Capri Global Capital Limited analyst Q&A

The first question is from the line of Aman Baheti from InCred Capital.

So my first question is, with our ongoing investments in distribution, how should we think of the benchmarks like AUM per branch, per employee that signal our transition from build out to operating leverage in Gold and Micro LAP businesses?

Yes. Thank you. So as far as the AUM per branch is concerned, Gold Loan as we have narrated in our call also that it has already crossed INR14.1 crores per branch AUM. And we expect this Gold Loan AUM continued to grow in line with our -- there are many branches which are still less than INR10 crores, while the AUM is 14, where some of the branches are about 25, some of the branches are below 10. So, there exists a good scope that these branches will continue to deliver a 30% plus growth. Plus, we intend to add more branches. So currently, if you talk about 910 branches, there are about 20% branches are more than INR20 crores per branch. Between INR5 crores to INR 20 crores per branch, almost there are about 67% branches. And there are some newly opened branches we opened in the last 2 quarters, less than INR5 crores. So those branches will continue to grow, plus we also intend to add the new branches. So, the existing branches will also continue to grow with the addition of the opening of the new branches. So, per branch AUM, we can expect we are at INR 14.1 crs and these existing branches will continue to grow for 30%, and then there will be addition of the new branches. If we talk about Micro LAP, which we are opening about 151 branches currently, the AUM is about INR650 crores, which is average about roughly -- about close to INR5 crore plus. These branches will deliver AUM about, say, INR10 crores by the next year. And we intend to achieve INR3,000 crores of AUM in about another 2.5 years from now. So that is the trajectory we are following.

So, second question is in line with our portfolio mix. So, as we are seeing a shift from traditional lending towards Gold loans and Co-lending. So -- but our NIMs have remained largely unchanged. I mean, so what's our outlook there on Gold Loan yields?

Gold Loan yields are currently in the range of about 17.8%. And overall -- if we talk about the overall yield of the company, it is about 16.4% at the portfolio level. With the increase slightly in the Gold Loan portfolio, the overall yield and spread will improve plus Micro LAP segment is also increasing, where the yield is also -- is going to be supportive. We expect the Gold Loan to remain in the range of about 18%. Likely, there will be improvement about 20–25 basis going forward by various retail loan -- Gold Loan focus, we are bringing it now increasing the branches. So there, we should see some improvement in our yield plus certain other measures we are taking. So overall, Gold yield is likely to be 18% and our overall yield of the company, which is 16.4% should improve slightly. It should improve by 20 to 25 basis in next year.

The next question is from the line of Sohail Kanalil from ULJK Financial Services.

Very good -- congratulations for the good performance in this quarter. I had a couple of questions to ask. So basically, we have seen Co-lending has been scaling faster from 20% to 22.5% in Q3. And how do we -- how do you see this shape up going ahead? Do we -- is this going to keep increasing further on?

I think Co-lending will remain largely in the current range of between 22% to 23%. We do not intend to grow it further from this level. And we are able to maintain, this is a very good level to have it. It's very, very highly ROE accretive. And there is a focus of regulators as well as the banks to partner in the Co-lending so that it is a collaboration between the low-cost fund and the low-cost collection efficiency of NBFC and low-cost fund of the banks. But we intend to maintain this level.

Got it, sir. And one more question I had regarding -- so how these gold loan prices have -- I mean, the gold prices itself has gone up significantly in the last few quarters. And right now it has peaked. So, if we see further downside in gold prices, what kind of scenarios have you embedded for your loss and provisioning have you done for that?

Yes. So, I think it's a very good question in the recent times of the volatility of the gold loan. But as a company, we follow the very conservative practice in terms of the way we decide the LTV. In the rising trend of the gold, we reduced our LTV. So during the January, whatever we disbursed, our loan disbursement was happening at the LTV about 64% against the 75% permitted. And the portfolio level, our LTV is 60% overall. So it means we have a portfolio level 40% margin in the current trend. So second thing is that the moment we also have a system that early warning triggers we are able to send to the customers through SMS and WhatsApp messages in case anybody's LTV breaches. And at individual level where the loan amount is anything between INR 50,000 to INR 2 lakh, if the gold prices have fallen and the margin call trigger, we send the message. And we manage the dynamic collateral monitoring where we monitor the portfolio and individual loan account system-wise and take the prompt corrective action. Borrowers are required to restore the margin within 14 days of intimation, limiting prolonged exposure during period of price correction. And then we retain the right through our agreement to initiate auction of gold, including prior to loan maturity if collateral coverage becomes inadequate or borrower risk increases materially. So there are various safeguards inbuilt. If you talk about currently, as I said, in the January month, our all disbursements where we are taking the -- we have disbursed the loan where the AUM was only 64%. So 36% of the margin we have maintained during the time when the gold was going up one way. Between December and January, we were maintaining our fresh disbursement LTV not 75%, but between 65% to 70%. So there also, we have taken a conservative approach. Also the gold loan lending happening on the 30-day -- last 30 days average price. Accordingly, rate per gram is decided. So basis all these frameworks, we are at quite comfortable position where the LTV just 60% at a portfolio level.

