Capri Global Capital Ltd
NSE:CGCL
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
180.2
289.0473
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Capri Global Capital Ltd
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to Capri Global Capital Limited Q1 FY '24 Earnings Conference Call hosted by Go India Advisors. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Ravikant Bhat from Capri Global Capital Limited. Thank you. And over to you, sir.
Thank you. Good morning, everyone. This is Ravikant.I shall read out a brief disclaimer for today's call. The discussion on today's call regarding CGCL's earnings performance will be based on judgments derived from the declared results and information regarding business opportunity available to the company at this time. The company's performance is subject to risks, uncertainties and assumptions that could cause actual results to differ materially in future. Given these uncertainties and other factors, participants on today's call may observe due caution while interpreting the results. The full disclaimer is available on Slide 42 of Q1 FY '24 Investor Deck. Participants are requested to note the same.And I request our MD, Mr. Rajesh Sharma, to present the opening remarks.
Good afternoon, friends. It is a pleasure to welcome you all to the Capri Global's first earnings call of the financial year.We declared our reviewed consolidated results for Q1 FY '24 on Saturday, 5th August 2023. I hope you had a chance to go through the Investor Deck. FY '24 shall be unique in some aspects. It will be the first full year of operation for the gold loan vertical. We aim to turn gold loan vertical profitable by end of this financial year. The equity we raised in March 2023 is fully deployed. It will add our core earnings and overall profitability. Keeping this in view, we will analyze our Q1 FY '24 performance.Our disbursal increased 128% year-on-year to INR 26.9 billion. Our disbursal momentum is usually soft in Q1 every year, due to which the disbursals have shown a 5% Q-o-Q decline. However, because of the strong momentum maintained in the gold loan business, the decline has been muted compared to our performance in Q1 FY '23.Excluding gold loans, our disbursals increased 65% year-on-year, but lower on 31% Q-o-Q. This sequential decline is in line with the Q1 FY '23 performance and seasonality of quarter 1 in lending business. Share of gold loans was 51% of Q1 FY '24 disbursal, while MSME and housing was 12% and 11%, respectively. The balance was contributed by construction finance and indirect lending.The AUM momentum was marginally stronger than Q4 FY '23, increasing 61% year-on-year to INR 112.3 billion. AUM excluding gold loan was increased 38% year-on-year and 5% quarter-on-quarter. Share of gold loan continued to increase, rising to 14% of AUM compared to 11% in Q4 FY '23. We expect our gold loans AUM to touch base or cross INR 30 billion by end of this financial year. This could be 20% of AUM, assuming we sustain a 50% momentum of overall AUM growth.As you may have noticed in the AUM exhibit on Slide 4, the momentum in MSME as well as the housing portfolio was sustained a healthy momentum despite a sequentially weaker disbursal quarter. In housing, we concluded a maiden direct assignment transaction with a leading housing finance company amounting to INR 569 million at a competitive yield. Our on-book housing AUM is lower to that extent.The share of construction finance AUM was 17.5%. While growth in construction finance has been strong, please note that we are also guided by the share of this vertical in consolidated AUM of 20%. We are comfortable growing construction finance as long as our underwriting parameters are satisfied and the share of this book is still at or below 20% of AUM.We have reported a 38% year-on-year increase in our net profit to INR 636 million. The profit is lower by a marginal 2% quarter-on-quarter. To fully understand the earnings, let me first start the core earnings. Our net interest income increased 77% year-on-year and 26% quarter-on-quarter to INR 2,370 million. As explained on Slide 16, this improvement was aided by both the strong equity funding of Q1 FY '24 balance sheet as well as our improved spreads.Our weighted average yield on advance increased 55 basis quarter-on-quarter to 15.7%, while the weighted average cost of borrowing was up 20 basis quarter-on-quarter to 8.7%. You may recall, our cost of borrowing has been steadily increasing through FY '23, while the yield on advances was improving with a lag. This difference is visible in the segmental yield graphs on Slide 15. As a result of these improvements, our spreads stood at 7%, an improvement of 66 basis year-on-year and 35 basis on quarter-on-quarter.Our net interest margin was unsurprisingly at a robust 9.6%, a level we last reported in Q4 FY '22. This was aided, as mentioned earlier, by strong equity funding of Q1 FY '24 balance sheet. As leverage improves, NIM shall mathematically decline. While we will enjoy the benefit of higher NIMs in the FY '24, we would like to assess the earning efficiency of our lending business by the spreads we generate.The share of our non-interest income in the net income was 25.4%, lower than 33% in Q1 