Capri Global Capital Ltd
NSE:CGCL
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Capri Global Capital Ltd
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Ladies and gentlemen, good day, and welcome to Capri Global Capital Limited Q3 FY '23 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.
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 the future. Given these uncertainties and other factors, participants on today's call may observe due caution while interpreting the results. A separate disclaimer is available on Slides 2 and 3 of the Q3 FY '23 investor deck. Participants are requested to note the same.
I will request our MD, Mr. Rajesh Sharma to present the opening remarks. Over to you, sir.
Yes, good afternoon, friends. Like always, it is a pleasure to welcome you all to Capri Global's post earnings conference call. Let me start by wishing you all a Happy New Year 2023. We declared our reviewed consolidated results for Q3 and for 9 months FY '23 on Saturday 28 January 2023. I hope you had a chance to go through the investor deck. With our right issue proceeds yet to be concluded, we will have to refrain ourselves once again from giving a specific forward guidance. I hope our discussions today around CGCL's performance during Q3 and 9 months FY '23 will provide you all with the sufficient clarity in cues to understand the direction of company's progress. In this commentary, all references to profit and loss and balance sheet aggregates as well as the ratio shall refer to consolidated value. All reference to urban retail shall be in MSME in affordable housing.
As you would have noted, we have reported a decline of 42% year-on-year and 14% year-on-year in our Q3 FY '23 and 9-month FY '23 net profit, respectively, driven majorly by the cost we incurred in the gold loan vertical. I shall elaborate on this later in this call.
Let me first start with our business performance. Please refer Slide 6 and 7. Asset under management increased 49.9% year-on-year and 11.4% quarter-on-quarter to touch INR 86,525 million. The share of retail loans improved to 79.1% from 74.4% in Q2 FY '23. The share of construction finance segment where growth was stronger in H1 FY '23 and to a strong sanction disbursal pipeline soften during this quarter by 200 basis points quarter-on-quarter to 19.4%, below our threshold of 20% at consolidated level. This is in line with our previous commentary that construction finance momentum shall be softer in H2 FY '23. Disbursal touched INR 18,105 million, growing 43.1% year-on-year and 21.7% quarter-on-quarter. Disbursal for 9-month FY '23 stood at INR 43,917 million and were up 57.9% year-on-year. The share of retail disbursal comprising MSME affordable housing and gold loans was 75.5% in Q3 FY '23 compared to 47.7% and 35% in Q2 FY '23 and Q1 FY '23, respectively.
Gold loan led the momentum in disbursal during Q3 FY '23, constituting INR 7,741 million or 42.8% of total these vessels. This translated in gold loan AUM touching INR 7,152 million, constituting 8.3% of total AUM compared to a 1.8% share in Q3 -- Q2 FY '23. This rapidly scale up was supported through an expansion of exclusive gold loan branches, which increased from 182 in Q2 FY '23 to 449 in Q3 FY '23. I shall discuss the cash impact and our commitment to this business by discussing the earnings performance.
As part of our growth strategy, we continued expanding our urban retail network deeper and in continuous geographies. We added 15 urban retail branches across Rajasthan, Uttar Pradesh and opened our maiden branch in Bihar in the straight capital Patna. Our non gold loan branch network stood at 160 up from 145 in Q2 FY '23. Our total branch network stood at 609, up from 327 Q2 FY '23. Details on our network expansions are given on Slide 29 and 30.
The car loan distribution business continued with this strong momentum. As shown on Slide 12, the loan originations at INR 16,920 million, up 3.1x year-on-year and 24% quarter-on-quarter basis. Total origination in 9-month FY '23 stood at INR 39,975 million over 2.3x FY '22 originations, which were INR 17,022 million. I shall discuss the fee contribution from the vertical wise commenting on our earnings performance. As of Q3 FY '23, the car loan distribution business had a presence in these 2 locations in 29 states and union territories unchanged from Q2 FY '23. The vertical has 6 exclusive branches at our other locations, it operates through its feet on street sales force.