I think the book has been very well managed.

The next question is from the line of Varun Dubey from Share India Securities.

First of all, sir, congratulations on your superb set of numbers. I mean the company has shown really good growth. If you can just throw some light on what was the reason for decline in the overall net interest margin to 9.1%. And also the company has said that the overall spread would reach to 7.2% going forward. So I mean, does the company stay with the same guidance for spreads we have said?

I think what is the relevant indicator to track is the spread and the spread has not come down. The spread has improved from 6.9% to 7%. So there's an improvement in the spread and our margin. As regards net interest margin is concerned, the more you leverage, net interest will fall. So I think right indicative spreads where we are showing an improvement of 10 basis from 6.9% to 7%.

Okay, sir, but you have guided for 7.2%, I remember in the second quarter. So do you stay with the guidance of 7.2%? I mean will we see more 20 basis point improvement in spread in the fourth quarter?

Yes, there will be improvement in the fourth quarter in the spread further. On the back of our AUM of the Gold Loans rising, some support will come from the scale benefit and also from the cost of fund is going down. So already, we reduced about 24 basis cost of fund now in the last quarter, some of the loan will get further reset and the mix of borrowing of the short-term commercial paper and other measures, our overall spread will continue to improve. And I think we've given a guidance of 7.2%, which we hope to deliver that.

Okay, one last question I just wanted to understand on your Gold Loan branches because I remember you're saying 995 branches was a target for FY '26. I mean what would be the addition for Gold Loan branches in FY '27? I think so there was a separate RBI approval that the company needed for additional branches. So what's the update on that, sir?

So I think the branches which we will add in the last quarter of the Gold Loan, we'll let them stabilize and achieve at least 6 months' time. We'll approach the RBI at appropriate time and RBI give their approval and decision within 45 days. So in the second half of FY '27, we'll announce the expansion of our Gold Loan branches based on what time we approach and subject to our approval and program. And accordingly, we'll announce at the right time how many branches we'll be adding in the second half.

Once again congratulations on the superb set of numbers.

The next question is from the line of Ishank Gupta from Choice Institutional Equities.

So my first question was for Gold Loan segment that we have already observed a sharp decline in yields. So what was the primary reason? Was it because of higher competition? Or -- and I couldn't hear properly, so could you reiterate what is the expansion we are seeing in the yields of Gold Loan?

As far as expansion is concerned, by current quarter, we will be ending up 999 branches of the Gold Loan. And last quarter, you have seen we have added about 68 branches in gold alone. As far as the yield is concerned, the decline in the yield in Q3 FY '26 compared to Q2 FY '26 is directly linked to our strategy of expanding the retail loan book with a particular focus on the smaller ticket size loan in rural markets. This shift has been effective in driving customer acquisition and enhancing market reach, but it naturally result in lower average ticket size and a slight compression of the yield. Furthermore, the rural market has seen improved cash flow availability due to the harvesting cycle, allowing customers to make timely repayment, access rebate schemes and remain within the lowest ROI brackets. However, next quarter, we expect the yield to improve by 20 basis or so.

And any further expansion in '27 and '28?

'27, '28, we will go to our regulator for the approval. And second half, we'll announce our phase of expansion in the Gold Loan branches. First half, we will try to make our existing branches which opened in last 3, 4 months to make them grow and achieve the breakeven. And thereafter, we'll go for the next expansion round.

And sir, what about the expansion in other branches other than Gold Loan? What do you pencil in for FY '27 and '28 other than Gold Loan?

So in the MSME, Micro LAP and Home Loan, we are continuously adding. So next year, we can assume that between 100 and 125 branches across Micro LAP, MSME and Home Loan, we will add.

Understood. So sir, taking further on the point of MSME sector, the government has continued its stance of supporting the MSME sector. So based on that, can we assume our exposure towards MSME should also improve? So what would be the AUM mix within next 1 to 2 years?