FY '23 and 30% in FY '23. The dip was caused by lower car loan fee income owing to certain one-off adjustments. Secondly, the fee income tied to balance sheet, specifically MSME and housing finance was also lower owing to softer disbursals during Q1 FY '24. We expect this softness to reverse from Q2 FY '24. The car loan fees shall also pick up momentum from Q3 FY '24.The cost-income ratio declined marginally to 66% in Q1 FY '24 from 68.2% in Q4 FY '23. The cost-income ratio excluding gold loan business was at 50%. This is marginally higher 48% we reported for FY '23. However, this too should reverse as the earnings pick up during the year. In gold loan business, although our active branch network was 680, we have onboarded staff in another 60 location as of June 2023. With branch work at various cities have progressed, hence the operating expenses of Q1 FY '23 also include partial OpEx of additional 60 gold loan branches.We had stated we shall pause branch expansion in gold loan business after touching a network of 750 branches by Q3 FY '24. We have almost reached that level as we speak and the incremental cost intensity shall steadily decline beginning September, October 2023.Our GNPA ratio stood at 1.89%, 50 basis points higher than Q4 FY '23, but is substantially lower than the 2.7% ratio we reported in Q1 FY '23. The PCR of the Stage 3 assets was 27.8%. Our credit costs stood at INR 239 million, which was higher than INR 112 million in Q4 FY '23, but marginally lower than INR 246 million we reported in Q1 FY '23. As highlighted on Slide 13, the average credit cost is trailing 5 quarters is INR 176 million.During the quarter, we made some accelerated provisioning on 3 construction finance exposure to a single entity amounting INR 160 million. This was restructured and classified as NP, attracting a provision of INR 50 million or 31% of exposure. We have initiated recovery proceeding in 2 exposures and in due course, expect a recovery of INR 30 million. For the remaining INR 130 million exposure, we are exploring various options to have recovery.Despite the higher credit costs including the one-off change, our credit cost to average assets under management ratio was 89 basis in Q1 FY '24, in line with our pre-COVID long-term trend. Apart from the INR 30 million recoveries mentioned earlier, we expect additional recoveries to happen in construction finance vertical in Q2 or Q3 FY '24. There has also been a marginal increase in MSME NPA and a slightly sharper increase in the housing finance NPAs. Our recovery in first half continues, and we expect to improve asset quality going ahead.I would also like to additionally highlight that we do not see any structural issues here. We are aware of the rising pessimism on asset quality of NBFCs in general and retail loans in particular, given the lending boom of past 2 years. Nevertheless, let me reiterate that we are not present in unsecured lending.Our lending is secured with very comfortable loan-to-value across all segments, whether retail or wholesale. This gives us comfort on managing our asset quality. We reported 2.2% ROA and 7.1% ROE in Q1 FY '24. Excluding the loss in gold loan business, our ROA and ROE would have been 3% and 9.6%, respectively. As we move towards the breakeven in gold loan business, our profitability should substantially increase, especially in H2 FY '24. There shall also be additional drivers like absence of one-off adjustment there that shall contribute to the profit momentum.To conclude, I would say we have begun FY '24 on a sound note. We shall deliver yet another year of sound business growth, but it will also be coupled with a very strong profit growth.With that, I conclude my remarks. We shall now take questions.
[Operator Instructions] The first question is from the line of Dev from Haitong Securities.
My question is related to the overall composition of AUM. The MSME segment has come down from around 40% or around 35%. And earlier, I think you had guided that it would remain north of 40% and in the range of 40% to 50%. So given the strong traction and the focus in the gold loan segment, how would the overall product mix look like going forward? Is there any kind of targeted mix that is there in mind? That was my first question.And second, I see that there is an increasing focus on co-lending in case of MSME as well as housing finance. Could you give us any color on that as well?
Yes. So, I think before gold loan, our key growth drivers used to be MSME. When we launched the gold loan and that also across about 750 branches, so while retail proportion in overall AUM have grown significantly. But if we talk about MSME, MSME, the disbursement plan and expansion remain the same. But since the gold loan has added to the overall AUM, that is the reason that MSME have gone a little bit down.If we look at down the line, 2-year scenario, the gold loan composition will be about overall AUM, 20% to 25%, and MSME will be about 25% to 30%. And if you talk about housing finance, which is done through a standalone subsidiary company, housing finance is growing at a faster pace, about 50% plus. And with the back of branch expansion, that standalone basis will continue to grow at that pace, 40% to 50% in next 2 years.
