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

Ladies and gentlemen, good day, and welcome to Capri Global Capital Limited Q1 FY25

We have our first question from the line of Satyaprakash Pandey from Haitong.

Capri Global Capital Limited Q1 FY25 Concall Transcript | Aug 6, 2024

Satyaprakash Pandey

I have 2 questions.

First is on your insurance business.

What was our net fee contribution from insurance business during the quarter?

And if you can explain a little more on the 11 tie-ups for insurance distribution we have done.

This is the first question.

And the second is we've been discussing our target to achieve mid-teen ROE in the midterm, driven by higher fee income and operating leverage.

Can you provide a clear timelines for when we might start seeing this improvement reflecting in our numbers?

Especially when do you anticipate reaching a sustainable 15% ROE?

Because it's been some time that you've been guiding for mid-teens ROE.

Yes, these are my 2 questions.

Rajesh Sharma

So as far as the insurance contribution is concerned, in quarter 1, we have achieved about INR 120 million insurance income and have tied-up with about 11 insurance companies.

There are different products for different kind of customers, for medical and for health insurance, for life, for accident cover.

So we have variety of the products.

Now coming to by when we will reach mid-teen ROE and how is ROE looking for this year?

So as compared to ROE, which was less than 8%, in 1QFY25 we are likely to report ROE, in the range of about 10.5% to 11% for FY25. And we believe that next year, ROE should improve further by another 2% to 2.5%.

And from there, once we achieve a scale of about INR 250,000 million plus, by then, I think we will be more or less in a steady state in terms of our branch expansion also on the incremental investment in the technology and data science capability, so we should be able to achieve about 15% ROE in FY27.

Moderator · Conference Operator

We have our next question from the line of Satyam Vadera from Profitmart Securities.

Satyam Vadera

I have a couple of questions.

Could you explain the impact on net interest margin during the quarter in the gold loan business following the RBI regulations?

Additionally, you mentioned that the gold loan segment has turned profitable.

Could you provide the insights on your expansion plans, given that you previously indicated the temporary pause before resuming branch operations?

And another question is car loan origination continue to be down for past couple of quarters.

What could be the reason behind the decline?

Rajesh Sharma

Net interest income has improved in Q1FY25 as compared to Q4FY24.

If we talk about our net interest income, it has come to INR 3,013 million.

If we talk about the Q4 FY24, it was INR 2,552 million.

So there is a significant increase, about 18% in this.

And if we compare to the year-on-year basis, it has increased from INR 2,373 million to about INR 3,013 million.

Interest income has been contributed largely from all the segments, but more from the gold loan side.

If we talk about gold loan profitability, gold Capri Global Capital Limited Q1 FY25 Concall Transcript | Aug 6, 2024 loan has become profitable because we have crossed INR 50 million AUM in all the branches.

And normally gold loans become breakeven above INR 45 million.

So all the gold loan branches of 750, have started contributing.

And compared to last year we were incurring the operating losses in the gold loan business because AUM was at lower side, and that is the journey that every branch generally achieve profitability only after 12 to 15 months depending on when they achieve their AUM of INR 50 million or so.

So gold loan this year will contribute significantly on the profitability side compared to the losses last year.

If we talk about the car loan.

Car loan, we have shifted the business from the Capri Global Capital Limited to the newly formed subsidiary.

The preceding quarter, because of the January, February, March is always high, and April, May, June is a little soft quarter always for all the financial services.

That is why our net fee income from Car loan in Q1 FY25, was INR246 million, as against INR 271 million in Q4 FY24.

Satyam Vadera

And sir, for branch expansion, any plans further for gold loan segment?

Rajesh Sharma

So gold loan segment, we might add about 50 branches in the coming year.

So that expansion will not be as aggressive as it was earlier because we already reached one threshold of 750 branches, so now large expanse will be gradual.

So about 50 branches or so we will add in the current financial year.

Moderator · Conference Operator

We have our next question from the line of Sohail Kanalil from ULJK Financial Services.

Sohail Kanalil

Congratulations on a good set of numbers.

I would like to ask; how much of the book is floating rate currently?

Rajesh Sharma

Your question is, you are asking the composition of assets on home loan side by floating and fixed rate of interest?

Sohail Kanalil

Yes, mostly because on gold loan interest rate would be fixed, right?

