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Capital First seeks to raise funding through preferential issue

09 November, 2016

Capital First Ltd, a non-banking financial company (NBFC) majority owned by private equity firm Warburg Pincus, is looking to raise funds by way of a preferential issue, it said in a statement.

The announcement comes at a time when the firm is looking to diversify its loan book into several retail segments and is considering inorganic growth options.

The company has shifted its focus from wholesale lending to retail loans over the past seven years. The share of the retail book grew from 10% of the total in 2009-10 to 89% in the first quarter of 2016-17. 

It mostly offers small-ticket loans to salaried individuals and self-employed people such as shopkeepers and small traders with short tenor that ranges from eight months to two years. These loans are difficult to originate, manage and collect, it said in its annual report.

Warburg Pincus has been pushing for diversification and is helping the company scout for an acquisition.

The NBFC, led by chairman and managing director V Vaidyanathan, had engaged with another Warburg Pincus-backed firm, AU Financiers (India) Ltd, which was looking to trim its stake in Gujarat-based M Power Micro Finance Pvt. Ltd for a potential acquisition. However, AU Financiers, an early investor in M Power, has pared its holding from 38.5% to 9.5% by selling part of its stake to a group of Rajasthan-based affluent individuals recently.

Capital First went public in 2008 with bumper oversubscription for its initial public offering (IPO). It has financed about 2.25 million customers, including more than 1.5 million self-employed individuals and small and medium enterprises, according to its website. It has 222 branches.

The firm has transformed its business over the past six years. For the year ended 31 March 2016, when its total assets under management rose to Rs 16,041 crore, retail lending accounted for 86% of the total.

In a research note published in July, brokerage house Edelweiss said Capital First had emerged stronger after structurally transforming its business model by focusing on high-growth retail financing and downsizing the wholesale book.

The note said Capital First is poised to post 40% compound annual growth in earnings over FY2015-16 to FY2018-19, riding on healthy expansion in assets under management, prudent product shift strategy, operating leverage benefits, controlled credit cost and higher cross-sell opportunities.

The non-performing assets (NPAs) of the company have declined from 5.28% to 1.07% on a gross basis and from 3.78 % to 0.55% on a net basis over a five-year period.

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Capital First seeks to raise funding through preferential issue

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