Okay. Understood.
[Operator Instructions] The next question is from the line of Nikhil Nyati from Equirus Securities.
My question is regarding the MSME yield. Sir, I wanted to know what percent of our book is repriced, knowing that our yield has gone up this quarter and how we can see the yield panning up in the future?
So, we have increased our long-term reference rate by 50 basis in the first week of April. So, our yield has been passed on to almost 60% of customer in MSME. 40% still remain on the semi fixed. So, those customers hike will not happen, but 60% customer of the past have already been increased by LTR of 50 basis. As far as the incremental lending is concerned, that is happening, maintaining the targeted spread. In MSME, we are lending about close to 15.5% yield in the incremental lending, we are able to maintain.
The next question is from the line of Raghav Garg from Ambit Capital.
Yes. Just a few questions. Firstly, on the gold loan business. We've seen last couple of years, there's been a lot of competition. Just a very high-level question. What is your sense in terms of competitive intensity in this business? Yes. That'll be my first question.
So gold loan, we have seen in last 2 years a lot of competition, especially coming in the lower rate segment by the public sector bank. So, they are the new entrants where they are offering at a much lower rate, but their ticket size remains high. So basically, they are more focusing on a higher ticket size. And typically while theoretically, they welcome all the customers, but they don't like to entertain the customer which comes for a INR 30,000 or INR 50,000 of loan.So, there is a clear demarcation between the customer segment. Among the gold loan finance company and NBFC also, the gold loan is not that -- like a product of unsecured lending, which can be done without proper investment in the branch expansion. So, there is some sort of entry barrier. So, we have seen that among the NBFC, while we see in other products, more than 30, 40, 50 players and a lot of regional players, in gold loan, the major competition comes through the NBFC with the pawnbrokers who lend at very unreasonable high rate. I think that is where the opportunity also lies.So, this business will continue to grow looking at the overall AUM growth. The growth, which is coming also because of the gold loan prices increasing and lot of people are open to borrow against the gold with a formal player. So if we talk about, as far as Capri is concerned, with the 750 branches and then branch will continue to grow, to build a AUM of INR 10,000 crores, INR12,000 crores in next 5 years, 7 years, in overall economy, in overall, the AUM of INR 3 lakh crores plus of the gold loan still remains a very small and very much possible and profitable.
Sir, that's very well understood. What I meant to ask is in this quarter, how do you assess the overall industry competitive intensity to be? Whether it's still as high as what you highlighted a couple of quarters ago or last year, whether it's still as high as that?
You are talking about competition, you are asking about our growth?
Sir, I mean, both in terms of your growth and what is your assessment of competition and NP impact on our growth or not?
No, no. So if we are expanding our branch, after the detailed analysis of the potential credit bureau, AUM competition, we very well are on our target. Our branches are able to achieve the average growth of about INR 22 lakhs month after month, which has remained in our target. And our branches will achieve the desired profitability in the targeted time. And we are not going to stop even at 750 branches. So, we clearly see the potential.Number two, some point of time, city-wise, we are going to convert our gold loan branches where they will also be sourcing business and leads for MSME home loan also. So overall, if we talk about growth side, we are quite bullish and confident about achieving our growth target in the gold loan segment. And this vertical is going to be profitable once -- by the year-end, all the branches will turn profitable except which are opened recently.
Understood. Sir, what would be the breakeven level for you in terms of gold loan per gold loan branch, a dedicated gold loan branch? What would be that level where you would be regulable? I think right now it's around INR 2.5 crores per branch, right?
So once it achieves a base of INR 3.25 crores, branch achieves the breakeven. Anything above start contributing directly to the profitability.
Understood, sir. And sir, I mean, although I can calculate, but I just wanted to ask, what is the per branch expense that we would be incurring for a gold loan, typically gold loan branch for us, including the employee expense?
It is a city. And so we have branches, which have 4 people, manned by 4 staff, manned by 5, manned by 6. So it is not a straight answer. So if our competition has AUM of INR 30 crores high potential segment, is a low potential segment, depending on the size of the branch, the OpEx on the branch and the manpower of the branch is put. It ranges right from INR 1 lakh per month operating cost to up to INR 2 lakh, INR 225,000 operating cost depending on the location and its potential.
Understood. Sir, this operating cost is apart from the employee cost, correct? These would be the other expenses.
This is all the operating cost, entire operating cost including salary and all.