So you have seen this quarter also, overall, we have shown the 19% growth in the MSME segment. So if you talk about the composition of AUM, currently, Gold is about 42%, and which will improve to about 45%–46%. As regards MSME and Construction Finance and Housing is concerned, they will largely remain in the range of about 18% to 20% each one.

Understood. Understood. And sir, we have already reached our exposure to 40%. So we are currently penciling 45% is our exposure towards Gold Loan. So currently, the gold prices have already witnessed high volatility in January. So do you see a good growth based on it if the prices do fall further or has volatile in Feb and March?

So even though some price correction, which we've already seen happening, but on ground, there is still the larger market of the gold loan is still exist in the informal segment with the small money lender and the small jewellery shop who also do the lending activity. That market is continuing to shift to the organized sector because of the fair practice and the better interest rate. I believe that still a lot of market, which is going to shift from the informal to formal. And we'll see decent growth in the Gold Loan segment in the coming years.

The next question is from the line of Prit Nagersheth from Wealth Finvisor.

Sir, my question is that given that the borrowings announced in the budget is going to be more and this will increase the -- this will result in higher yields for government finances. Do you see an increase on cost of funds for the company because of that for FY '27?

So I put it this way that across the level if the cost goes up, then by all the lenders, that is actually get passed on to the borrower. But any cost reduction happens because of a better credit rating or otherwise, that benefit accrue to us. So in case the cost goes up, we'll be able to pass on because that will happen for every lender. And that cost will -- of course, will get passed on to customers. So that will not change our spread. However, any cost reduction which we achieve because of our mix of borrowing by using the short-term instrument like commercial paper or short-term NCD or by improvement in credit rating, these 2 factors, that benefit will directly accrue to the P&L.

So what happens in the case where banks who are competing with gold loans in companies like Capri Global, for them, their cost of funds do not increase as much as they will be for an NBFC, so because of heightened competition, could this result in the yields on gold loans coming down?

So in any case, banks are lending at less than 10%. And the gold loan NBFC are lending anything between 15% to 18% rate. So already that difference is there. So -- but the customer segment of the bank and NBFC will be entirely different. Second thing, focus of the gold loan NBFC is purely only on the gold loan customer where the banks do many other products also. So attention to the customer, customer serving to the small borrower borrowing INR30,000, INR40,000, INR50,000 for a 6-month loan where banks margin may not be even INR500. The service and attention of the NBFC is going to be the key differentiating area. It is not that the banks are not lending today at low rate. So that 25 basis here is not, even the today difference is more than 500 basis points. But still all the gold loan NBFCs are continuing to grow. So I think that is not the factor of rate of interest, what rate banks are lending, what rate we are lending they are entirely 2 different segment of customers.

Got you. The other question I had was regarding the gold LTV. So you explained right now regarding the prior participant. The question I wanted to ask was that till what price of gold are we comfortable, after which if it falls, we would have to start -- as you explained, you would have to start calling customers and managing that. So what kind of price fall would you still be okay with?

So you have to understand it is like this, that a customer whom we have given a INR1 lakh, say INR1 lakh against the gold of INR1 lakh, we have given a INR75,000 of loan. That is a regulatory limit. But our portfolio currently sitting at INR60,000. It means that our portfolio is already at INR60,000. Assuming that somebody we have given the loan in the month of January when the gold loan prices have gone up 10%, again then followed more than 10%. That time, we were having margin on loan-to-value around 25%, but now we are following a loan-to-value of only 65%. So 35% margin we were taking. Even though gold loan prices fall 10%, still that -- till then, it will remain within 75% range. The moment LTV breaches, where the LTV exceeds 75% because of the reduction of the gold loan value, suppose some customers, LTV has begun 78% or 79% on a particular day, 4% breach in a INR75,000 loan, which means that INR3,000 we have to recover from him. From the system, auto message will be sent to the customer that your LTV has been breached by this in this amount within 14 days if you don't restore the margin, we have the right to auction the gold plus it will also invite the penal charges and this and that. Customer is being called by the branch and SMS is already sent to him and recovery is done. So customer -- so it is not that in 1 day, 25% correction will happen and we are out of the money. Correction will happen gradually and there is a automatic system-based alert and calls are triggered, and recovery is made from the customer. Individual customer, we have to INR3,000, INR4,000, INR5,000 only to make up that margin. In the worst scenario, we will end up in selling the gold and realizing our money. Our ticket size being so granular and the risk is so diversified, this does not pose a real risk in terms of recovery, gold being so liquid and gold is the only asset class where customer part with the possession, it remains in our custody. So there is no process of taking the posession, something like that in property. Here, gold is in our possession, we can sell and realize dues. So there's no real risk against as such.