I shall now turn to our earnings performance. I shall be referring to Slide 14 to 17. The net interest income or NII increased 17.5% year-on-year and 5.3% quarter-on-quarter to INR 1,610 million. The net interest income in Q2 FY '23 was boosted by certain one-off components amounting to INR 130 million attributed to recoveries. Adjusted for the same, the net interest income increased 15.1% quarter-on-quarter. The net interest margin completed on average net advances were 8.45%. Adjusted for the one-off item in Q2 FY '23, the net interest margin was up 34 basis Q-on-Q, while unadjusted and undeclined 41 basis quarter-on-quarter. The near-term pressure on net interest margin has been higher on account of a net repricing of loans compared to borrowing. We expect that net interest margins to stabilize incremental loan mix changes in share of higher yielding loan as well as the repricing of existing loan book.
Let me now turn on noninterest income. During Q2 FY '23 earnings call, we have offered some historical perspective on CGCL's noninterest income, which you have seen its share in net income guides from an average 14.5% between FY '18 to 22% to 26% H1 FY '23. The noninterest income has become an important structural earnings driver for CGCL contributed by 2 key product lines, the net fee income from car loan distribution business and number two, the income on assigned portfolio under co-lending mechanism. Continuing with this analysis, I'm pleased to inform the share of noninterest income to net income improved further and extruded 32.4% and 28.6%, respectively, in Q3 FY '23 and 9 month FY '23, respectively.
The car loan business contributed INR 333 million and INR 800 million in net fee during Q2 FY '23 and 9-month FY '23, respectively. The income from co-lending portfolio constituted INR 200 million and INR 385 million or 8% or 6% net income in Q3 FY '23 or in 9 months FY '23, respectively. I would like to mention here that presently, we are not targeting any practical mix of interested and noninterest income. Both the noninterest income streams are doing well and have a strong growth run rate given the scope of our intermediation bank partnerships.
I shall now turn to the operating expenses. Please refer to Slide 16. Since the beginning of this year, we have not given a specific guidance on cost income ratio. We have generally said our cost ratios have remained lopsided on account of an aggregative expansion plans. In line with that, the cost-income ratio got pushed up further to 16.5% in Q3 FY '23. As highlighted on Slide 16, adjusted for the expensive income in gold loan vertical, this cost income ratio would have been 47% in 9 months FY '23.
Based on our internal classification, we estimated a loss before tax of INR 975 million in the gold loan vertical in 9 months FY '23. We have slightly modified our cost average AUM ratio graph to include an additional line graph, we have presented costs divided by average AUM ratio by including the car loan origination volume during the respective quarter in the average AUM definition, this gives a better perspective as the employees expenses incurred on the car loan vertical is captured in our OpEx, while the fee generating car loan is not part of our AUM. The cost divided by average AUM ratio has risen to 329 basis in trailing 1 year, while the cost average AUM ratio, including the new car loan origination has valued by 234 basis in the same period.
I would also like to highlight that we have already onboarded a significant number of staff or golden vertical branch rollout in Q2 FY '23. This was to ensure bank's strength ahead of the plan rollout in Q3 of community. Hence, the average headcount is gold loan at the beginning of Q3 FY '23 was 13 branch. It normalized to 7 branch by the end of Q3 FY '23, this cost contributed to the increased employee OpEx in Q3 FY '23. The necessary versus pre rollout hiring has now reduced. With our initial presents getting established, we had planned a gold loan branch count of 55,615 FY '23. Having rolled out a significant number of planned branches in 9 months FY B, the incremental employee additions and OpEx intensity should soften in Q4 FY '23.