Understood. Sir, just one last -- yes. Sir, just one last question. I understand that you have a branch in Vasai and Virar. So just today, there has been an article in Hindustan Times that the police has burst a major -- a fake document racket in the construction sector. The number of flats involved here are about -- or rather the number of families involved are about 3,500 who have basically sold these flats. Now, they would have taken loans from some of the financiers, which are in that area. Would we have any kind of exposure to this project in Vasai and Virar, if you are aware of that? That is it.
I don't think that we are doing any under construction project financing in housing finance vertical at all. So, we don't finance any project at all unless it is ready. That is the policy we follow in affordable housing segment.
Understood. Even at the retail level, right?
We don't fund any under construction.
Understood. That's very helpful and that's all from my side.
The next question is from the line of Bunty Chawla from IDBI.
Yes. And sir, similarly continuing with the gold loan branches. So as we have seen earlier, we were giving -- competing at lower interest rate like around 15% yield. Now, we have moved to the competition layer like around 19.5%, 20%, which is visible on the yield per se. So how do you see now the growth for you being the equivalent rate with your competition?And secondly, on the branch expansion you had said, we believe that up to 1,000 branches, you don't require any approval from the RBI, right? After 1,000 branches, how the approval -- have we applied for any approval and all? And how we should see the branch expansion along with the AUM growth for the gold loan?
So your first part of the question was related to the yield. So when we initially opened the branches, when we first entered August 2022, that time we have launched some low rate of interest gold loan loans to create a buzz, to create awareness, which we have already achieved. From the January quarter onwards, we have started going for the high-yield and the low loan to -- low value loans like where every ticket size was less than INR 1 lakh where the yields was better.So gradually now, our average onboarding of the customer is coming at about 16.5%, 17%, and plus the default rate of interest is also being earned. So, effective yield is now upward of 19%. And we continue to follow that philosophy in line with the market. If you talk about the RBI regulation of 1,000 branches, that is per company. So our -- still we are -- we have a scope of about 200 branches more because these 849 branches also include the housing finance branches, which is housed in the Capri's subsidiary company. And after 1,000 branches, we will apply to RBI and we don't see any issue in getting the approval per se.
Okay. Okay, sir. Sir, secondly, on the construction finance. Now as we are seeing that there is a good boom or real estate has been quite strong currently. But as we have historically seen, we have felt across the industry some NPA issues on the construction finance side. Now, we are very much aggressively growing construction finance. So, my sense is -- query is, what steps or what different we are doing so that if there is any real estate cycle goes down, there should not be any negative surprises from this construction finance segment?
So first of all, I want to say that we are not aggressively growing. We are growing what we have strategically planned. So, we have always said that we will do overall AUM basis 20% construction finance and 80% is going to be retail loans, secured retail loans. And that is the same philosophy and principle we are following. Within a quarter sometime, it happens that your construction finance crosses 22%, 23%. Some quarter, it comes to 19%. But you see year after year, it has always remained within the 20% range.Second thing, we follow a very unique strategy of funding to developers which are smaller. So, we are not going with the ticket size of INR 200 crores or INR 400 crores type. Our average ticket size still remains less than INR 20 crores even today. So, you can imagine the kind of small developers we are funding. And then we take in a clear mortgage of the property. The smaller projects are completed faster than the -- we don't fund the 40-storey project, which takes 6 years, 5 years to complete. So, this turnaround time is faster. There is no income -- interest cost accumulated when the projects get delayed.So with these core lending principle, keeping in mind on the construction finance, we see our -- all project gets completed within 3 years' time and very strongly, we feel that our 1/3 of the projects are balance transferred within 12 months, which speaks about underwriting standard, also where our repayment happen even before time because of the BT. And in our other projects also, we have seen that 50% of the balance projects get prepayment than the repayment.So they get because of the faster sales. The strong cycle of their construction finance is helping the inventory to move faster. Even the cycle turns slightly sluggish, our safeguard mechanism of having a control on the cash flow and the security cover will always protect our principal and interest. And historically, we have seen that since last 4 years, 5 years, we have not seen the major -- any write-off or any unpredictable risk. While it happens, but that remains within the tolerant range of 1%.
That was very helpful. Sir, lastly, on the Stage 3 assets, we have observed the provision coverage ratio has come down from 30% to [ 27% ], 28% kind of a thing. So what is the outlook on Stage 3 assets provision coverage ratio? Because what we have observed in large NBFCs, generally try to maintain 45 around percentage of PCR so that if there is any hiccups going forward, that should be safeguarded against this high PCR part.
Hello?
Am I audible?
