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 afternoon, ladies and gentlemen.

I am Bharathi, moderator for the conference call.

Welcome to Capri Global Capital Ltd Q4FY21

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.

Should you need assistance during the conference call please signal an operator by pressing * and then 0 on your touchtone telephone.

The first question comes from Arun Somani from RMS Capital.

Please go ahead.

Arun Somani

Hello?

Thanks for the opportunity sir, am I audible?

Moderator · Conference Operator

The next question comes from Alaya Patel from Excel Investments.

Please go ahead.

Alaya Patel

Thank you for the opportunity sir.

First, could you describe what is our digital strategy?

Will our target customer adapt using smart devices?

How do we compete with new age fintech start ups who are all well advanced on analytics?

Rajesh Sharma

Thank you.

Our digital strategy is that while the customer segment we cater to are MSME, Affordable Housing, we do rely on a lot of processes and data analytics piece.

Further, we have already had Boston Consulting Group to strengthen our core business in MSME and Affordable Housing and to suggest improvement in [not clear] stack along with the artificial intelligence and data analytics piece to strengthen which currently we are using.

So we believe that with their advice we can cut short on the turnaround time which is going to improve our productivity.

Also, to help us to cross-sell our home loan in future, any product we add which we are

Moderator · Conference Operator

Thank you ma’am.

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

Next question comes from Radhika Lohia from Mirae Asset.

Please go ahead.

Radhika Lohia

Hi Sir, just two data keeping questions.

Just wanted to know if you can tell me the Stage-2 assets and what is the write-off amount for the quarter?

Rajesh Sharma

Raj will you take this question please?

Raj Ahuja

Sure.

As on March 31st 2021, our Stage-2 assets stand at Rs171 crores which is a publicly disclosed number also.

This represents a little less than 5% of our total asset book.

And the total write-offs which we have taken in this particular quarter…total amount written-off is around Rs2.6 crores in this quarter and for the total year we have written-off Rs5.4 crores in FY21. This is as compared to 35mn written off in FY20.

Radhika Lohia

Okay thank you so much that’s all from my end.

Moderator · Conference Operator

Thank you ma’am.

Next question comes from Shripal Doshi from Equirus Securities.

Please go ahead.

Shripal Doshi

Hello sir.

I was going through your presentation wherein we have seen dip in collection efficiency in January and then we are seeing again that sort of reviving.

So what was the reason like any qualitative expense that you got to have for the day?

Moderator · Conference Operator

Rajesh sir?

Rajesh Sharma

Tell me a little louder please?

Shripal Doshi

Sir my question was with respect to collection efficiency across our MSME and housing finance book as we saw a dip in the month of January and then we again saw it reviving back to the same levels.

What was the reason behind this?

Rajesh Sharma

I am not able to attribute any specific reason.

Let me just look at that.

Moderator · Conference Operator

Thank you sir.

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

Next question comes from Arun Somani from RMS Capital.

Please go ahead.

Arun Somani

Hello?

Thank you for the opportunity again sir.

Am I audible now?

Rajesh Sharma

Yes.

Arun Somani

So, I have a couple of questions now.

The first one is how are the things shaping on ground for MSME during the ongoing second wave.

Any sort of feedback we might have received from our customers in terms of how the business are faring for them and how soon do we expect this to be normal again, like, Jan-Feb months?

Rajesh Sharma

So, as I told, our team on ground is in constant touch with the customers and the sense we are getting in this time… COVID has impacted even rural areas.

So, definitely their businesses are impacted, but since they are very small businesses, the moment economy opens up with the result of lockdown and vaccination drive picking up, we hope these businesses will bounce back faster, because these are the light businesses we fund…of daily essential items…maybe a kirana store, maybe a garment shop, maybe a bike repairing shop, maybe a job work small business, and these businesses essentially are small in nature and run very efficiently by owner-driven small set-up.

So, we believe that these businesses will bounce back and there is an adequate demand in this segment because this low-income group customers, there are very few players who are catering to, and there is a huge gap and there is a good opportunity that exists.

So, I think, by July onwards enough demand should be there in place.

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 Preethi Singh from Value Investments.

Please go ahead.

Preethi Singh

Hello?

I just have a couple of questions from my end.

So, what is the potential of loan growth from an existing branch infrastructure and what are the cross-selling opportunities that exist?

Rajesh Sharma

So, if you have seen even in the most difficult time during last year also, when only second half was functional, even the last months, March 15 days is impacted by the COVID, we have grown almost about 20% and we believe that second half of the year, hoping that normalcy will be back, we will add few more branches, and with that we should be able to achieve a growth despite assuming that first quarter is completely gone almost.

We should be able to grow 25% to 30% hoping that nine months remain stable, and business may bounce back and there is no much impact of the COVID in lockdowns.

So, this is where, we can easily our current branch potential has to deliver that 25% plus growth, even though we don’t add much significant branches.

Yes, you asked the cross selling opportunity.

So far, our customer segment remain the same, whether MSME or home loans, and recently we have started new car loan origination to capitalize our understanding of these small customers.

We have tied up with nationalized banks and we are able to generate very good traction in that, and that should add some fee income in the year end.

Besides, we are evaluating few more product addition and I think next three months that strategy will be cleared, and when we

Moderator · Conference Operator

Thank you ma’am.

