CGCL — earnings call

The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.

Prepared remarks

Moderator · Conference Operator

Good morning ladies and gentlemen.

I am Priyanka, moderator for the conference call.

Welcome to Capri Global Capital Limited’s Q4FY19

Thank you sir.

Ladies and gentlemen, we will now begin the question and answer session.

If you have a question, please press * and 1 on your telephone keypad and wait for your turn to ask the question.

If you would like to withdraw your request, you may do so by pressing * and 1 again.

I repeat, ladies and gentlemen, if you have a question, please press * and 1 on your telephone keypad.

The first question comes from Raghav Kabra from Excel Investment.

Please go ahead.

Raghav Kabra

Good morning sir and congratulations for the good set of numbers.

I have two questions, first question is what kind of adjustments you have made in regards to financial statements now that your profitability have significantly impacted for FY18 as compared to the accounting done vis-à-vis with GAAP.

Rajesh Sharma

And second question is?

Raghav Kabra

I will ask second question after this.

Rajesh Sharma

So, as per the IND-AS, which is introduced first time, as per the new accounting guidelines, there were certain risk-related adjustment and guidance on the risk probability were adjusted in the books.

Accordingly, the profit which was 104 crores last year was re corrected to 66 crore rupees in the consolidated basis.

The main assessment for fair value for our investment, which we are holdings of CARE , the rating agency and there were some processing fees, which you cannot account at one go now, it is aligned with the tenure, it is amortized over the period of tenure of the loan.

So, that got amortized and their expected credit loss account adjustment amounting to 6 crore rupees.

So, ECL loss of 6 crore rupees amortized, the fees of 12 crore rupees, and fair value of CARE shares, combination of all three have resulted, this is one time, so the next year onwards this will be in line with IND-AS and that was the result that the profit was resurrected at lower level for 2018.

Transcript – Capri Global Capital Limited Conference Call

Raghav Kabra

Okay, sir, fine.

And the second question I wanted to ask is, what can be the expected cost to income ratio moving forward, given the fact that you are projecting high growth.

Can you also throw some light on productivity of employees now and moving forward how it will impact?

Rajesh Sharma

Yeah.

So, cost to income ratio this year will be around 44% in FY19. We, because, since we are opening more new branches, already we have head office and regional level teams in place; that will gradually keep bringing down our cost to income ratio.

We are hoping that by 2023 our cost to income ratio gradually will come to about 33%.

Raghav Kabra

Can we expect moving forward that the cost to income ratio will gradually keep on going down or if there will be any up movement in that thing?

Rajesh Sharma

No, cost to income ratio will continuously go down.

Logically what happens, when you set up a regional team, you employ the same number of people irrespective of whether you have seven branches, or you have 30 branches.

When you add more branches, the volume and the feeding, the disbursement increases, but there is no pro rata cost increase.

So, efficiency and cost of operation on a scale basis will bring down the cost to income ratio.

This year also it has come down.

We expect next year also to come down another 4% to 5% and gradually we aim to reach to 33-34%.

Raghav Kabra

Okay sir.

That’s all from my side.

Rajesh Sharma

Thank you.

Moderator · Conference Operator

Thank you sir.

Next question comes from Pankaj Shah, individual investor.

Please go ahead.

Pankaj Shah

Yeah, hello, good morning.

Rajesh Sharma

Yeah, morning.

Pankaj Shah

I would like to understand that what’s the need for raising money through diluting equity by rights or by QIP, because we have lot of room to raise more debt, as we have debt equity of 1.5 and capital adequacy of 35.

So, if you can explain.

Rajesh Sharma

These are enabling resolution.

It is not that immediately we would like to raise the money but may be nine months from now or 10 months from now, when the time becomes opportunistic, rather than waiting for the capital adequacy to go down to 20% and then raise the money.

It is more of looking at the right opportunity and raise the money.

And number 2, there can be some good opportunity coming in our way where we can consider to acquire some of the good NBFCs.

