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Capital First Ltd.

BSE: 532938 Sector: Financials
NSE: CAPF ISIN Code: INE688I01017
BSE 12:41 | 18 Jun 574.85 -6.15
(-1.06%)
OPEN

580.00

HIGH

584.45

LOW

573.00

NSE 12:29 | 18 Jun 574.50 -5.45
(-0.94%)
OPEN

579.80

HIGH

584.70

LOW

572.05

OPEN 580.00
PREVIOUS CLOSE 581.00
VOLUME 7078
52-Week high 902.00
52-Week low 527.40
P/E 18.45
Mkt Cap.(Rs cr) 5,689
Buy Price 573.95
Buy Qty 93.00
Sell Price 574.75
Sell Qty 60.00
OPEN 580.00
CLOSE 581.00
VOLUME 7078
52-Week high 902.00
52-Week low 527.40
P/E 18.45
Mkt Cap.(Rs cr) 5,689
Buy Price 573.95
Buy Qty 93.00
Sell Price 574.75
Sell Qty 60.00

Capital First Ltd. (CAPF) - Chairman Speech

Company chairman speech

CHAIRMAN'S LETTER

We are proud that over the last eight years we have built a Company ground up withgreenfield research developed a deep understanding of the consumer and gained invaluableexperience across credit cycles.

DEAR SHAREHOLDERS

It is a great pleasure and privilege to share with you the performance highlights of FY2017-18 and outline the strategic direction of our journey going ahead. Capital Firstcontinued to grow strongly across all parameters in FY 2017-18.

• The AUM has grown 36% from Rs. 19824 Crore (US$ 3.05 billion) to Rs. 26997Crore (US$ 4.15 billion)

• The NII has grown 53% from Rs. 1301 Crore (US$ 200 million) to Rs. 1987 Crore(US$ 306 million)

• Fee & Other Income grew 30% from Rs. 339 Crore (US$ 52 million) to Rs. 443Crore (US$ 68 million)

• The Total Income has grown 48% from Rs. 1640 Crore (US$ 252 million) to Rs.2430 Crore (US$ 374 million)

• The PAT has grown 37% from Rs. 239 Crore (US$ 37 million) to Rs. 327 Crore (US$50 million)

We are proud that over the last eight years we have built a Company ground up withgreenfield research developed a deep understanding of the consumer and gained invaluableexperience across credit cycles. We have built a strong professional and value-driveninstitution with great corporate governance and are ready to capitalise on the newopportunities in the Indian Financial Services space.

The CAGR growth for Capital First since inception are off the charts. A Five Year CAGRis more representative of the latest trends and shows a strong compounding performance atthe Company. Between FY13 and FY18:

• The AUM has grown at a Five Year CAGR of 29% from Rs. 7510 Crore (US$ 1.16billion) to Rs. 26997 Crore (US$ 4.15 billion)

• The NII has grown at a Five Year CAGR of 48% from Rs. 280 Crore (US$ 43 million)to Rs. 1987 Crore (US$ 306 million)

• The Total Income has grown at a Five Year CAGR of 47% from Rs. 358 Crore (US$ 55million) to Rs. 2430 Crore (US$ 374 million)

• The PAT has grown at a Five Year CAGR of 39% from Rs. 63 Crore (US$ 10 million)to Rs. 327 Crore (US$ 50 million)

We are particularly happy to share with you that the Company has maintained highasset quality consistently over its lifetime. We are happy to report that our Gross andNet NPA remained continuously low at around 1.7% and 1% (90 DPD) respectively forthe entire period indicating the quality of the underlying portfolio. In fact ourportfolio has been stress tested in periods of tight liquidity conditions (FY2010-14 build-up stage of

Company) high inflation (~8-10% FY 2010-14 build-up stage) declining GDP growth(quarterly GDP growth reduced from 9% to 4.5% FY 2010-14) demonetisation (FY16)and GST (FY17). During all these events our portfolio quality remained stable.

Usually retail portfolios take about 4-5 years of seasoning to reflect the truequality. Statistically and analytically speaking our portfolio has seasoned appropriatelyand we see no reason why such asset quality will not be maintained in thefuture. In fact we expect asset quality to only improve in the years to come. Wenever availed of the temporary NPA reporting dispensations the RBI offered during suchmacro changes. The robust credit culture credit underwriting and monitoring systems thatwe set up along the way was important in this achievement. We comfortably migratedto the 90 DPD NPA recognition norm smoothly without any adverse impact.

