Corporate Presentation Q1-FY15 Agenda Overview of the Company - - PowerPoint PPT Presentation

Corporate Presentation – Q1-FY15

Agenda

2

Overview of the Company Changing Asset Composition Product Offering Credit Processes Credit Rating and Asset Liability Management Board of Directors

Corporate Presentation

Shareholding Pattern Financial Results

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 3

Overview

• Capital First (CAPF) was formed in 2012 as a result of a Management Buyout of an existing

NBFC, which was backed by Global Private Equity Warburg Pincus US. Capital First is listed on NSE and BSE, and has a record of consistent growth & profitability.

• CAPF focuses on providing financial services to retail and Micro and Small Enterprises, and

the company is growing between 25-30% per year.

• The company has increased its retail financing (MSME + Consumer business) contribution

from 10% in FY 10, to 28% in FY11 to 56% in FY12, 74% in FY13 and 81% in FY14 and 82% as

• n June 30, 2014.
• CAPF has loan assets under management of Rs. 106.03 bn as on June 30, 2014.
• CAPF has a strong distribution setup across India covering 40 cities with an employee base of

1090 as on June 30, 2014

• The Net Worth of CAPF is Rs. 12.03 bn as on June 30, 2014. The Capital Adequacy is 21.33% as
• n June 30, 2014.
• The Gross and Net NPA of the Company stood at 0.54% and 0.09% respectively as on June

30, 2014.

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

AA+ by rating agencies.

Corporate Presentation 4

Agenda

5

Overview of the Company Changing Asset Composition Product Offering Credit Processes Credit Rating and Asset Liability Management Board of Directors

Corporate Presentation

Shareholding Pattern Financial Results

Milestones for the Company

6 Corporate Presentation

10 %

56 % 44 % 74 % 26 % 81% 19%

FY10 FY11 FY12 FY13 FY14

• Launched credit

scoring for CD

• Launched Gold

Loan business

• Divested Forex

business

• Launched TW

Loans

• Long Term Credit

Rating upgrade from A+ to AA-

• Amalgamated

NBFC subsidiary with Parent

• Warburg Pincus

acquired majority stake

• Infused Rs. 1.00 bn as

primary equity

• Capital First is born
• Long Term Credit

Rating upgrade from AA- to AA+

• Company raised Rs. 1.78

billion as fresh equity from WP and HDFC Life

• Company acquired HFC

license

• Scaled up all retail

businesses

9.35 bn 27.51 bn 61.86 bn 75.10 bn

28 % 72 %

• Wholesale

NBFC

90%

82% 18%

96.79 bn 106.03 bn

• Company’s Assets under

Management crossed Rs. 100.00 billion

• Number of customers

financed since inception crossed 1 million this quarter.

• Capital (Tier1+Tier2)

crosses Rs. 18.00 billion

Q1-FY15

Wholesale Assets Retail Assets

Key Focus area of the company is Retail loan Businesses

Agenda

7

Overview of the Company Changing Asset Composition Product Offering Credit Processes Credit Rating and Asset Liability Management 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 following “ Challenges and Risks” are inherent in this business. The company takes measures as

necessary with regard to credit appraisal and portfolio monitoring to address the same.

Corporate Presentation 8

Challenges

• Evaluation of the cash flow of an SME is challenging considering the low transparency, large cash based

income, seasonality, low disclosures among SMEs etc.

Risks

• The loans are primarily provided to the MSME players based on the cash flow analysis of their businesses, and

downturn during the economic cycles affect their cash flows and may hamper their repayment capabilities. The other risk associated is sudden crash in real estate prices.

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 following “ Challenges and Risks” are inherent in this business. The company takes measures as

necessary with regard to credit appraisal and portfolio monitoring 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 following “ Challenges and Risks” are inherent in this business.

The company takes measures as necessary with regard to credit appraisal and portfolio monitoring 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 has high operating and distribution costs due to dispersed distribution over distant geographies.

• 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 evaluates the application by using Automated Credit Scoring engine, repayment track record

from Credit Bureaus, automated fraud scoring, dedupe mechanisms, and real time identity authentications.

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

12

Overview of the Company Changing Asset Composition Product Offering Credit Processes Credit Rating and Asset Liability Management 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

15

Overview of the Company Changing Asset Composition Product Offering Credit Processes Credit Rating and Asset Liability Management Board of Directors

Corporate Presentation

Shareholding Pattern Financial Results

Capital – (as on 30 June 2014)

Corporate Presentation 16 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 18,175 5,000 7,000 9,000 11,000 13,000 15,000 17,000 19,000 FY10 FY11 FY12 FY13 FY14 Q1-FY15

21.33%

Credit Rating

Corporate Presentation 17

• 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

Asset Liability Management – (as on 30 Jun 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.

All figures are in Rs. Mn unless specified 37,454 25,284 18,552 10,934 6,386 18,768 29,764 18,976 13,313 10,900 4,337 18,768

• 5,000

10,000 15,000 20,000 25,000 30,000 35,000 40,000

Upto 1 year 1-2 year 2-3 year 3-4 year 4-5 year More than 5 year Total Inflows Total Outflows

Agenda

19

Overview of the Company Changing Asset Composition Product Offering Credit Processes Credit Rating and Asset Liability Management Board of Directors

Corporate Presentation

Shareholding Pattern Financial Results

In 2010, CFL had Rs. 9.35 billion of assets, of which 10% was in retail assets. He has changed the composition of the loan book to dominantly retail (82% retail) and grew the company’s assets to Rs. 106.00 billion (June ’14). Since his joining Capital First, he has successfully launched a number of 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 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 marathons and 10 half marathons. He lives in Mumbai with his family of father, wife and three children.