Now I'm coming to credit cost and asset quality. We reported a net credit cost of INR 245 million in Q3 FY '23. This includes INR 188 million net write-off and INR 57 million in ECL provisions. Despite the spike in Q3 FY '23, the cumulative credit cost in 9 months FY '23 values INR 530 million, 50% of FY '23 credit cost of INR 1,057 million. The 9-month FY '23 annualized credit cost stood at 94 basis compared to 124 basis in 9-month FY '22. The Stage 3 asset increased to 7.3% or INR 130 million Q-on Q to touch INR 1,911 million. We expect cash recoveries from some of these slipped accounts in Q4 FY '20. The Stage 3 ratio stood at 2.36%, 66 basis year-on-year in 4 basis quarter-on-quarter. Our provisions on Stage 3 assets were 29.1%, marginally better than 28.7% in Q2 FY '23. Standard restructured assets stood at INR 1,454 million consulting 1.8% of AUM, approximately INR 1,100 million plus of restructured assets have used moratorium and other INR 350 million shall exit moratorium in Q1 FY '24.
The cost drivers discussed earlier in the call, subdued profitability in Q3 FY '23. Our consolidated net profit after tax declined 42.3% year-on-year and 13.5% quarter-on-quarter to INR 374 million. The 9-month FY '23 net profit was lower 14.4% at INR 1,398 million, excluding the direct costs incurred on the gold loan vertical, our Q3 FY '23 and 9-month FY '23 net profit would have been higher by approximately 32% on year-on-year. We reported a capital adequacy ratio of 24.2% for CGCL and 38% for CGHFL. The proposed capital infusion through INR 14.4 billion write issue will timely augment our growth equity. We hope to communicate the time line of the capital that is in the near future.
With that, I conclude my commentary. We shall now take questions.
[Operator Instructions] We have a first question from the line of Uday Pai from Investec.
I have 2 questions. What will be the gold loan yield on a steady-state basis. Since it is at 15% which feels low right now? And what are the -- what is the quarterly disbursement in gold loan that you are targeting?
Yes. Can you repeat the question, there's a lot of background noise is coming.
One second. Yes. So what would be the gold on yield on a steady-state basis? And what is the quarterly disbursement of gold loans you are targeting?
So gold loan leads when we -- sorry, now the rollout, the beginning, you had to add a lot of customers have a yield in the range of about 15.5%. But slowly, it is going up. So when the retail customer segment is increasing of the low ticket size, the yield will start going up, our target of the yield will be in the range in the remain of 19%. So gradually, we'll see our yield is inching up. In Q4 and next year, FY quarter 1, you will see the yield improvement significantly when the branch gets some vintage. And we are targeting the gold loan book to close in the range of about INR 850 crores in Q4 FY '23 and will continue to grow depending on the branch rollout and everything else. But we are targeting about INR 3.5 crores, INR 4 crores per branch AUM within 15 months from the date of its starting operations.
[Operator Instructions] We have our next question from the line of Gaurav Sharma from HSBC.
Yes, hello. Am I audible?
Yes.
Congratulation on a great set of numbers. Just 3 questions. So one is like, sir, your AUM mix is shifting towards gold loan, and just from MSMEs coming. So I just wanted to know the steady-state mix of your AUM? That is one. Second is, sir, in gold segment, some of the bigger NBFC players mentioned that we are also getting aggressive. There are also expanding their stand-alone branches in gold. So how do you see the competition? And how you cater that how you want to counter that? And third, my question is related to the car loan disbursement showing a great momentum. So -- and you have mentioned that you're operating -- you have the branches -- you have just branches and you're operating at 322 locations. So just wanted to know more about your operating model in this segment. And if you can deploy the OEM mix in that, like which are the largest contributor in this fee income, it will be really helpful.