So besides that, whichever segments that we are in, how much of that would be in floating, I mean?

Rajesh Sharma

So gold loan, it is a rate of interest we pre-decide based on the scheme taken by the customer.

Construction finance, it is all 100% floating.

And home loan and MSME, we offer both the option to the customer.

Exact percentage, I think we will be able to tell you separately.

You can send a mail to IR, and they'll share the exact data.

Capri Global Capital Limited Q1 FY25 Concall Transcript | Aug 6, 2024

Sohail Kanalil

Got it.

And 1 more question I would like to ask.

So we have seen a huge rise in yield on advances.

Any light you would like to throw on that, sir?

Rajesh Sharma

So yield on advances, if you see Q4 FY24 yield on advances was 15.6%, which has gone to about 16.3% on a portfolio basis.

And this is because contribution from the gold loan AUM in the overall portfolio is increasing.

Gold loan yields are better than all the other products.

So that is the reason where the improvement in the overall yield on advances by about 70 basis have happened.

Sohail Kanalil

Got it, sir.

Got it.

I would like to ask 1 last question.

How do you see the loan book shaping up going ahead?

Is there any particular segment you see a bit more exponential growth or higher growth than others?

Or is there any other book that you would like to cut out or like to reduce a portion from your loan book?

Rajesh Sharma

So I think on the overall loan book, our key growth drivers will remain that retail products comprises of home loans, gold loan, MSME.

And this year, we added the micro LAP, the smaller loan of about less than INR 0.5 million against collateral in rural areas.

So these are the products which will give the contribution towards the growth.

And there has been no single product, which will contribute disproportionately higher than others.

So I think, our MSME is about 28%, 30% is gold loan and then 23% is housing.

So they will remain by and large in this proportion.

Moderator · Conference Operator

We have our next question from the line of Jai Daxini from IIFL Securities.

Jai Daxini

Yes, I want to ask 2 questions.

First would be, what will be your cost of borrowing or market borrowings that you borrowed in this quarter?

And the difference of debt versus your borrowings from banks?

And what will be your borrowings mix post 1, 2 years?

Rajesh Sharma

So, the recent capital market borrowing are in the range of about 9%.

And overall cost of borrowing is in the range of about 9.3% - 9.6%.

And borrowing mix, I think still, the majority of borrowing will continue to happen from the mix of bank and some borrowing we will do as refinancing from the larger institutions.

So NHB Refinance, SIDBI, NABARD and all these kind of refinance institutions.

Jai Daxini

Okay.

And what is the breakup of bank borrowings for MCLR linked and EBLR linked?

Rajesh Sharma

So, all the bank borrowings are MCLR linked Capri Global Capital Limited Q1 FY25 Concall Transcript | Aug 6, 2024

Jai Daxini

Got it.

And there is a significant decline in disbursement in MSME and HL loans.

So, what were the factors causing decline in disbursement growth?

Rajesh Sharma

Since we have gone live with new technology platform for origination called, loan origination system.

And because of that, it took some time to stabilize.

The first quarter also saw training our on-ground team to get familiarized with the system.

So I think that system, by and large, is stabilized now in the month of July.

So this month, this quarter onwards, we will see the growth coming back.

And by the October onwards, we'll see full- fledged benefit of the new technology also start coming in.

And so we will see the change happening because of technology, which was getting adopted on the ground, first quarter was a little softer.

Moderator · Conference Operator

We have our next question from the line of Aryan Oswal from Finterest Capital.

Aryan Oswal

So my first question is regarding the cost of funds.

Do you expect it to increase even further in the coming quarter?

And when do you see the trend reversing?

And also what are we doing so that our cost of funds doesn't cross a certain limit?

Rajesh Sharma

So I think cost of funds in this year should remain by and large in this range.

But I believe that cost of funds should not increase.

If at all it increases, it will not be more than 10 to 20 basis points, which we should be able to pass on to all the new disbursals, which are happening now.

So it should not have an impact on our expense.

Aryan Oswal

Okay.

And sir, a lot of bigger names from the NBFC space have turned their focus on granular retail loans.

So can you shed some light on the increasing competition in this space?

And how are we different from the competition?

Rajesh Sharma

So I think this space is quite competitive, not from now, even last 2, 3 years.

The only way is that, we keep focusing on giving a better turnaround time to our customer.