Corporate Presentation 20

• 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 21

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

22

Overview of the Company Changing Asset Composition Product Offering Credit Processes Credit Rating and Asset Liability Management Board of Directors

Corporate Presentation

Shareholding Pattern Financial Results

Equity Shareholding Pattern – (as on 30 June 2014)

Corporate Presentation 23

Promoters (Warburg Pincus- Affiliated Companies), 71.83 % FII, 2.02% Financial Institutions, 6.90% Bodies Corporate, 9.77% Individuals, 7.41% Others, 2.07%

Agenda

24

Overview of the Company Changing Asset Composition Product Offering Credit Processes Credit Rating and Asset Liability Management 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.

• 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.

• 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.

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

last 6 quarters has sequentially increased as shown in the subsequent slides.

Corporate Presentation 25

Consolidated Profit & Loss

Corresponding quarter (Q1-FY15 vs. Q1-FY14)

All figures are in Rs. mn

26 Corporate Presentation

The Net Interest Income was up 53% over the corresponding quarter in previous year reflecting a healthy growth

• f key lines of businesses.

Particulars Q1-FY15 Q1-FY14 % Change

Interest Income 2,999 2,203 36% Less: Interest Expense 1,895 1,481 28% Net Interest Income (NII) 1,104 722 53% Fee Income 337 221 53% Total Income 1,441 943 53% Opex 905 736 23% Provision 213 133 60% PBT 324 74 338% Exceptional Items

• Tax

116 19 510% PAT 208 55 278%

All figures are in Rs. mn unless specified

27 Corporate Presentation

The Net Interest Income was up 15% over the sequential quarter reflecting a healthy growth of key lines of

• businesses. The quarterly Consolidated Profit Before Tax grew 39% from Rs. 232 million in Q4-FY14 to Rs. 324

million in Q1-FY15. Particulars Q1-FY15 Q4-FY14 % Change

Interest Income 2,999 2,692 11% Less: Interest Expense 1,895 1,732 9% Net Interest Income (NII) 1,104 960 15% Fee income 337 197 72% Total Income 1,441 1,157 25% Opex 905 862 5% Provision 213 62 241% PBT 324 232 39% Exceptional Items

• Tax

116

• 66
• PAT

208 298

• 30%

Consolidated Profit & Loss

Sequential quarter (Q1-FY15 vs. Q4-FY14)

All figures are in Rs. mn

28 Corporate Presentation

Particulars Q4-FY13 Q1-FY14 Q2-FY14 Q3-FY14 Q4-FY14 Q1-FY15

Interest Income 1,986 2,203 2,381 2,551 2,692 2,999 Less: Interest Expense 1,302 1,481 1,587 1,668 1,732 1,895 Net Interest Income (NII) 684 722 794 883 960 1,104 Fee income 161 221 230 215 197 337 Total Income 844 943 1,024 1,098 1,157 1,441 Opex 668 736 777 746 863 905 Provision 140 133 132 183 62 213 PBT 36 74 115 169 232 324 Exceptional Items

• 11
• Tax
• 56

19 43 68

• 66

116 PAT 82 55 72 101 298 208

Consolidated Profit & Loss

Trailing 6 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 6 quarters from Rs. 844 million in Q4 FY 13 to Rs. 1,441 million in Q1 FY 15. This has resulted in steady increase in Profit before Tax (PBT) of the Company from Rs. 36 million in Q4 FY 13 to Rs. 324 million in Q1 FY 15.

684 722 794 883 960 1,104 200 400 600 800 1000 1200 Q4-FY13 Q1-FY14 Q2-FY14 Q3-FY14 Q4-FY14 Q1-FY15

Net Interest Income (NII)

29 Corporate Presentation

Key Financials

Trailing 6 quarters

All figures are in Rs. mn unless specified

844 943 1,024 1,098 1,157 1,441 200 400 600 800 1000 1200 1400 1600 Q4-FY13 Q1-FY14 Q2-FY14 Q3-FY14 Q4-FY14 Q1-FY15

Total Income

30 Corporate Presentation

Key Financials

Trailing 6 quarters

All figures are in Rs. mn unless specified

36 74 115 169 232 324 50 100 150 200 250 300 350 Q4-FY13 Q1-FY14 Q2-FY14 Q3-FY14 Q4-FY14 Q1-FY15

Profit Before Tax

31 Corporate Presentation

Key Financials

Trailing 6 quarters

All figures are in Rs. mn unless specified

Consolidated Balance Sheet

All figures are in Rs. mn unless specified

32 Corporate Presentation

Particulars As on June 30, 2014 As on March 31, 2014

SOURCES OF FUNDS Net worth 12,025 11,719 Loan funds 80,122 84,220 Total 92,148 95,939 APPLICATION OF FUNDS Goodwill

• 64

Fixed Assets 243 276 Deferred Tax Asset (net) 266 171 Investments 11 3,474 Current Assets, Loans & Advances Loan Book 78,076 69,444 Other current assets and advances 18,407 27,890 Less: Current liabilities and provisions (4,856) (5,380) Net current assets 91,627 91,953 Total 92,148 95,939

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 33

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 34

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