Corporate Presentation FY14 Agenda Overview of the Company - - PowerPoint PPT Presentation

Corporate Presentation – FY14

Agenda

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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 FY11

to 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 India

covering 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 March

31, 2014.

• The Company long term credit rating including NCD and Subordinated Debt is rated highly at

AA+ 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

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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

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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 individuals

and professionals against collateral of Residential or Commercial property.

• SME Financing is a large and growing opportunity in India’s growing economy. The SME segment is

largely 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. The

actuarial tenor of the loans is usually between 4 - 5 years. SMEs usually prepay these facilities before time based on their cash accruals.

• The Company understands that the following “ Challenges and Risks” are inherent in this business, and

takes 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 is sudden 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 like

medical emergency, down payment for home purchase or renovation of their home. Often, traders and small 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 Jewellery financing business by reaching customers who reside in the neighbourhood of its branches, through local 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 the

jewellery.

• The Company understands that the following “ Challenges and Risks” are inherent in this business, and

takes 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 their first job in the organised sector.

• From a distribution point of view, this is a highly fragmented market. The loans are originated through an

extensive 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 and efficient customer services.

• Two-Wheeler loans are relatively small ticket size loans of about Rs. 30,000 - Rs. 40,000. The Door to Door

tenure for the loan is around 2 years.

• The Company understands that the following “ Challenges and Risks” are inherent in this business, and takes

preventive 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 to high 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 of customers 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 small entrepreneurs 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 has

tied up with all leading Consumer Durable manufacturers and has grown the business with the help of extensive 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 for

the loan is around 8 months.

• The Company checks the application with the Credit Bureau (Bureau Score), and evaluates the application

using the Application Score (AS) in parallel. The decision is conveyed to the customer and dealership within 3 minutes.

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 across remote geographies leading to high operating and distribution costs. It is a challenge to build the required critical mass for this business. The collection effort and collection cost involved for collecting the small EMIs from 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 system needs to be validated and recalibrated on an ongoing basis.

Agenda

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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 4-6 5-10 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 are disbursed after passing through several levels of scrutiny and checks, mainly centred around cash flow evaluation, credit bureau and reference checks

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

✘ ✘ ✘ ✘ ✘

Agenda

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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, strong

business model, strong controls and processes, high credit quality, conservative asset liability management with no 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

48,700 33,390 29,484 15,762 8,085 18,039 31,574 15,438 17,869 12,387 5,600 18,039

• 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

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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 dominantly retail (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 number

• f retail businesses including MSME financing, Gold Loans, Two Wheeler loans, Consumer Durable loans and has implemented latest cutting edge

technologies and scoring solutions in the company. He has built a large retail franchise of over 150 branches, 1000 employees covering across 218 locations, 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 ICICI Bank in early 2000 and was one of the Senior Management responsible for transition of ICICI from a Domestic Financial Institution (DFI) to a Universal Bank. He launched the Retail Banking Business, and helped the change of ICICI bank into a large retail powerhouse in the country. He built a 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 (since 2003) and Rural Banking Business (since 2007) for ICICI Bank. His key passion is the usage of new age technology to expand organized retail lending and 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, and served on the Board of ICICI Lombard General Insurance Company and CIBIL, India’s first credit bureau. He started his career with Citibank India Consumer 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 Entrepreneur Award, 2011”, “Greatest Corporate Leaders of India, 2014” and was nominated “Retail Banker of the Year” by EFMA Europe for 2008 and 2009. He is 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 three children.

Corporate Presentation 21

• Mr. V. Vaidyanathan is the Chairman and Managing Director of Capital First Limited (CFL). He concluded India’s

largest Management Buyout of a listed company which is one of his most significant professional achievements. As part 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 Insurance Company, where he was the Managing Director and CEO. Under his leadership, the company’s long term credit rating 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 Mahadevia Non-Executive Director Anil Singhvi Independent Director N.C. Singhal Independent Director Hemang Raja Independent Director M S Sundar Rajan Independent 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

• f 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

• ver 33 years.

During his Stewardship as CMD

• f Indian Bank, the

Bank has won many accolades and awards

Profile

Agenda

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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

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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 certain income 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 received

from customers and other such income as upfront income. As per the changed policy, this income is being amortized over the average tenure of loans, and therefore the profits will accrue 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 (current

accounting 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 lower

profits compared to prior years, but the amortised income will reflect in the P and L of the future years over the life of the loan.

• The financials of the Company is already reflecting the effect of this change as the PBT over the

last 5 quarters has sequentially increased as shown in the subsequent slides.

Corporate Presentation 26

Consolidated Profit & Loss

Corresponding quarter (Q4-FY14 vs. Q4-FY13)

All figures are in Rs. mn

27 Corporate Presentation

The Net Interest Income was up 40% over the corresponding quarter in previous year reflecting a healthy growth

• f 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 & Loss

Corresponding Year (FY14 vs. FY13)

All figures are in Rs. mn

28 Corporate 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

29 Corporate Presentation

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

Sequential quarter (Q4-FY14 vs. Q3-FY14)

All figures are in Rs. mn

30 Corporate 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 & Loss

Trailing 5 quarters

The company saw a one time reduction in profits when the accounting policy was changed in FY 13. Since then the total 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

31 Corporate Presentation

Key Financials

Trailing 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

32 Corporate Presentation

Key Financials

Trailing 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

33 Corporate Presentation

Key Financials

Trailing 5 quarters

59%

Sequential Quarterly Average Growth Rate

All figures are in Rs. mn unless specified

Consolidated Balance Sheet

All figures are in Rs. mn unless specified

34 Corporate Presentation

Particulars As on March 31, 2014 As on March 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 the following 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 of

scale and significant improvement in Operating Leverage over the years

• The company expects to get higher profitability through a diversified loan

book, low operating costs, high portfolio quality and fee income through cross sell.

• Through the right mix of products and services, and judicious use of

capital, the company aims to Achieve Return on Assets (RoA) of about 2.5% and deliver Return on Equity (RoE) of about 18-20% on a sustainable basis.

Corporate Presentation 35

Investor Contact

SAPTARSHI BAPARI +91 22 4042 3534, +91 99200 39149 Investor.relations@capfirst.com Capital First Limited

India Bulls Finance Centre Tower II, 15th Floor Senapati Bapat Marg Elphinston (West) Mumbai 400 013

Website www.capfirst.com

Corporate Presentation 36

Kindly provide feedback about the presentation at Investor.relations@capfirst.com or saptarshi.bapari@capfirst.com