And the only way to help this is technology.

Our decision-making should happen based on the data science capabilities on various things.

So I think automated processes and data science- driven decision-making, these are the 2 aspects which we are confident that we'll have an edge over most of the competition and be able to have a faster processing, better decisioning and better outcome in terms of asset quality and all.

Moderator · Conference Operator

The next question is from the line of Dipesh Sancheti from Manya Finance.

Capri Global Capital Limited Q1 FY25 Concall Transcript | Aug 6, 2024

Dipesh Sancheti

Yes.

We have crossed the breakeven mark in our gold loan business.

Are you trying to expand in the Southern and Eastern parts of the country?

Or are we planning to deepen our presence in the existing markets?

Rajesh Sharma

Yes.

In gold loan, our expansion will continue to be in the North and West.

We do not intend to go in South because we believe that South is already hugely penetrated and already the competition is in much larger areas.

North and West still have a lot of scope.

And besides that, our entire current network of branches of home loan and MSME are in the Northern belt.

So even from the cost, branding and credit perspective, that is going to be helpful to us.

Dipesh Sancheti

Are we facing a lot of competition from the PSUs also?

Because in between, the government has mandated the PSUs to go aggressive on gold loan?

Rajesh Sharma

Competition in retail segment is always there.

I still believe that we have to focus on our service delivery and our origination and our customized product.

Competition will remain but within that competition, we have to focus on our offerings and continue to grow.

Dipesh Sancheti

Okay.

What is the impact of import duty on gold?

With the cut on import duty, the prices have declined.

What is the impact on our gold loan business due to this?

And do you expect the prices to decline further or start increasing as we enter the festive season?

Rajesh Sharma

So gold loan reduction on the import duty have resulted in the gold loan prices going softer.

And so on the existing portfolio, our LTV has gone up, so we have to see that our LTV come within the acceptable range.

And for that, we will reach out to our customers and inform them about this so that they can provide additional margin.

But having said that, how the gold loan prices will behave, we are not focusing on that.

This is an impact because of the custom duty reduction.

And that is in control because it is not more than 5%.

But going forward, the gold prices will behave based on various other factors, which we are not able to comment on.

Dipesh Sancheti

So how much more margin requirement is required with every 1% decrease in gold prices?

Rajesh Sharma

If the gold prices decrease by 1%, and our LTV is 75%, our LTV will increase by approx. 1%.

And to that extent, either the LTV should remain within the acceptable range, and we have to collect from the customer.

And given these are the customers in the range of average ticket size of about INR 90,000, so time to recovery is low.

Capri Global Capital Limited Q1 FY25 Concall Transcript | Aug 6, 2024

Dipesh Sancheti

Okay.

Just a last question from my side now.

With the new fundraising, which we have done, what would be the impact on our book value?

Rajesh Sharma

It's pre-mature to say because it depends on what quantum and what shape and when we would raise.

And it is just enabling provision, we are yet to take shareholder approval and also discuss various options.

And then we decide which option, which instrument and when will we be finally doing.

Dipesh Sancheti

Okay.

So just a follow-up on that.

So in case if you're going for preferential warrants or maybe preferential equity.

We, as retail investors, can also participate?

And whom do we have to contact if that is the case?

Rajesh Sharma

As I said, we have not yet decided what instrument and what time we raise funds.

So, when it happens, that will be, in any case, will be disclosed to the stock exchanges in time-to- time through various announcement.

But at this moment, we are not yet clear, and no further progress has been done till date.

We will decide after the shareholder's approval.

Dipesh Sancheti

I'm sure.

But if there is a participation from proprietary houses like us, then what is the point of contact of the company?

Rajesh Sharma

Whenever we crystallize this, everybody will be informed via stock exchange announcement and various other ways.

Dipesh Sancheti

Okay, sir.

I'll contact you regarding this again.

Moderator · Conference Operator

The next question is from the line of Ajit Kaushal from Royal Global University.

Ajit Kaushal

Yes.

I am late joining to this particular conference.

Can you let me know, my question is regarding the asset impairments and maximum impairments you are looking...

Rajesh Sharma

Yes, this actually, includes 2 parts: one is the ECL, which is a provisioning expected credit loss and the other one is write-off.

So there is around INR 280 million of write-off and rest is the provisions mainly.

Ajit Kaushal

Okay.

