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 the Capri Global Capital Limited Q4 and 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 afternoon, 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 by interpreting the results. A separate disclaimer is available on Slide 2 of the Q4 FY '23 investor deck. Participants are requested to note the same.
In our request our Managing Director; Mr. Rajesh Sharma, to present his opening remarks.
Yes. Good afternoon, friends. Like always, it's a pleasure to welcome you all to Capri Global's post earnings conference call. We declared our audited consolidated results for Q4 and FY '23 on yesterday, that is 22nd May 2023. I hope you had a chance to go through the investors' deck.
The year FY '23 was momentous to in many ways for Capri Global. Our car loan business scaled new height, where we have disbursed close to INR 6,000 crores car loans in the last year. We launched our gold loan business, where we now own a meaningful network, granular retail disbursal over to wholesale disbursement. And we concluded major equity funded with INR 14.4 billion Rights Issue, which have taken our capital adequacy ratio with over 40%.
However, the standout highlight was our consolidated net profit for FY '23, which despite our strong organic growth, push and associated OpEx and new launch of the gold loan branches, nearly made the FY '23 consolidated net profit. This puts us firmly in the side to deliver the mid-teen ROE over medium term. Let me, therefore, start with the earnings highlights first.
A combination of a strong net income, which increased 42% year-on-year and softer credit cost which declined by 80% -- 80 basis year-on-year, helped CGCL delivered a strong net profit growth of 55% year-on-year. This also bridged the gap with FY '22 consolidated net profit with FY '23 net profit coming in at INR 2,047 million, nearly equal to the [ FY 2022 ] consolidated net profit of INR 2,050 million despite we had -- we are in the investment phase in our gold loan branches.
The profitability was achieved despite CGCL continuing to expand organically in both urban retail and gold loan segment in Q4 FY '23. But for the OpEx incurred, our net profit for FY '23 would have been higher by INR 840 million. Had not gold loan branches would have incurring the loss, our profit would have been higher to INR 288 crores.
Our lending yields are beginning to show soft improvement with the share of gold loan slowly becoming prominent. We had started gold loan business, see the rate offering of 15% in our launch phase. However, we have now moved up closer to par with the competition with yields averaging over 18%.
In MSME and housing finance business, the loan yields are stabilizing, while the Construction Finance vertical showed further improvement in Q4. The net interest margin has generally trended lower during FY '23 compared to FY '22. This was due to the initial suppression of loan yields due to foreclosures, migration of higher-yielding loans. This was especially the case in MSME and Construction Finance and a reduction due to foreclosures or repayment were up to 10% higher than FY '22.
However, with low yields in MSME and housing portfolio is stabilizing and the share of gold loans improving in incremental share and NIM should stabilize or improve going ahead, the net interest margin computed on average net advantage was 8.6% in Q4 FY '23, a share better than 8.5% in Q3 FY '23, but lower year-on-year. That is also because our leverage have gone up.
We have been discussing our noninterest income in some detail since past 2 quarter. We've included a separate slide in our Q4 FY '23 presentation, please refer Slide 15. The share of noninterest income was 36.3% in Q4 FY '23.
On a full year basis, the share of noninterest income in net income was 33% in FY '23 compared to 23% in FY '22. Net car loan distribution fees contributed 40% to FY '23 noninterest income compared to 19% in the FY '22. The car loan distribution business originations increased 3.5x year-on-year to touch INR 60 billion. We are now present in 450 locations, including 9 branches across the country.
Our cost/income ratio, which hit a peak of 69.5% in Q3 FY '23, softened marginally to 68.2% in Q4 FY '23. Excluding the cost incurred for expansion in gold loan vertical, our cost/income ratio at 48% in Q4 FY '23. Our operating cost was higher in Q3 FY '23 as our hiring was high, going to planned gold loan branch rollouts with gold loans reaching a significant milestone network extent, our hiring shall be more even paced leading to well spread out operating expenses in FY '23.
We will have a network of 750 branches for gold loans by end of this quarter, reaching the 50% milestone of total 1500 branches we plan.
We also expect this gold loan branches network to reach closer to breakeven in FY '23 with gold loan AUM expected to touch INR 25 million to INR 30 million. This will also soften the incremental impact on operating costs and soften cost/income ratio significantly. The credit cost declined to INR 112 million in Q4 FY '23 from INR 245 million in Q3 FY '23 and INR 571 million in Q4 FY '22.