We also continuously improved Return on Equity. Our return on equity increased from4.93% in FY13 to 8.33% in FY14 to 10.14% in FY16 to 11.93% in FY17 and 13.31% in FY18despite investments in businesses during the period. In fact when seen on a quarterlybasis our return on equity continuously increased from 2.28% in Q1FY14 to close to 15% inQ4FY18. We are confident of crossing 18%-20% ROE soon which would be among the best in theindustry. We have a strong potential for a steady future growth. A large consumer and

MSME financing company growing upwards of 25% with a high return on equity andexcellent corporate governance is incredibly valuable and we are proud to have built suchan entity.

We have built a strong and motivated organisation that is greatly committed to ourcause. As a result of such transformation the market capitalisation of Capital Firstconsistently rose since the Management Buyout from Rs. 781 Crore (US$ 120 million) onMarch 31 2012 to Rs. 1152 Crore (US$ 177 million) on March 31 2013 to Rs. 1478 Crore(US$ 227 million) on March 31 2014 to Rs. 3634 Crore (US$ 559 million) on March 312015 to Rs. 3937 Crore (US$ 606 million) on March 31 2016 and to Rs. 7628 Crore (US$1174 million) on March 31 2017 Rs. 8000 Crore (US$ 1231 million) in January 2018representing a CAGR of 60% and a 10-fold increase in market cap in under six years.

Post the announcement of the merger of Capital First with IDFC Bank we recognise thatthe market cap reduced to Rs. 6118 crore (US$ 941 million) as of March 31 2018.Investors have many questions on their mind as they anticipate too many challenges. Someare obvious and some may come up along the way. I don't deny these challenges.But I believe we can deal with them. We are extremely excited as we have a uniqueopportunity to create a leading universal bank with a strong retail presence. We cancreate a bank that is technologically sophisticated profitable and most importantly willbe of great service to the society.

To understand the evolving model post-merger picture Capital First as a largedynamic entrepreneurial company with a phenomenal lending machine growing upwards of25% excellent asset quality a diversified loan book high return on equity and largeopportunities in India. Now place this model on a banking platform with even lower fundingcost and perennial source of retail borrowings. Now couple this model with the numerousstrengths that IDFC Bank brings to the table and together we can create a highlysuccessful bank over time.

A banking platform provides two significant ts: the funding cost is lowered and moreimportantly the source of funds becomes diversified and effectively perennial. The otherbenefit is the product range we can offer to our customers such as Credit CardsOverdraft Facility Letters of Credit Bank Guarantees Salary Accounts and the likeincrease meaningfully. The possibilities are endless.

It has always been my dream to create a bank that will finance millions of smallentrepreneurs and touch the lives of millions of people in a positive way. Now we havethe ability to do that on a large platform.

When I read the reports that India will be a US$ 5 trillion economy by FY25 or thatconsumption in India will double to US$ 3 trillion by FY25 or that investmentspending will be on the scale 3X to US$ 1.8 trillion by FY25 I getinspired. When I read about the growth in airports rural electrificationbenefiaffordable housing formalisation digitisation and such initiatives I get inspired. Ibelieve an unbelievable era of prosperity lies before us.

Now a note to the employees reading this report. To those of you who read orthink about challenges we will face I would like to point out to you that we areour own inspiration. When we started Capital First we had every challenge lined upagainst us. Our Company was in its infancy. Our gross NPA was 5.28% our net NPA was3.78% banks' funding lines were choked for a variety of reasons. The Company had postedlosses of Rs. 28.75 Crore (US$ 4.42 million) in FY08 and Rs. 32.11 Crore (US$ 4.93million) in FY09. In fact the Company had to pledge its physical property to raise loans.Funds were being raised at 14.5%. In addition to this between FY 2010-14 the economy wasslowing down inflation was rising interest rates were rising and liquidity wastightening. But we came through it as all of you worked harder. We built the businessbrick by brick with diligence and ethics and the results are there for all to see.

Compared to our last round on this occasion growth will be on a banking platform withfund-raising capabilities favourable macroeconomic conditions and an evolved and alreadyprofitable model that has been honed over the years. We have a growing ecosystem afast-growing economy a transformative government and a supportive regulator.

I believe everything is achievable with the right spirit hard work energycommitment honesty the right platform and the right strategy.

If there is one thing I would like you to be swayed by it is the incredibleopportunities ahead. Growth is life and with growth everyone will have greatopportunities. You have been wonderful partners in this progress and have worked night andday since its start-up stage. It is not the time to be fidgety or concerned; instead itis the time to be more motivated.

To my colleague Directors I express my thanks to you for your constant guidance andencouragement.

Thank you shareholders for your unstinted support over the years.

With Best Wishes

V. Vaidyanathan