While there is no such Transcript – Capri Global Capital Limited Conference Call opportunity today available, but in case available, at least we are better equipped capital-wise, that we can negotiate a deal and close it.

Pankaj Shah

So, we are looking for the opportunity inorganically also.

Rajesh Sharma

Yes, we are open to that…not that we are aggressively looking for, but the way small capital-based companies are finding it difficult to pave the way, I think, smaller companies might sooner or later get consolidated with the companies who are well-capitalized.

So, we can see that phase to start in next six months to two years’ time and this proposal will only enable us to raise the money.

We are not going to raise in next three to six months, but we will see.

Pankaj Shah

Okay.

The other question is, what’s the status of our other subsidiaries, like Capri Resources, Capri ARC?

Rajesh Sharma

So, now, we will be continuing this company, only two businesses, one is lending to MSME and another housing finance through subsidiary all other subsidiaries will be merged in the main company and there will be no other businesses of ARC or anything else.

Pankaj Shah

Okay.

I would like to understand another thing, what’s our turnaround time with regards to different businesses, as in, for housing finance and for the MSME?

Rajesh Sharma

You mean from receiving the application to disbursal.

Pankaj Shah

Yeah, response from customer loan request till disbursement.

Rajesh Sharma

If customer is able to provide all the details, which we require in time, on an average within 15 days we can, from the application received we can disburse the loan.

But his paper work should happen, that will depend on the turnover from the customer as well.

Pankaj Shah

Okay, that’s it from my side.

Thank you.

Moderator · Conference Operator

Thank you sir.

Ladies and gentlemen, if you have a question, please press * and 1 on your telephone keypad.

I repeat, ladies and gentlemen, if you have a question, please press * and 1 on your telephone keypad.

Next question comes from Shraddha Gandhi, individual investor.

Please go ahead.

Shraddha Gandhi

Hi sir, good morning.

Hi, am I audible?

Rajesh Sharma

Hi, good morning.

Transcript – Capri Global Capital Limited Conference Call

Shraddha Gandhi

Yeah.

Sir, as I can see, your borrowing is inclined towards bank lending and not too much exposure to CDs, NCDs or any other sources.

So, just want to understand, for such a high growth being projected, what can be the borrowing mix be going forward and also if you can tell me, if you are looking to raise any other funds through securitization?

Rajesh Sharma

Next year the entire borrowing program will be comprised of raising term loans from the banks, along with the securitization of our pool.

These will be two main source of raising the money.

Besides we are also in discussion, where we got some initial sanction of external commercial borrowing, so that window also should open this year.

So, we believe that we are quite comfortable.

We have almost about 20 lenders who have given us repeated sanctions.

We should be able to raise the long- term money from banks.

Shraddha Gandhi

Okay.

And sir, what would be your outstanding unutilized banking limit as of now?

Rajesh Sharma

We have about 250 crores of unutilized and since the bankers were waiting for our financial results to come, now we will be approaching banks.

In another two months we should be able to raise almost 800 to 1000 crore rupees by way of securitization and fresh term loans.

So, raising money because of our consistent profitability, low ticket size, good asset quality, and good capital adequacy, we will not face any problem in raising the required term loans and borrowings to support the growth.

Shraddha Gandhi

Sir, I had one more question.

In terms of strategy going ahead, what would be the portfolio mix in terms of overall book.

Rajesh Sharma

So, on a consolidated basis, we believe that 50% will be MSME, 25% will be housing finance, and 25% will be comprising of construction finance and indirect retail.

Shraddha Gandhi

Okay.

So, in that sense, CF business is coming down, why, given the fact that your asset quality is str, how do we plan to address this?

Rajesh Sharma

Sorry, your voice was breaking; can you repeat it again, please?

Shraddha Gandhi

Sure.

Sir, in terms of you were mentioning that your CF business will be around 25%, which means it is kind of coming down?