On a full year basis, our credit cost was INR 642 million, declining 39% year-on-year. The full year credit cost was 80 bps lower compared to 192 bps in FY '22. Asset quality improved with Stage 3 asset declining 81 basis year-on-year and 73 basis quarter-on-quarter to 1.59%. The [indiscernible] Stage 3 asset was 32.2%, highest in Q4 FY '21. We have taken negligible write-offs during Q4 FY '23. I shall now the business performance. Assets under management cross INR 100 billion to INR 103.2 billion.
This is a 56% year-on-year growth. The share of retail loans improved to 79% in FY '23, from 76% in FY '22.
The share of Construction Finance segment where growth was stronger in H1 FY '23 due to a strong sanction disbursement pipeline, softened 400 basis quarter-on-quarter to 18% in H1 -- H2 FY '23. Below our threshold of 20%. This is in line with our previous commentary that Construction Finance momentum shall be softer in H2 FY '23.
Disbursals touched INR 28,110 million, growing to 87% year-on-year and 55% quarter-on-quarter. Disbursals in FY '23 stood at 72,902 million and were up 70% year-on-year. The share of retail disbursal comprising MSME, affordable housing and gold loans were 76% in Q4 '23 compared to 49% in Q4 FY '22. Gold loan late momentum in disbursal during Q4 FY '23, constituting INR 9,582 million or 34% of the total disbursals. This translated in gold loans AUM touching rupee INR 11,259 million constituting 11% of total AUM compared to 8% and 2% share in Q3 FY '23 and Q2 FY '23, respectively.
This rapid scaleup was supported to an expansion of our exclusive gold loan branches, which has increased to 562 branches in Q4 as compared to 449 in Q3. The car loan distribution business continued with strong momentum as shown in Slide 12. The loan origination touched [ INR 2,324 million ], up 2.7x year-on-year and 20% quarter-on-quarter. Total origination in FY '23 stood at INR 60 billion, over 2.5x in FY '23 origination, which were [ INR 17,022 million ].
I shall discuss the fee contribution from the vertical while commenting on earnings comment. Our fee income in car loan distribution alone have reached to about INR 118 crores in FY '23. As of Q4 FY '23 -- in this strong growth backdrop, I would like to highlight, we enhanced our capital adequacy ratio by -- to 40% for CGCL from 24% in Q3 FY '23. The capital adequacy ratio has been boosted by INR 14.4 billion equity raise we did in March '23. We have deployed to INR 2 billion of the money and shall be able to fully deploy the equity in Q1 FY '24. Going ahead, we shall aim to sustain the AUM growth momentum above 30% in FY '24.
Our profitability should also improve as our gold loan branches move nearing to breakeven.
With that, I conclude my commentary. We shall now take questions. Thank you.
We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Mona Khetan with Dolat Capital.
So my first question is on the gold loan book. What is the typical tenure here? And is there hope for further rise in yields from here on?
Yes. So our gold loan typical tenure is about 6 months -- and what is your next -- the second part of the question was?
Could the overall yields which are 18%, is there scope for further rise in the yields?
So 18% is our boarding yield. But realized yield, because, most of the schemes are rebated schemes there and the default interest rates go further. So we expect the realized yield will be in the range of about 20.5%. Additionally, realized 2.5% interest boarding yield.
Okay. Which comes in the fee line?
No, which come in the interest income only.
Okay. So eventually, this will stabilize at 20% or so, the overall yield?
Yes. But that happens is in new business. That will happen once you reach the loan tenure on the completion side because default [indiscernible] realize the default interest, that happens over a period of time. So you will see this quite evident in the H2 FY '24.
Sure. Got it. And what percentage of gold AUM will have a yield below 12%?
So below 12% will be less than 10%, 15% portfolio, which is only done of the gold loan portfolio, which is only done with the view to par cover surplus treasury money rather than putting in a mutual fund. We can always revise certain schemes, where we use the treasury product and we can pass that money with 11%, 12%, 13% kind of rate of interest.
Got it. Secondly, on the home loan book, we see a sharp rise in the average ticket size on a Q-o-Q basis from INR 12 lakh to INR 16 lakhs. So what has led to this? And also, if you could share what are the sourcing channels for the home loan book?
So home loan book sourcing channel is we have our own direct sales team, which procure the entire home loan book.
And ticket size of home loan has gone up because I think this is the impact of home loan ticket size is growing in terms of the cost of the houses are growing at the same time, our expansion in few cities, the average ticket size of the loan have gone up.
