Capital First: Outstanding Corporate Transformation India 2018 & Most Inspirational Management Buyout India 2018

Outstanding Corporate Transformation India 2018

The transformation of Capital First (2010 to 2018) has been remarkable. In 2010, the company focused on equity broking, foreign exchange, asset management and had a handful of real estate developer customers representing $140m in loans. In 2010, the company defined a new mission and started to finance MSMEs, self-employed and consumers. Loans as low as $300 to $100,000 became the new focus. Green-field technologies were developed to provide financing to target markets. Despite slowing economic growth, high inflation, and rising interest rates, the company successfully underwent a leveraged MBO led by V Vaidyanathan. This involved an open public offer, fresh capital of $15m, reconstitution of the board and the name-change to Capital First. Subsequently, the company has diversified its borrowing to 300 lenders, and reduced costs from a high of 14% to as low as 9%. Asset quality improved sharply with net non-performing reducing from 3.4% to 1.0%. The company has now financed seven million customers and over 40% of these were first-time borrowers. Retail loan book increased from $14m to $4b. Company losses of $5m annually (2008 and 2009) turned into profitability of $48m in financial year ending March 2018. Credit rating improved from A+ to AAA and capitalisation increased multi-fold to $1.2b. In a 2018 breakthrough, Capital First obtained a banking licence by merging with an existing bank. Shareholders approved the deal with over 99.9% of votes in favour. The CFI.co judges agree that the Capital First management buyout story has resulted in an equally inspiring corporate transformation in India and the 2018 award is applauded.

V Vaidyanathan: Most Inspirational Management Buyout India 2018

V Vaidyanathan, Founder and Chairman of Capital First, is a quintessential entrepreneur who embarked on an ambitious plan some eight years ago. Quitting his senior-level Board position at India’s largest private-sector bank, he acquired a 10 percent stake in a small beaten-down finance company by leveraging his home and other assets. He immediately defined the mission as “financing small entrepreneurs and consumers in India.” Between 2010 and 2011, Vaidyanathan used contemporary technologies to build a “proof of concept” retail loan book worth $120m, and demonstrated the unique model to PEs. Based upon this, he secured private equity backing from Warburg Pincus of $159m in 2012 to fund the MBO, and Capital First was founded in the process. He grew loan assets to $3b in 2017, and the market capitalisation grew from $120m at the time of the MBO in 2012 to $1.2bn in five years. Vaidyanathan then sold a 1.5 percent stake in the company to square his leverage. In 2018, Capital First merged with a listed bank, IDFC Bank, in an all-stock deal, and Vaidyanathan became the CEO of the combined bank, thus acquiring a commercial bank licence for Capital First. The bank’s shareholders showed their approval, with 99.98 percent of votes in favour, an unheard of mandate in banking circles. MBOs are rare but successful leveraged ones make for management textbooks. The CFI.co judging panel applauds Vaidyanathan’s successful soft touchdown of the MBO and creation of a commercial banking platform, leading to his 2018 award win for Most Inspirational Management Buyout India.