So if you talk about the competition in the gold loan, yes, there is a competition, but there is a market also growing market of about INR 350,000 crores is growing at the pace of 12%. A majority of growth is still contributed and catered by the NBFCs. So to build a book of INR 10,000 crores, which you have said earlier, in next 4 to 5 years should not be given the size, given the growth coming up, should be a problem? And it depends on how fast you build a brand and how fast you quickly build a confidence among the investors to -- sorry, borrowers to come and take the loan from you. So for that, we are continuously doing our radio campaign, our -- you must have seen that even cricket team, the IPL cricket team, we have taken the sponsorship showing the capital loans. So various -- the campaigns are going on to build that brand. And I think that is showing up. We have built a very fast INR 700 plus crores of AUM and within less than 6 months. So I think it's very credible as I am concerned. So we feel competition is there, but market size is growing.
If you talk about car loan, it is a purely fee income where the referral is given to the bank and we assist the borrower to have a hassle free disbursement in a fastest turnaround time. So it is a mix of technology and feet on the street. While the branches are 6, but we have our connector model also, so we get the lead. We use some sort of technology there, and we used our local feet on the street combined booth. And I think, we are one of the largest player in this segment, and fee income is directly contributing to the bottom line. So we work on the unit economics as well. This year, I think we are targeting a fee income of INR 100 crores, and it will significantly contribute to the bottom line.
And sir, lastly on the steady state of the AUM mix it will be the share of gold loans and MSME?
So I think initially, it can be depending on the branches, but if you talk about 4 to 5 years, how it looked like that gold loan will be about 25% of AUM and 25% of AUM will be MSME and about 30% will be your home loan and about 20% will be construction finance. That is how it looked like.
We have our next question from the line of Bunty Chawla from IDBI Capital.
Just a few queries. Firstly, what is the incremental cost of borrowings in Q3 FY '23? And how we are seeing that shaping up in Q4 FY '23? And similarly, what will be the impact on the margins as a whole?
Can you, sorry, repeat the question? Your voice is breaking.
Okay. Okay. Is it audible now?
Yes, it's better.
Yes. So firstly, what is the incremental cost of borrowing for us during this quarter and how the cost of fund will shape up in Q4 FY '23? And similarly, what will be the impact on the margin front going forward?
So our cost of borrowing for NBFC is in the range of about 9%, which has gone up by about 70 basis from 1 year ago. And our cost of fund for Q4 for our housing finance cost of fund, which was earlier about 7.25% and also gone to about 8%. If you talk about the cost of funds, it will remain in the same range. And we are able to pass on to our new borrowing are happening at the increased rate. And our -- all the customers on the floating basis, we already passed on this hike. Only customer were the fixed loan for 3 years, we are not able to pass on that rate because that is how that has been designed.
So cost of fund will not be able to put pressure on the bottom line on that we are not able to pass on to certain segment of the customer. And I think this is a cycle when the interest rate goes down, then those segment of customers still continue to pay at higher rate. And when the cycle is going up, still the customer enjoys. So on the longer term, those set of customers that do not create much of the problem for the bottom line. But why will it give you fixed because it helps to retain the customer for a certain period because we incur a cost on that. So based on the category of customer, we offer floating and fixed. So cost of fund increase will not put any much pressure. We are already have passed on to the customer as well as the new loans are booking at the increased rate of interest.
Okay, sir. And sir, similarly, in the liability mix, if you see, the bank borrowing has taken -- has increased. So are we focused more towards bank borrowings? Is there any specific reason?
First of all, the bank give long-term money, about 7- to 8-year money we can have from the bank. And PSU bank cost of funds is cheaper to us as compared to private sector bank. So if you see the -- what rate of interest State Bank can offer, perhaps the midsized sector may not offer. So we always see who can give us long-term rate loan and who can give a better rate of interest. So this is -- these 2 criteria, we grow for our borrowing mix.
Okay. So that was very helpful. Sir, lastly, just yesterday, there was a -- last week, Bajaj Finance has shared similarly, as we are going aggressive in gold loan branches in gold loan focus. So how should one see that in our overall market pie, is it that increasing? Or are -- it's altogether different they are focusing as we are focusing. How one should see versus Bajaj Finance in terms of gold finance?
