32 29 -
Fee income 238 183 30%
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)
All figures are in Rs. mn
30Corporate Presentation
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
31Corporate Presentation
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
Q4-FY13 Q1-FY14 Q2-FY14 Q3-FY14 Q4-FY14
Total Income
32Corporate Presentation
Key FinancialsTrailing 5 quarters
8%
Sequential Quarterly Average Growth Rate All figures are in Rs. mn unless specified
36
74
115
169
232
-
50
100
150
200
250
Q4-FY13 Q1-FY14 Q2-FY14 Q3-FY14 Q4-FY14
Profit Before Tax
33Corporate Presentation
Key FinancialsTrailing 5 quarters
59%
Sequential Quarterly Average Growth Rate All figures are in Rs. mn unless specified
Consolidated Balance SheetAll figures are in Rs. mn unless specified
34Corporate Presentation
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.
Corporate Presentation 35
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
Corporate Presentation 36
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