Capri Global Capital Limited — Q4 FY23 earnings call

Call held 23 May 2023

What they filed

Q1 FY27: revenue up 61.0%, net profit up 109.3% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue554 601 732 766 867 +56%943 +57%1,071 +46%1,233 +61%
EBITDA463 528 621 647 744 +61%— — —
Net profit86 108 158 150 212 +147%221 +105%243 +54%314 +109%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

profitability

  • Return on Equity (ROE) profitability · medium term · high confidence mid-teen
    This puts us firmly in the saddle to deliver mid-teen ROE over medium term.

    — Mr. Rajesh Sharma

  • Gold Loan AUM (for breakeven) profitability · FY2024 · medium confidence INR25 billion to INR30 billion
    We also expect the gold loan branches to reach closer to break-even in FY23 with gold loan AUM expected to touch INR25 billion to INR30 billion.

    — Mr. Rajesh Sharma

  • Cost/Income Ratio profitability · FY2024 · high confidence 45% to 50%
    Our cost/income ratio, which is at the moment elevated, will come back to the level of about maybe between 45% to 50%.

    — Mr. Rajesh Sharma

growth

  • AUM Growth growth · FY2024 · high confidence above 30%
    Going ahead, we shall aim to sustain the AUM growth momentum above 30% in FY24.

    — Mr. Rajesh Sharma

  • AUM Growth (overall) growth · ongoing · high confidence 35% to 40%
    So overall AUM growth should continue to grow between 35% to 40% and now adequate capital also is in place.

    — Mr. Rajesh Sharma

  • Gold Loan Share in Overall AUM growth · next 4 to 5 years · high confidence 25%
    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.

    — Mr. Rajesh Sharma

  • Car Loan Distribution Business Growth growth · FY2024 · high confidence 50%
    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, no capital is required.

    — Mr. Rajesh Sharma

  • MSME Business Growth growth · ongoing · high confidence 25% to 30%
    As far as the growth of the vertical of MSME is concerned, MSME will continue to grow in the range of 25% to 30%.

    — Mr. Rajesh Sharma

  • Housing Finance Business Growth growth · next 2 years · high confidence 55% to 60%
    So overall, I think Housing Finance will grow in the range of about 55% to 60% for the next 2 years.

    — Mr. Rajesh Sharma

operational

  • Gold Loan Branches Network operational · Q1 FY2024 · high confidence 750 branches
    We will have a network of 750 branches for gold loans by end of this quarter, reaching the 50% milestone of total 1,500 branches we plan.

    — Mr. Rajesh Sharma

financial

  • Cost of Funds Increase financial · next 3-4 quarters · medium confidence 40 to 50bps
    So our interest rates (cost of funds) will go up by another 40 to 50bps. And we are quite confident that we will be able to pass on this increase in interest rates to our new customers.

    — Mr. Rajesh Sharma

  • Capital Requirement financial · next 6-10 years · high confidence No capital required for 6-7 years (potentially 10 years with co-lending)
    I don't think company will require capital for the next 6 to 7 years. And in case the co-lending takes off, company may not use the capital even for the 10 years.

    — Mr. Rajesh Sharma

Risks & concerns

  • Changes in RBI guidelines for FLDG (First Loss Default Guarantee) impacting digital lending partnerships.

    medium

  • Increase in cost of funds due to interest rate resets by PSU banks.

    medium

  • Increased competition in the gold loan market from banks and other NBFCs.

    low

Q&A highlights

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3 min read 4 chapters

Detailed narrative

Market Outlook

The gold loan market is expected to continue its growth trajectory, driven by the formalization of lending from unorganized sectors. The overall AUM is projected to grow robustly at 35-40% in the coming years, supported by strong demand in retail segments like MSME and affordable housing. The company anticipates improved profitability and ROE as its new gold loan branches mature and become profitable.

Business Segments

Car Loan Distribution

Disbursed close to INR6,000 crores in FY23. Origination increased 3.5x YoY to INR60 billion in FY23 (INR20,324 million in Q4 FY23, up 2.7x YoY and 20% QoQ). Fee income contributed INR118 crores in FY23, making up 40% of non-interest income. Present in 450 locations.

Outlook: Expected to grow about 50% next year (FY24), providing pure fee income without capital requirement. Management claims to be number one in new car loan disbursal (excluding dealers).

Gold Loan

Launched in Aug’22. AUM reached INR11,259 million (11% of total AUM) in Q4 FY23, up from 2% in Q2 FY23. Expanded to 562 exclusive branches in Q4. Onboarding yield is 18%, with realized yield expected to be around 20.5% due to rebate schemes and default interest.

Outlook: Will pause branch expansion at 750 branches (by Q1 FY24) to focus on making them profitable. AUM expected to reach INR25 billion to INR30 billion for breakeven. Gold loan AUM is targeted to be about 25% of the overall book in the next 4-5 years. Future cross-selling opportunities through these branches.

MSME

Restructured pool reduced from over INR200 crores to INR93 crores. Average ticket size is about INR19 lakh.

Outlook: Expected to grow in the range of 25% to 30%. Distribution network will strengthen, and gold loan branches will eventually cross-sell MSME loans, remaining a key growth driver.

Affordable Housing Finance

Average ticket size increased from INR12 lakh to INR16 lakh QoQ. Sourcing is primarily through the company's direct sales team.

Outlook: Adding 25-30 new branches in Uttarakhand and Uttar Pradesh this year. Expected to grow in the range of 55% to 60% for the next 2 years.

Construction Finance

Share in AUM softened to 18% (below the 20% threshold), consistent with previous commentary for H2 FY23. Yields showed further improvement in Q4.

Outlook: Momentum expected to remain softer in H2 FY23, in line with strategy.

Competitive Position

In the gold loan segment, Capri Global operates in a market growing 12-13% annually, with a significant shift from unorganized lenders to organized NBFCs and banks. The company targets retail customers with smaller ticket sizes (INR10,000 to INR2 lakh), differentiating itself from banks that target higher ticket sizes. In car loan distribution, the company claims to be the number one player (excluding dealers) in new car loan disbursals, attributing its success to a strong network of 450 touch points, quick turnaround times, and effective matching of interest rates to customer profiles.

Strategic Initiatives

  • Rapid expansion of gold loan branches, targeting 750 by Q1 FY24, with a long-term plan for 1,500 branches.
  • Focus on achieving profitability and breakeven for gold loan branches to improve overall cost/income ratio.
  • Exploring digital lending partnerships with fintech players, pending clarity on RBI's FLDG guidelines.
  • Developing technology for cross-selling home loans and MSME loans through gold loan branches, with a pilot expected in 6-9 months.
  • Enhanced capital adequacy to 40% through a INR14.4 billion Rights Issue to support future growth.
    • This is an AI-generated summary of a publicly available earnings call transcript.
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