Rajesh Sharma

It is not coming down.

Consciously we are growing more focused on MSME when we are adding more branches.

The growth keeps coming from there more.

We will continue to do the same way we are doing.

But since the MSME portfolio is growing, and construction finance average period is only three to four years.

So, that portfolio rundowns also faster, when the MSME runs down gradually.

So, when Transcript – Capri Global Capital Limited Conference Call you grow the book, MSME book will always grow better and faster than construction finance.

Shraddha Gandhi

Okay.

That was very helpful, especially the last explanation.

Thank you so much sir.

Rajesh Sharma

Thank you.

Moderator · Conference Operator

Thank you sir.

Next question comes from Dr. Ajit Kaushal, an individual investor.

Please go ahead.

Dr. Ajit Kaushal

Good afternoon everybody.

My question is that in the past two years, Capri Global has opened many branches.

So, may I know that, what is the plan of the Capri Global to open the branches in next five years maybe?

Rajesh Sharma

As you can check it in our presentation also, we will increase our branches to 235.

2021 we will open branches in southern market also, Southern India.

Dr. Ajit Kaushal

Sir, is it a strategic decision taken by Capri Global that no branches are coming to Eastern India, Do you plan to expand even in Eastern India?

Rajesh Sharma

At the moment, we do not have any plan to expand in Eastern India.

Dr. Ajit Kaushal

Okay, thank you so much.

It was very helpful.

Rajesh Sharma

Thank you.

Moderator · Conference Operator

Thank you sir.

Ladies and gentlemen, if you have a question, please press * and 1 on your telephone keypad.

Next question comes from Mandip Singh.

Please go ahead.

Mandip Singh

Hello, good morning everyone.

I have two questions.

One is that, there is a dip in the employee benefit expenses on quarter-on-quarter basis.

Can you give the reason for that?

Rajesh Sharma

There were some ESOP-related expenses debited in one particular quarter, so that was the reason that one quarter, last quarter was up, and this quarter has come back to normalcy.

Mandip Singh

There is no attrition rate in the employee?

Rajesh Sharma

No, the employees keep growing because we are adding more branches.

Transcript – Capri Global Capital Limited Conference Call

Mandip Singh

Okay and second question is what is the cost of fund for FY19 and the future ahead for the cost of fund?

Rajesh Sharma

The future cost of fund is going to be in the range, looking at the current scenario, in the range of about 10%.

Mandip Singh

Okay.

And the third question from my side is, is there any plan for the parent company Capri to go for increasing the stake in the company and getting the company delisted from the market?

Rajesh Sharma

I am sorry; can you repeat it again please?

Mandip Singh

Is there any plan of the parent company Capri to increase the stake in the company and getting the stock delisted from the market?

Rajesh Sharma

No, no. Absolutely not.

Mandip Singh

Okay, thanks a lot from my side.

Moderator · Conference Operator

Thank you sir.

Next question comes from Aalok Shah from Monarch Networth.

Please go ahead.

Aalok Shah

Thanks for the opportunity.

A couple of questions on my side.

You have talked about increasing your branch leads to 165 in ’21 and 235 in ’23.

Would you give some colour on how do we look to penetrating into our existing areas at present and what are the new targeted geographies that we want to grow our business and what all products do we look to sell in those markets?

Rajesh Sharma

What happens, when we open one region, we set up the team, we have already added MP and Rajasthan, so one state has the potential of 40 to 50 branches.

So, when you grow, first you start by putting the regional team, regional legal, regional technical, regional sales, regional credit, regional operation, and we build the entire team, then in first year we add five to 10 branches, then every year keep adding the branches, because this business requires lot of local understanding.

So, once we grow, there is a lot of scope existing to grow the branches in MP and Rajasthan.

Further to add in Maharashtra and Gujarat.

And then we are going to open southern markets also, Karnataka, Tamil Nadu, and Andhra Pradesh.

These are the three states which also has a lot of potential.

