Soumil Zaveri presented his in-depth investment thesis on Capital First (NSE: CAPF) at Asian Investing Summit 2017.

Capital First is a non-banking financial company focused on India’s underserved ~30 million MSMEs (micro, small & medium enterprises) and consumers. The Warburg Pincus-backed company is led by industry veteran V. Vaidyanathan who owns >10% of the business, creating one of the best alignments of interest in this industry.

In an erstwhile form the company was a wholesale lender to developers but since its reincarnation in 2012 it has built a formidable retail business spanning MSME and business loans as well as personal and consumer loans. Given the low levels of credit penetration in some of these sectors and the slack in the public banking system, Soumil expects Capital First to grow AUM and revenue ~25% annually over the next five years.

As operational costs are spread over a larger business, Soumil expects cost to income to moderate from 51% to ~45%. Given their analytical scorecard-based approach and experience of underwriting 3.5+ million customers, Soumil expects credit costs to moderate over future iterations of this process. This should enable the company to earn and redeploy earnings at an ROE of 16-18% over a long runway.

While the company is not necessarily cheap by static measures, even at recent prices Soumil expects patient allocators to compound capital at attractive rates over the long term.

About the instructor:

Soumil Zaveri moved to the US in 2005 to study Economics and Biology at Duke University, in North Carolina. He had the good fortune of being taught by phenomenal professors including Dr. Emma Rasiel. At Duke he presided over the Investment Club with, now good friend, James Schulhof. In the summer of junior year, He interned with Goldman, Sachs & Co. in New York on the healthcare team with in the Research division. He was extended a full time offer and joined the banking team there after graduation. He witnessed an exponential learning curve while working with Richard Ramsden, Brian Foran, Quan Mai & Ryan Fulmer through the financial crisis. Given the magnitude of changes affecting the western economies, the resilience of Asian ones and his desire to be back home, after a few years in New York, he moved back to Mumbai to start his own investment firm, and to work directly on allocating personal and family capital. DMZ Partners was founded on 1st April 2011 as a partnership firm. His grandfather, who was very fond of him, was Dinesh Mahsukhlal Zaveri (initials DMZ), and co-incidentally his father’s great grandfather who was a successful businessman of his time, Dahyalal Makanjee Zaveri also carried the same initials.

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