Okay. Okay. Got it. And just 1 final question again on the gold book. What is the breakup by ticket size, the gold AUM breakup, that is above INR 5 lakhs, what percentage of book, may be below INR 1 lakh, what percentage of book can deliver?
So I think we can give you that separately. At the moment, it may not be that handy.
Our next question comes from Hitesh Gulati with Haitong Curtis.
Congratulations on a good set of numbers. Sir, a couple of questions from my side. Firstly, you've spoken in some media interactions about digital lending and some new products.
Can you throw some light on that?
So digital lending at the moment in the phase where we are just discussing with the few fintech players to tie up, where we will be disbursing the loans to -- which are originated and guaranteed by them. But recently, there are some changes in the RBI guidelines in the FLDG and all. So we are reviewing that. Once there is a clarity and comfort on our repayment obligations and some sort of comfort from the fintech who originate it, based on that will take a call. While we have a team in place, but still it is away by at least 3 to 6 months.
And sir, some other products on the pipeline in the lending side?
No, lending and there's no other product. We will consolidate what we are doing and we'll focus on gold loan launches to make them achieve faster breakeven.
Sure, sir. And sir, the last question from my side is gold loan is right now 11 percentage of AUM.
What is our target for this? And what is our overall AUM growth target for the company?
So overall AUM growth should continue to grow between 35% to 40% and now adequate capital also is in place. And with the gold AUM over a period of next 4 to 5 years, it will be about 25% of the overall book, consolidated book.
Our next question comes from [ Pushkar Jain ] with [ Sequent Investments ].
Congratulations on great set of numbers. My question is on competition from banks. The last 3, 4 quarters, we have seen a lot of competition in terms of yield from banks for gold loans. Is the competition -- how is the competition shaping up right now and what percentage of our book would be less than -- would be yielding less than 15% in gold loan?
So, yes, competition is increasing. I think gold loan -- but market is increasing by 12% to 13% year after year. And still the majority of the gold loan market is still with the informal lenders and jewelers who lend at very high rate of interest. So market will continue to move from unorganized lenders to the organize lenders like NBFCs and banks. While target the higher ticket size and the customers is different, NBFCs gold loan focused -- NBFC target retail customers with ticket size in the range of about -- start from INR 10,000 and goes up to INR 2 lakh. So the segment is quite different. Despite competition, as I said, the majority of the gold loan market will continue to shift and we can see good growth in next 4, 5 years in this.
[Operator Instructions]. Our next question comes from Jai Daxini with IIFL Securities.
So our gold loans, in segment, we were targeting 1,500 branches over the next 4 or 5 years, but we already opened 550 during the last 8 months. So could we actually reach our target within 2.5 years? And how will be the growth in next coming years? And also how would this affect our OpEx movement and CI.
So at the moment, we'll take it -- at 750 branches, and we will make them become profitable before we start the next phase of round 2 of balance 750 branches.
Currently, our focus is to make them achieve their target business numbers and achieve the profitability faster.
So our cost/income ratio, which at the moment elevated, will come back to the level of about maybe between 45% to 50%.
And when the profit will start delivering, I think it will further show the improvement there.
Okay. And 1 more question -- in the Construction Finance, our ATS has declined Q-o-Q. So is that -- any color on that, like INR 191 million to INR 18 million on Slide 9.
Can you repeat the question, please?
Yes. In the Construction Finance business, our ATS has declined from INR 191 million to INR 18 million.
No. So I think because of the font size, it's got a bit hidden. It's not -- we'll rectify that...
It is INR 180 million, right?
Yes, yes. Correct.
Okay. Okay. And our GNPA has declined in SME segment by 120 bps Q-o-Q. So how do you think this segment would be growing asset quality-wise and what's the strategy as of now?
You are asking specific to MSME, which is what you're referring to? Can you please say that?
Yes, SME segment. GNPA has declined 120 bps, so -- Q-o-Q.
So this is the overall. This is not talking about a specific segment. This is a consolidated level of the company.
Yes. So what's your growth plans in this vertical as of now?
No, no. So as far as GNPA is concerned, that is overall of the company. As far as the growth of the vertical of MSME is concerned, MSME will continue to grow in the range of 25% to 30%.
Our next question comes from Nikhil Nyati with Equirus Securities.
Sir, I'm I audible?
Yes, please. Please go ahead.
Sir, my first question is on the gold loan yield. I see a sharp improvement on a Q-o-Q basis, which is reported on Slide 16.
Can you throw some light upon that like and how much of it is attributable to the P&L interest and overdue interest, if any?