So I think any sector which is offering a margin, there will be competition, competition will increase. But we have to drive a comfort from that overall. Market is also growing. So it is not that the market is stagnant and more players are adding on. So if INR 350,000 crores market is growing 10%, 12% I think that is offering good room for the new player to come in as well as the new existing player to grow their book.
[Operator Instructions] We have a next question from the line of Ashish Kumar from Infinity Alternatives.
Sir, a couple of questions on the gold loan business. One is you mentioned that each branch you're targeting INR 3.5 crores to INR 4 crores of AUM. So what kind of an OpEx as a cost to AUM will you be having at that, once we achieve that?
If you talk about costs, I think every branch, we have a cost in the region of about INR 2.5 lakhs to INR 3 lakhs a month. So we break even every branch at INR 3.5 crores level on an average basis.
Okay. And so basically, for us to be able to hit our numbers in terms of profitability, let's say, 5% NIM, correct? We will need to at least have maybe 5% keep up -- sorry, what I mean is at least INR 6.5 crores per branch, INR 6 crores, INR 6.5 crores?
I may not be able to answer that immediately because I have not analyzed it that way. But after INR 3.5 crores, we start making and every -- it starts directly add to the PBT, I would say. So if you build AUM INR 6 crores and assuming those cost parameters, then on the balance INR 2.5 crores, we should be able to make about at INR 25 lakhs of an operating profit.
Fair enough. These are operating profit per branch, which is made of 3%, 4% and a 3% ROA.
Yes.
Sir, the second question was in relation to the whole competitive scenario. In gold loan, you're seeing traditional market stand-alone leaders like Muthoot and Manappuram from struggling to grow their AUM. Would -- from a purely from a timing perspective, given the fact that we are looking at INR 3.5 crores maybe in 18 months, 15 to 18 months' time, is it a right time to enter into this business because everybody, including the banks have become super hyper competitive in this space. So should it -- do you think it makes sense for the competition to reduce a little bit because like we have seen in the past, every time a few people entered in and some people figure out that they can't make money on this business and exit the business. The banks get busy with the larger ticket size lending. So from a purely from a timing perspective, does it make sense for us to wait and rather than go so aggressive in terms of the gold loan branch opening? Or do you think...
So our belief in -- and I would say phase, if you want to enter into gold loan, you have to have a wider branch network in a very small ticket sites, INR 80,000, INR 90,000, INR 50,000, INR 100,000 kind of a loan. So unless you have a site, you cannot make profit out of it. And you should be able to absorb the first 15 months operating losses every branch will throw. Unless the branch reached breakeven point start building AUM thereafter, will not make money. So that kind of capital allocation is required. So in some ways, the entry barrier for a smaller player to do gold loan.
So still, if you see Muthoot and who has reached the INR 12 crores per branch. Even if they are able to maintain, they are super profitable in terms because they are in this business is long. So any branch which is reaching a INR 7 crores, INR 8 crores above upward that will start delivering them the higher profit. And any segment which is offering profit, it is natural to attract more players and more competition. But it still -- it is all about your branch presence, your ability to build confidence among the borrowers. And these are the 2 facts that help you to build a high AUM.
We are quite confident that we have MSME, we have a home loan, we have car loan lead referral business and the gold loan. So there will be some sort of cross-selling will also be possible. So we have to work on the cost efficiency also. And with the multiproduct, we have to believe in the cross-selling aspect. Combination of this, I think this business also in the plus positive side that if your processes are set, when you accelerate it I think you need not worry about the delinquencies if your profits are affect. So there are every plus and minuses, but overall, it is attractive business model to follow if you are able to continue to expand your network and achieve a site.
So I understand where you're coming from. I was coming more from a -- while from an absolute amount of profit pool, I agree with you completely. And I understand it was coming more from an ROE perspective because anticipating somebody like Manappuram who has been for so long is struggling to get to a mid-teens kind of an ROE. So anyways, I understand where you coming from. Thank you,sir, and wish you all the best.
Okay. Thank you.