Got you. Got you. The other question I wanted to understand is that what kind of growth momentum do you foresee for quarter 4 and also for the next financial year, if you can give some guidelines?

So I think we have said that this year, we will continue to deliver a growth AUM to be in the range of about INR33,000 crores to INR34,000 crores, and we are on that track. Already, we achieved INR30,400 crores this 9 months period. And we will continue to grow. Next year, we have revised our guidance to deliver anything between about INR43,000 crores to INR44,000 crores. Earlier, we said that we'll achieve INR50,000 crores AUM by FY '28. Now that guidance we revised to reach to INR55,000 crores by FY '28.

So alongside this growth, do you have any targets for your ROAs and ROEs. What you would think...

I think we are -- we have already delivered in this quarter, 4% ROA, and we continue to maintain that. Our aim will be to deliver ROE in the range of about 16% plus and ROA anything between 4% to 4.25%.

The next question is from the line of Mr. Bansal from NBG Investments.

My question is on this Gold Loan ratio, while answering the earlier participant questions, you said that you have a margin of around 35% to 40%. But I see your presentation where you said that your loan-to-value ratio is around 72%, which means that you have the margin of around 28% to 30%. So can you help me understand what is these 2 things?

So what I think you have seen the Slide number 8 is referring the incremental disbursal. So incremental disbursements all 3 months, if you have seen Q3 FY '26 showing is 72%. Now 72%, thereby, it would mean that on the day when we disburse, suppose we disburse in the month of November and gold prices have gone up, thereby it would mean that my LTV will keep coming down. So in the current trend where the gold was going up, our LTV started falling. We are able to clarify you?

Yes, yes, yes. Understood. Understood.

The next question is from the line of Vikrant Pankaj Shah from Choice Institutional Equities.

We have adequate capital, as I explained, currently, it's about in the range of about 30%. We have adequate capital to support our growth for next 2 years. So till FY '28, the AUM, whatever we intend to reach of INR55,000 crores. Within that, as I said, 23% is off-balance sheet item, which is the co-lending. For that, there is no capital allocation required. So keeping that in mind, we are -- we currently only have about 2.8x leverage. We are quite comfortable to achieve our target AUM for FY '28 with the current capital.

The next question is from the line of Vikramaditya Gajbar from Ventura Securities.

My question is, given higher competition in secured MSME and LAP, are new loans coming at similar economics as before? If pricing is getting tighter, how are you compensating through underwriting discipline or risk controls?

So I think the biggest lever we are focusing, as you said, we are using technology platform across the way we onboard the customer, the way we process our loan, the way we do underwriting and later, how do we do collection of the loan. The entire focus is how do we improve our productivity by continuously improving. And these technological led initiative platform and AI -- agentic AI tools are making a sea change. If we can say that our -- while number of branches have gone up significantly, AUM have been doubled, our manpower have -- headcount have increased only by a marginal 19% of that. So our focus is going to become how we become operationally very, very efficient by using all these tech and data science tools. So our focus is going to remain that same amount of disbursement we do with the less number of people with the less operating cost and our model has become very, very robust. And that is driving our ROA and ROE. If you see quarter-on-quarter, the improvement have been seen despite we continue to remain in growth phase, while we continue to add on the branches, the new capital has been added and still we are able to deliver the ROA of 4% and ROE about 15% as a result of the focus on productivity, efficiency using the technology and data science tools.

The next question is from the line of Sagar Shah from Spark Capital.

Congratulations, sir, for such excellent set of numbers. Majority of my questions are answered actually. I just had one question. We had -- we have been affirmed by CRISIL, the rating of A1+. And our cost -- average cost of borrowings, stands at 9.5%. And the lowering of cost of borrowings is one of the major things for us behind our ROA accretion. So you guided around a few quarters before that our cost of borrowings is expected to come down once the rating gets upgraded. So any -- something like talks with the rating companies so that it's a big driver for us regarding our return ratio, sir?

