Shifting of asset base has paid Capital First: Girish Pai, Nirmal Bang Institutional Equities

Capital First would show visible growth over the next two-three years, says Girish Pai, Head of Research, Nirmal Bang Institutional Equities. In a conversation with ET Now, he says that the non performing assets (NPAs) of this non banking finance company (NBFC) is less than a percent.

ET Now: Let us start with Capital First. It has had almost an 11 per cent rally this week, a very sharp move indeed. They are growing well but that is something that the market already knows. So what has changed?

Girish Pai: Corporate banks are facing asset quality issues and that problem is going to continue for at least 12-18 months or more. So we think that some of the NBFCs like SKS Microfinance and Capital First would give you a fairly solid and visible growth over the next two-three years.

Capital First has shifted its asset base. Corporates used to form 90 per cent of its asset book five years back. Today, they only form about 15 per cent of its asset base. So Capital First has been a fair bit of shift in terms of who they are focusing on. That has led to the expansion of their net interest margins.

ET Now: What is your view as far as the NPAs of Capital First are concerend?

Girish Pai: They give loans to micro, small and medium enterprises (MSME), for consumer durables as well as two wheelers. They have invested a lot in technology and processes. A lot of MSME loans are backed by collaterals, which means that these are loans against property. But what we heard from the management is that they are not dependent on collateral only.

They focus on cash flows as well. Hence, we have seen NPAs, gross non performing assets (GNPAs) of less than a percent for this company because their provisioning norms have been fairly rigid. They have already started providing for outstanding loans where payments have not been made for more than 90 days. So that is working well for them.