Yes.

Another part of my question is again, related to the asset impairment.

So most of the write-off on non-performing assets, it is coming from MSME or gold loan or housing?

From which sector...

Capri Global Capital Limited Q1 FY25 Concall Transcript | Aug 6, 2024

Rajesh Sharma

So it is more from the Construction Finance.

It's a technical write-off.

Ajit Kaushal

What is the meaning of technical write-off?

Rajesh Sharma

Technical write-off means recovery will continue.

It's not like that it's a completely write- off.

So technically, we have taken the impact for now but our efforts to recover will continue.

Ajit Kaushal

Okay.

So may I ask what you are expecting, to what percent you will be able to recover, if you can have any kind of estimate regarding that?

Rajesh Sharma

Almost 80%, 90% we'll be able to recover.

Ajit Kaushal

Okay.

Out of this INR 280 million?

Rajesh Sharma

Yes.

Ajit Kaushal

Yes.

What about the rest of the INR 180 million?

I think, if I'm right, I saw it is INR 464 million around the assets impairment.

Rajesh Sharma

Yes, that is provisions on the assets.

Ajit Kaushal

But the rest of the INR 180 million is provisions?

Rajesh Sharma

More or less, yes.

Yes, rest of the INR 180 million is provisions.

As a part of normal course of business, when the loan book grows, AUM grows, as an NBFC business, they will have to continue to make provisions also against that.

So that's a normal course of the business.

So that INR 180 million is a ECL provision and INR 280 million is one time technical write-off.

And it's a technical write-off.

So technically, what happens is we write it off and then we initiate the recovery process.

And based on our experience from the past, we should be able to recover 80% to 90%.

Capri Global Capital Limited Q1 FY25 Concall Transcript | Aug 6, 2024

Ajit Kaushal

Yes.

So last year also I saw that it was showing around INR 240 million of write-off in the 1QFY24.

Again, you have written off in the 1QFY25.

So whether it is being done strategically as far as provisioning of this technical assets impairment is concerned?

Rajesh Sharma

So in that INR 130 million was the write-off and the rest was the provision in ordinary course of business.

Moderator · Conference Operator

The next question is from the line of Marazbaan Dastur from Emkay Global.

Marazbaan Dastur

Yes.

Sir, I just have a couple of questions.

So could you help us understand this new micro LAP segment.

Like is it a part of the existing MSME business vertical?

Or is it different in some way?

Aside from the ticket size range given that the MSME segment also has a ticket size of around 1 million to 1.5 million?

Rajesh Sharma

So it is a completely different segment, different team, different branches.

So it is a different vertical.

MSME, currently, we have average ticket size of INR 1.9 million.

However, micro LAP will have average ticket size of INR 0.5 million, all the loans will be below INR 0.8 million.

And these are the loans at the yield in the range of about 22% as against the MSME yield in the range of 15.5%.

So this is to serve our customer segment in the rural areas and branches are also getting opened accordingly.

We intend to open about 70 branches in next 3 quarters.

And already 27 branches have gone live, and we will start seeing some portfolio, but initial few months are the phase where we will build up these branches.

Actually, we will see full benefit from these branches will start coming in next year.

Marazbaan Dastur

Okay.

And secondly, on your guidance of INR 300,000 million AUM over the next 3 years, could you help us understand better your plans in terms of scaling the business and what verticals would you see higher growth?

Rajesh Sharma

So Higher growth will, of course come from MSME, gold loan and housing and construction finance because micro LAP is a shorter tenure loan for a lower amount.

And last year, we closed at INR156,530 million and in this quarter we have already reached INR 174,579 million.

So we would be able to achieve INR 200,000 – INR 210,000 million in FY25, I think we are well within our target to reach INR 300,000 million by FY27.

Moderator · Conference Operator

As there are no further questions, I would now like to hand the conference over to the management for closing comments.

Over to you, sir.

Capri Global Capital Limited Q1 FY25 Concall Transcript | Aug 6, 2024

Hardik Doshi

Thank you, everyone, for your time today in attending the 1QFY25 Capri Global Financial results.

We look forward to continuing to engage with each one of you and speak again during Q2FY25 results.

Moderator · Conference Operator

Thank you.

On behalf of Go India Advisors, that concludes this conference.

Thank you for joining us, and you may now disconnect your lines.