Yes, yes, yes. So if you talk about the gold loan, the onboarding yield of now we are achieving about 18%, we expect about 25% to 30%. Overall basis, we get the default interest rate. That we will also go in granular, from high ticket size where jeweler used to come, we are going to the retail consumer.
So ticket size is dropping, and so our interest is also going up. But initially, when we launched the loan, we were more focused to make our presence felt in that particular branches network.
So our yields were lower. So with the combination of all these impacts, our yields have gone up.
Got it, sir. Got it. And sir, second question is on the cost of fund side -- our cost of funds have remained fairly stable over the last year despite the rate increases. So how do you see the cost funds panning out in the next 3, 4 quarters?
As you know that interest rates are borrowed from PSU bank by us where the interest rates are reset annual basis. So while the interest should have gone up, the impact comes when the interest rates are set. Majority of the resets were started for quarter 3 and all the resets have happened by end of March.
So our interest rate will go up by another 40, 50 basis points.
And we are quite confident that we are able to pass on this interest rates to our -- the new customers.
Congratulations on a good set of numbers.
[Operator Instructions].
Our next question comes from Mayur Liman with Profitmart Securities.
Congratulations on a good set of numbers. I just want to ask, what are the parameters pushed the performance of Q4 FY '23 and full year of 2023?
Can you please repeat the question?
Yes, sir. Sir, what are the parameters pushed the performance of quarter 4 and the full year of 2023?
Can you be specific? What exactly you wanted to ask?
If you give me details about the gold segment and the car loan distribution, it will be good.
Car loan distribution, if you talk about, that has disbursed close to INR 6,000 crores worth of car loans. And we had a revenue from that about INR 118 crores.
If you talk about gold loan, gold loan AUM has stood about INR 1,126 crores, and where the average yield is about 18%.
Yes, sir. But what are the market scenarios pushed these drivers, means if we look the income, I mean, operational income, so it will raise -- it was raised, sorry. So, I mean, I just want to know what are the market economical factors pushed the business towards the forward.
If you sum it up, going forward, our car loan distribution business, next year will grow about 50%, and that will give you a pure fee income, we have no capital is to be required. And that will improve our fee income ratio to the overall income, that has already improved from 22% to 33%.
And overall basis, our AUM will continue to grow about 35% to 40%. And since our -- as we said, gold loan branches are now achieving 1-year period in the next year. So those branches will be near to breakeven or some of them will become profitable or -- overall cost/income ratio will drop. So we see that the next year should be a significant upside in profitability.
Our next question comes from Ashish Kumar with Infinity Alternatives.
Sir, on the car loan distribution business, you mentioned that we have got our revenue of INR 118 crores. What will be the profitability on that business, sir, cost/income ratio, just to get some sense?
So from INR 118 crore top line, we have got a profitability close to about INR 30 crores, INR 32 crores kind of profitability from that segment.
And sir, there's no balance sheet exposure to that?
No, because we are just referring lead originated by our team to the banks who are partnered with us. We have partnered with close to 8 banks. And on successful conversion of that lead, we are paying a fee by the banks. And that is what our business model is.
Okay. And sir, just to understand what is it that we are doing differently as compared to so many other people that we've been able to build up car distribution business so quickly? What has quick for us?
So we're tax client. We have built a strong network of our own team and since we've distribution network, and we are focused only on the new car, we are able to do with a quick turnaround, and we know that which customer will fit in what interest rate. So we run that program and able to offer the customer very quickly. Suppose somebody apply, whether he'll get a good interest rate in [ Bank of Baroda ] or HDFC Bank or Bank of India, we are able to tell him.
And we are -- we help the customer to do that decision quickly and making available funds to buy his car quickly. So I think the turnaround time in the right kind of way, rate of interest matching his income profile help us to get the better business.
But -- so is what, let's say, some of the larger distributors like Andromeda, et cetera, do?
So I do not know exactly what is the business points of Andromeda. But as far as we are concerned, we have about 450 touch points. Our own feet-on-the-street people along with them. So that is helping us, and we are adding another locations and few more bank partners this year.
So this year, again, we'll see a 50% growth in that. Currently, in the new car loan disbursal, other than the dealers, I think we are the #1.
[Operator Instructions] Our next question comes from or Sharma HSBC Securities.
I'm I audible?
Yes, please.
Yes. I have a couple of questions. One is regarding the borrowing mix. So since you have a large portion of borrowings from scheduled commercial banks, I want to know what will be the breakup of this into MCLR rated link bonds, EBLR linked bonds or repo rate linked bonds with any? That is first.