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

I repeat, participants, if you have any questions, please press * and 1 on your telephone keypad.

Next question comes from Rajagopal Ramanathan, an individual investor.

Please go ahead.

Rajagopal Ramanathan

Thank you for the opportunity.

I have a few questions, when I say few questions, probably four or five, you can jot them down and then respond accordingly.

The first one is what are your expectations from the various product offerings.

What (not clear).

Rajesh Sharma

I would suggest if you can be little loud because some background noise is also coming.

Rajagopal Ramanathan

Okay, is this better?

Rajesh Sharma

It is not better, but you can be little more louder, maybe that would be helpful.

Moderator · Conference Operator

Sorry to interrupt sir.

Mr. Rajagopal, this is moderator here.

Sir, can you speak little louder?

Can you come close to the speaker and speak?

Rajagopal Ramanathan

I am not using a speaker.

Moderator · Conference Operator

Yeah.

It is better now sir, you can proceed now.

Rajagopal Ramanathan

Okay.

What are the expectations of the three or four product segments that you offer, that’s the first question.

The second one is, I actually wanted to understand your Construction Finance business a little bit better.

You did explain certain aspects but typically what would your typical customer be like, the added tenor (not clear) with these customers, and what are the security structures, and what has been your NPA experience in this segment?

That is as far as the Construction Finance business is concerned.

The third question relates to the risk-weighted assets, which get applied on the various product segments.

If my understanding is right, the home finance would be 50% or sub 50%, so what is the RWA that is applied on your MSME loan segment and Construction Finance.

And couple of other questions, what is your aspirational ROA, ROE for…obviously these are conditions which are not steady state, but let’s say if I go to take an investment bet on you, what should be the ROAs, ROEs that I should be building in when I would be taking an equity exposure on a company like you, and lastly what are your value unlocking plans in your housing finance segment?

Rajesh Sharma

So, your first question, I am not able to hear clearly, but I will answer whatever I understood, and anything is left, you can ask again.

How do we run our Construction Finance and what is our experience.

So, Construction Finance, our approach is to lend to small developer and do Construction Finance also in a very retail way.

So, if you see our ticket size is less than 8 crores, find a developer who is having experience of delivering at least 300,000 sq. ft., operating in the geography more than five years, and most of the time these are family run businesses, small developers, family members are doing that business since last one or two decade, and they are building small, small project in one very specific geography.

So, for example, a developer operating in the outskirts of Pune, he is only in that surrounding area keep buying land, taking approval, launching projects.

So, and they are doing four storey to seven storey or ten storey buildings, but the apartment size is small, in terms of cost- wise, so they are sometimes Rs30 lakh to Rs75 lakh value of apartment, and land is fully funded, approval is in place, and they need money so that they can complete quickly their construction and get out of the project.

Now, these projects, being they are four- storey, seven-storey, or ten storey project, they don’t take normally more than 18 months to 36 months, maximum to complete.

So, our entire Construction Finance book if you have seen, always see at least 40% of prepayment than we give them the sanction.

And always generate lot of cash every year and give lower OPEX and better yield.

So far, our experience in Construction Finance is, except one or two cases, where ticket size was larger and then we modified and corrected our course that we will not give loan more than 25 crore to any developer and most of the time they are less than 15 crores, and by the time we disburse the last two, three, five crore rupees, because of his sale of apartment, we are able to get back three, four, five crore rupees out of the escrow cash flow sharing mechanism, and his loan peak exposure never cross eight, nine crore rupees, despite sanction of Rs15 crore, so that is done in a very focused manner by our experienced team, and we have very strong monitoring and risk management.

Every project is monitored closely, the progress, the sale of unit, and we constantly push the

Moderator · Conference Operator

Sorry to interrupt sir.

Mr. Rajagopal?

Hello?

Mr. Rajagopal, we request you to join back the queue for further questions since we are unable to hear you.

Mr. Rajagopal?

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

Thank you sir.

That would be the last question for the day.

Now, I hand over the floor to Mr. Rajesh Sharma for closing comments.

Rajesh Sharma

Yes, thank you.

You would have noticed from the presentation that we remain very focused on the segment we operate in and the liquidity position, last year also we have done a lot of prepayment and negotiated a better interest rate, and from 10% plus consolidated cost of fund, we have brought it down to about 8-1/2%, and resultant is that while we have passed on this benefit to our customers also by lowering yield, still we have improved our overall spread by 50 plus basis points.

We believe that we understand this business very well.

There is a huge growth opportunity.

Our entire business is having collateral assets, so there is no much concern on these kind of times that which an unsecured portfolio might face.

We believe that there is a huge growth opportunity lies ahead.

We have added 400 employees in last quarter keeping in mind the potential, and we are able to grow about 20%.

I believe, in next year, despite first quarter looks like it will not be seeing much of business traction, rest nine months we should be able to come back to growth.

And we continue to grow our books for next three, four, five years, add few more products, and maintain our liquidity position very well.

So, with combination of this, we see that there will be constant improvement in our ROE, earnings, and remain a very predictable well- managed asset quality in place.

Thank you.

Thank you so much.

Moderator · Conference Operator

Thank you sir and thank you everyone.

Ladies and gentlemen, this concludes your 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 evening. ______________________________________________________________________

Note

1.

This document has been edited to improve readability.

2.

Blanks in this transcript represent inaudible or incomprehensible speech.