Yes. So we are keeping -- the RBI regulates that it should be based on the PGD and LGD, and they should not be minimum 25%. So, we are following that. And if you look at our overall, the gross NPA, you can clearly see that there is a downward trend. From the last year of 2.7%, it has -- the gross NPA has come to 1.9%, and net NPA has come from 2% to 1.4%.
So on a normal basis -- long-term basis, can we say 28%, 30% is the PCR we are comfortable with?
Yes. Keeping in our asset quality, which is all secured and where the hard collateral is there, either the self-occupied house or business or gold. So, that also gives us comfort when you are keeping this kind of PCR. In our past 10 years, you've not seen that our NPA, even in the worst cycle of COVID, IL&FS, DHFL, when there was a different kind of a crisis, our NPA won't on any given point in time climbed more than 4%.
[Operator Instructions] The next question is from the line of Mayur Liman from Profitmart Securities.
Congratulation for a good set of numbers. Sir, my first question is, how you are seeing the incremental demand in MSME segment? Any specific segment or geographies we are seeing a strong demand? Are we confident that we would be able to deliver 30% kind of growth in this segment?
You are asking any particular segment?
Yes. MSME segment or any segment where we can see the strong demand.
MSME and second one.
Sir, can I repeat my question?
Yes.
Okay. How you are seeing the incremental demand in MSME segment? Any specific segment or geographies we are seeing a strong demand?
So, I'll answer this question. Wherever we see there's strong demand, we put more branches. So likewise, we have more branches of MSME in Rajasthan and then followed by Madhya Pradesh and then Gujarat, and then Maharashtra and then NCR. So basis that, we clearly see we expand in those geographies where we see the demand and also good collection efficiency. And so we clearly see the demand is very good in Rajasthan, Madhya Pradesh and Gujarat. And that is how our branches are.
Okay, sir. And are we confident, which segment is strong now we are seeing in terms of the demand, sir?
So overall basis, our MSME demand is very good. It is a segment, which is largely under-penetrated. If we talk about, India have more than 70 million of MSMEs, which are -- only 20% of their credit demand is met by the formal lenders. So there exists a strong demand and I think there many companies are focusing. We are few of them. We are one of them who are focused on MSME, and MSME will continue to grow 30% plus for next 3 years, 4 years.
Okay, sir. And my second question is construction finance and housing finance vertical, asset quality has deteriorated much this quarter, specifically construction finance. What would be the reason for the same and your future outlook on asset quality across these verticals?
So, there is no asset quality has deteriorated. If you see overall basis, GNPA is lower than the even preceding quarter and the net NPA is also lower. As far as the one of the account is concerned where we have restructured and on account of restructuring, we have provided the provision, but that account, we are quite -- and this is one of the account of the overall portfolio. It is not that there are many accounts that have slipped away.And in this lending business, we'll always see, when we're operating 180, 190 construction finance accounts, 1, 2, 3 account can always -- will face some challenges, which we have to either recover and/or use other measures to get out of it. So, this is one of that account where we have provided, and we are confident we'll find some other developer to take over that project at a price and we should be out from it.
Okay, sir. And my last question. Any new bank tie-up we have done for expanding our co-lending book?
Co-lending book, we have already tied up with Union Bank, Punjab & Sind Bank, Bank of India and UCO Bank. So gold loan side also, those tie-ups are happening. And co-lending in real sense will pick up for the entire NBFC segment once this tech tie-up -- technology integration happens with the public sector banking system. But in any case, INR 40 crores to INR 50 crores a month we are achieving. And once the gold loan takes off, which should happen sometime soon, then this co-lending arrangement, the volume will further go up.
[Operator Instructions] As there are no further questions, I now hand the conference over to the management for their closing comments.
Yes. Thank you all.So, we will continue to grow in the segments we operate in, which is MSME, housing finance and gold loan. And our core philosophy will remain that we should serve the customer who are not catered by the banking system. So, we are complement to the banking rather than competing with them. We clearly see that our gold loan business will become breakeven and will start delivering profit.So with the approach of growing in MSME where the margins are good, gold loan is going to become profitable and now adequate capital is being made available. We clearly see this year is going to be of the all-time high profitability and our margins also improving. And our core banking solution is getting implemented by the year-end. So, we clearly see a edge. And our operating cost should start showing in our result from the next year onwards. We already have about 100-plus people, technology team in our Gurgaon office. And those results will be seen in next year. So, we are quite optimistic and quite confident of delivering superior returns.Thank you.
Thank you. Ladies and gentlemen, on behalf of Go India Advisors, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.