Second, I just wanted to know what are the cross-selling opportunities you are exploring in your loan products? These are my 2 questions.
So we don't borrow anything [ SLR ] or EBLR linked bonds. We borrow money from public sector bank as a term loan.
And there's less than 5% money in the shape of nonconvertible debentures, which were borrowed from the bank when the TLTR scheme were announced, which are getting repaid. By the end of the next June, I think every MCD except with 1 from financial institution will remain outstanding, which is very small amount. So rest of them are the term loan ranging from 5-year to 8-year tenure.
Okay. Got it, sir. And upon the cross-selling opportunities in lending product?
So currently, we have MSME branches, home loan branches and gold loan branches plus car loan distribution.
Going forward, our every -- whether it is a gold loan or MSME loan, I think our old gold loan will -- branches will convert into loan center.
And they will start also cross-selling the home loan and MSME loan. In any case, MSME loan branch also cross-sell the home loan. So our technology is under development. That will take around 6 months to 9 months' time.
And once that takes place, then we'll launch the pilot and then we'll make full-fledge all the going branches converted into the loan center. So the cross-sell opportunity will rise exponentially.
[Operator Instructions] Our next question comes from the line of [ Sadru Chakraborty ], an investor.
Okay. My first question is on the MSME business. Here in the slide, I see that the average ticket size has increased, the accounts have increased, let's say, 20-odd percent.
Can you just throw some light on how you see this segment going forward in fiscal year '23 and '24? Any stress or strain that you see in this segment? And just in general, what is your vision of this segment progressing forward?
So if you talk about MSME, I think going forward, if you've seen that earlier, we had about restructured pool of about INR 200 crores-plus amount, which has come down to about INR 93 crores, which is clearly showing the good result.
Going forward, our average ticket size will continue to be in the range of less than INR 25 lakh, which is currently today about INR 19 lakh. The average ticket size will not move up.
But since we are adding more branches, the distribution network will strengthen.
Some point of time, our gold loan will also do the cross-selling. So MSME business will grow. And I think this will remain one of our key growth driver.
Okay. Similar question also for the housing finance business. I think you mentioned that the average ticket size has gone up. That is clearly visible. The loan-to-value looks pretty similar. Accounts have gone up.
I was just concerned a little bit about the geographical distribution. Do you see yourself expanding into any other geographies? Or what exactly is your strategy for the next 2 years for housing finance?
So housing finance, we are adding the new branches in Uttarakhand and Uttar Pradesh. And this year will be adding another about 25 to 30 branches there. And plus, we are adding some of our existing locations where business is happening good. We are adding more manpower strength there to source and underwrite that business.
So overall, I think Housing Finance will be in terms of percentage, will grow in the range of about 55% to 60% for the next 2 years.
Okay. And then the last question from my side was really around your capital structure. It's not really the structure, but the capital that you raised in the Rights Issue. So congratulations on doing successfully raising that.
When I look at the gold loan business and the opportunities that I see, I have a strong sense that capital cover, let's say, will sort of run down 2 years. Is there any longsighted vision of what you want to do again? And if you want to do a capital raise, will it be from public shareholders, will be from NHB, will it be from other banks? Or just any vision of how you see the capital base basically going forward for the next 2 or 3 years?
So last time, we raised capital was in 2010. Now we raised, even that is the Rights Issue, [indiscernible] a significant amount of money.
I don't think company will require capital for the next 6 to 7 years. And in case the [ core ] lending takes off, company may not use the capital even for the 10 years.
[Operator Instructions]. As there are no further questions, I would now like to hand the conference over to the management for closing comments.
Yes. Thank you all for attending this call. So as we stated earlier, we continue to build the granular book, and we continue to cater to the same segment, which is not catered by the banks, be it MSME, be it affordable housing, be it gold loan and even be it the construction finance smaller developer.
I think we clearly see that backed by our strong distribution network and a good capital adequacy ratio and now almost we achieved 10 years in lending business, we already established our underwriting standard and good collection team. We invested heavily in the collection team as well as the collection systems and chatbots and auto-dialing and all that.
So with back of that, where the correction is heart of our entire thing, we feel that the company will continue to grow in the next few years at a range of about between 35% to 40%. And gold loan branches will convert into the loan center, which will further bring our operating cost down.
So overall, between that 3 to 4 years, you will see significant hike in the margins as well as the improved return on equity in ROEs. So thank you all.
Thank you. On behalf of Go India Advisors, that concludes this conference. Thank you for joining us. And you now disconnect your lines.