[Operator Instructions] We have a next question from the line of Gaurav Somani from Korman Capital.
Sir, can you share the mix of borrowings -- sorry, lending in terms of fixed and floating, which we have?
Our borrowing?
No, No. Lending -- sorry, the assets, the lending which you have done, currently, what is the mix of floating and fixed loan rates, which we have?
Ravikant, will you be able to share that detail, please?
Gaurav, so most of our borrowings are basic -- if you could just repeat it?
So my question is the loans which we have given. Can you share the mix of fixed and floating, which we have in...
So gold loans would be entirely fixed. They reset only on at the end of the tenure. As far as the other loans are concerned, housing and MSME particularly these are resettable. So basically, we give out loans that are fixed for a tenure up to 3 years. And after that, this is called floating. So typically, the year, we would have about -- I would hit on 35% -- 25% to 30% of the portfolio at least coming up for eligible for repricing. And construction finance, the resets happen can happen more often.
Okay. Sir, my next question is on the -- on our cost-to-income ratio. In the past, you have suggested that the cost-income ratio will hover around 60% to 65%. This quarter, we have touched around 70%. So any view on once the gold on business -- where do you see this normalizing probably a year or 2 down the line when the gold loan business stabilizes? Hello.
Yes.
Yes.
Yes. Can you repeat the question, please?
Sir, my question is on the cost-to-income ratio. It's at 70% this quarter. In the past, you have said that it will be around 60% to 65%. So where do you see this normalizing once the gold loan business stabilize?
So I think we have to see that had not been gold loan profit would have debited to P&L account. This cost income ratio would have be in the range of 47%. So if you talk about overall cost-to-income ratio vertical-wise. So MSME in home loan, our aim will be to bring it to in the range of about 35%, 36%. And if you talk about gold, it will be in the range of about 45% kind of OpEx. And if we start doing cross-selling and also the BC arrangement and co-lending in the gold loan, that will completely change the dynamics. While we are not saying that when it will happen. But I think next year, we'll have a few partnerships in the gold loan of co-lending and at least here we'll use our network to originate this for the loan so that we'll be able to compete with the even lower segment of the gold loan customer. So the dynamics of the customer issue will completely change in our favor in a larger way.
So we see this stabilizing below 50%, probably a year down the line?
Yes. Yes.
Sir, lastly, on the co-lending aspect, if you can share the amount of co-lending, which you have done till now?
So co-lending till now, we have done in the range of about INR 450 crores.
And any -- and what is our view on this business on the co-lending business, do you want to grow it or we want to do it on our own book?
No, we definitely we want to do co-lending business, and we want to grow this. At the moment, a technology interface with the banks are underway. Once that's accepted, the volumes will increase significantly. And this has an edge where we get a cheaper rate and the risk is shared we originate, and we collect and we get a fee. So while on the profitability side, it has no impact. But on the allocation of capital, these are not required. So it becomes very, very highly ROE accretive.
[Operator Instructions] We have a next question from the line of Karthik Karar from Multiple Wealth Management.
Yes. Am I audible?
It is not loud, sir. Can you use the handset, please?
One second. Yes. Hello. Is it better now?
Yes, please go ahead.
Yes. One question on MSME. So in terms of the percentage mix of the MSME disbursals, it's clear because the gold loan has been quite sharp, the increase in gold loan. That's why the percentage disbursal share has reduced but even the absolute amounts for last 2, 3 quarters has been lower compared to previous periods, the MSME disbursals. So can you throw some light on that, what is our thought process? Are we deliberately going slower? Or what's the seed out there?
So if we -- there is no thought process to slow down the MSME disbursal if you see our disbursals have not slowed down. The other verticals have also picked up. So you might be seeing that our disbursals overall MSME have come down, but that has come down because the gold loan has also come up. But if you see our branch network is increasing, the branch network is increasing, the disbursals in absolute terms is increasing only. So it is all-time high disbursals are happening in all the segments.