Aalok Shah

So, that’s the plan that we look to do in the near term, in FY21 and maybe the longer term, which is FY23?

Is that right sir?

Rajesh Sharma

Yes, you are right.

Transcript – Capri Global Capital Limited Conference Call

Aalok Shah

And sir, on the incremental cost of borrowings for us, what’s the change in cost that has happened for us, say between September to now and are we seeing that cost stabilizing?

Rajesh Sharma

So, from September to now, earlier the cost had gone up by about 75 basis, but if you look at our spread, we are able to pass on the entire cost plus additional cost, because there was less competition in the market, and that has enabled us to, not only pass on our cost, but also add some more margin.

So, our spread this year, if you have seen, have improved from 4.93% to 5.73%.

Aalok Shah

Yeah, the margin spread has seen an improvement on YOY basis.

Sir, my question is on the borrowing side.

You have talked about close to 800 to 1000 odd crores of ability to raise funds through banks and securitization route.

What’s the target for FY20 disbursement number?

I mean, will we see 3000 crore disbursement this year.

Should that be a number closer to 3000 crore next year?

Rajesh Sharma

Next year, disbursement will happen basically, whatever fresh disbursement we will do, and the repayment comes.

So, from the funding perspective, next year requirement of the fund will be in the range of 2000 crores.

And we are quite confident that we will be able to raise that kind of money.

Aalok Shah

Okay, right.

And would you like to give some number for your disbursement target for next year?

Or should we just go with the AUM target?

Rajesh Sharma

No, this is a different target already given, if you look at our presentation also, it is mentioning about 3000 crores will be the fresh disbursement, 1000 crores will be repayment.

So, net disbursement will be happening 2000 crore.

Aalok Shah

Noted sir, sure.

That’s it sir.

Thank you.

I will get into the queue.

Moderator · Conference Operator

Thank you sir.

Ladies and gentlemen, if you have a question, please press * and 1 on your telephone keypad.

I repeat, ladies and gentlemen, if you have a question, please press * and 1 on your telephone keypad.

There are no further questions.

Now, I hand over the floor to the management for closing comments.

Over to you sir.

Rajesh Sharma

Yes.

Thank you so much.

So, looking at the segment, in which we are operating which is MSME and Housing Finance, we see this is a huge growth potential.

We have already aligned our entire credit underwriting, our legal team, our technical team, our local understanding of each geography, because in our business, besides the pan India policy, the local policies also play an important role.

We are quite confident in next four years’ time, we should be able to reach our growth target of 235 branches, and reaching to an AUM of 25000 crore, where our profitability will also be pro rata based and it will be grown to almost crossing 500 crore amount.

So, we believe, we are quite excited about our journey and we are quite confident to maintain a Transcript – Capri Global Capital Limited Conference Call healthy asset quality because of our secured lending as well as our understanding of the markets which we acquired.

Thank you so much.

Thank you all of you.

Moderator · Conference Operator

Thank you, sir.

Ladies and gentlemen, this concludes the conference for today.

Thank you for your participation and for using Door Sabha’s conference call service.

You may disconnect your lines now.

Thank you and have a pleasant day. _____________________________________________________________________

Disclaimer

This transcript may not be 100 percent accurate and may contain misspellings and other inaccuracies.

This transcript is provided "as is", without express or implied warranties of any kind.

Capri Global Capital Ltd./Go India Advisors retains all rights to this transcript and provides it solely for your personal, non-commercial use.

Capri Global Capital Ltd./Go India Advisors, its suppliers and third-party agents shall have no liability for errors in this transcript or for lost profits, losses, or direct, indirect, incidental, consequential, special or punitive damages in connection with the furnishing, performance or use of such transcript.

Neither the information nor any opinion expressed in this transcript constitutes a solicitation of the purchase or sale of securities or commodities.

Any opinion expressed in the transcript does not necessarily reflect the views of Capri Global Capital Ltd./ Go India Advisors.