Now, I'm looking at Slide 7. So if I take, say, Q3 and Q4 of last year, the MSME disbursal was INR 3,600 crores, INR 4,200 crores versus that this year for the last -- this year for the 3 quarters, it has been INR 1,800 crores, INR 3,100 crores and INR 2,800 crores. So that is where I was coming from?
Ravikant, will you check that? Because I'm not seeing that much of count.
Yes, yes. Yes, sir. So what has happened is basically, you see, we have combined teams for both MSME as well as housing. There is a certain stiffness as far as MSME is concerned, both on the pricing as well as the overall growth. This is more of a momentary thing. And therefore, we had focused slightly more on the housing side. So quarterly, there could be some dissonance as far as the growth is concerned. But as Mr. Sharma said earlier, both MSME -- all the three MSME, affordable housing as well as gold loans would be key retail growth drivers for us.
So don't read too much into what has happened during the second quarter. And overall, again, if you see how the MSME portfolio has performed, it's up 30% Y-o-Y. And you have to look at it both on book plus the assigned portfolio, where the assignment has been slightly higher during second quarter -- during the third quarter. So growth is happening. It's just that it shifted a bit to some other segments. But it could return once again going ahead. So we'll be focused on all the 3 products as far as the growth outlook is concerned.
Okay, sir. And another question on the housing loan segment. So how is the ticket size been moving for us in this segment? Can you throw some light on that? Hello.
Hello. Yes.
Hello. Yes. So I was asking my second question, which is on the home loan, home loan segment. How has the average ticket size been moving in this segment for us?
Yes, average ticket size is in the range of about INR 12 lakhs to INR 13 lakhs. And if the housing prices are growing, it might, at the most can reach about INR 16 lakh, INR 17 lakhs. It is not going to significantly change since we are in the affordable housing segment.
We have our next question from the line of Praveen Mohey from ICICI Securities.
So just a continuation of earlier question that how you are seeing the incremental demand in MSME segment? I mean any specific segment or geographies we are seeing a strong demand. And sorry if I missed this, what is the quarterly disbursement rate we are targeting?
So if you talk about the demand, demand is depending on our branch network. So suppose we have more branches in Madhya Pradesh, then we see the stronger disbursal happening in Madhya Pradesh because our branch network is more. But our rest of Maharashtra branch is lesser. So we will see lesser disbursement. So it is sometimes a function of our projects also. And if we talk about our disbursals, I think always MSME, we have seen the disbursal of in Q3 about INR 286 crores and construction finance to INR 278 crores.
So if we see this disbursal in last quarter of year happened highest. So it increases quarter-on-quarter. First quarter of the year is always lower, and the last quarter is always highest. In that -- the sickens disbursements happened because there always loan demand in the push products will happen there. And it happens across all NBFC banking system. So I think we should be growing our MSME portfolio in the range of about 25%-plus this year as well.
[Operator Instructions] As there are no further questions, I now hand over the call to management for closing comments. Over to you, sir.
Yes. Thank you. So as we said, we have always stick to our core philosophy to build a customer base who banks are not catering. So we do MSME where customers do not have income proof we do affordable housing in the same sequence and thought process we, added the gold loan. And for the fee income, we are doing very well in the car loan distribution. I believe that next 2 years once our gold loan expansion that takes place and every branch started delivering contribution.
And at the same time, our MSME and affordable housing portfolio will also grow. Our operating costs will come down and there will be great fee contribution from the car loan and the advertising income of the insurance products. So I think we are inching towards a higher AUM and better profitability. Technology, we are making a lot of investments and data science team. We have added about 15 people we are having. We are pinpointed. We are analyzing every geography, every product, everything, and they are making a see change. That will also help us not only in our asset quality policy, but also in cost to income. So overall, we are quite confident that we are on a path where we should be able to deliver better returns for our stakeholders. So thank you. Thank you, all of you, for joining the call.
Thank you. On behalf of Go India Advisors, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.