So I would like to say that cost of funds have already been reduced by 24 basis on the back of a strong performance. The internal rating model, which banks follow, this is that they have reduced the rate of interest in risk spread. Further, we are diversifying the borrowing by mixing the short-term loans, which are available. It is shorter tenure, but at lower cost like commercial paper and short-term NCD. So 24 basis is already achieved. And we expect on the back of good performance, credit rating should happen. Now not that credit rating agency tell that in advance, it will happen. But we believe it is a focus on continuous effort and better performance will yield to the rating upgrade. Whenever it happens, that they decide and they let everyone know in the public domain also. But without that also, by mix of borrowing and other measures, we see that continuously we will bring our cost of funds further down. Whenever the credit rating happens, maybe after annual result or when, everybody will let you know. But there's a sharp focus on reducing the cost of fund by another 24–25 basis so that whatever 50 basis we expected that we bring it down in the next 3 to 6 months' time.

Okay. So basically, due to the RBI rate cuts and follow-through from the banking system, you are estimating around 25 to 50 bps, another one. But if the rating gets upgraded to more AA+ or anything like that, then what is the minimum expectation that the company has of lowering the cost of borrowings because that will be in line with the top A NBFCs, that is right, and that will be a big trigger for companies like Capri Global sir?

As we said, 24 basis is already achieved. Another 24, 25 basis, we intend to achieve in the next 3 to 6 months without accounting any rating upgrade. Whenever the rating upgrade happens, it is a gradual process that a lot of other avenues open up. And then banks also take the measure. And then another, it takes 6 to 9 months to actually effect to come in the P&L because the rating reset of the existing borrowing happened at the reset date. New borrowing immediately start happening at the lower rate. So it is a process which happened by -- in a gradual manner, not that the moment rating upgrade happen, the entire borrowing cost comes down. But, yes, in 6 to 9 months, the effect can be seen. So again, 24 basis is already achieved, another 20 to 25 basis we'll achieve another between 3 to 6 months' time. And whenever the rating upgrade happens, that will happen, the cost advantage will accrue between 6 to 9 months from there on.

Again, congratulations for excellent set of numbers.

The next question is from the line of Ninad Jadhav from LKP Securities.

Sir, my question is on Micro LAP. So you mentioned you are targeting a portfolio of INR3,000 crores in next 2 to 3 years. So if you could share some color on customer demographics like what is the yield you're targeting and the average ticket size of the portfolio? And also what are the driving factors you are seeing that you would be able to achieve this target in next 2 or 3 years?

Micro LAP average ticket size is about INR5 lakhs. It is collateralized by security. The yield is in the range of about 23% to 24%. And currently, AUM is about INR650 crores from the 151 branches. In next 3 years' time from now, we intend to have a loan book of about INR3,000 crores.

Any ground situation you're seeing, how is the customer behavior or how is the repayment ability? So the factors that would help in achieving your...

Currently, our collection efficiency in the range of a micro level is 99%, which is very, very good. And we -- not like other Micro LAP, we are using here technology and other tools to see that we are able to -- at the time of sourcing the customer, bad customers are rejected there itself. So GNPA at Micro LAP, GNPA at the end of third quarter is about 0.9%, which is very, very good. Our P&L account for -- even the NPA -- GNPA happen in this range because we are making the yield about 23%, 24%, even 2%, 2.5% is reasonable. But since it's a new portfolio, and we are continuing to focus on our technological tool, I think the way we are sourcing customer, way we are underwriting the customer, we are going to create the new benchmark in the industry in the Micro LAP.

The next question is from the line of Mokshang Sanghvi from BSC Advisors.

So, I guess, majority of my questions have been answered. My specific query was on the resignation of the CEO. So the person was appointed and resigned within a period of less than 4 months. And I just -- and there were some rumors in the market as well. I just -- if the management could provide a little more clarification than the sentence that was provided in the press release that he is pursuing the personal entrepreneurial journey, it would be a little more better for us?

Yes. Thank you. So yes, Mr. Monu who was based through and throughout from Delhi, he was earlier in IIFL. We hired him. And within a -- before actually he gets settled down, I think rather than coming to Bombay and shifting his base here, he thought and reconsidered his decision in terms of that at this juncture of his 52 age, he would like to pursue some entrepreneurial opportunity. And he changed his mind, and he has gone back to Delhi, and he's told us that he's going to start something entrepreneurial in fin-tech space. Having said that, not that he has built some businesses and involved. He just recently came And within a short span of time, less than a quarter, he made up his mind. So neither he brought any certain number of team members along with him. So there's an impact of team coming, team going. And I don't think it has much impact. There's an adequate number of professionals in team in each vertical, be it MSME, be it Gold, Micro LAP, Housing Finance, Car Loan. There's a separate risk head, there's a group CRO. So all that is in place, and it is not going to have any adverse impact as such.

Understood. My specific issue was on the front that if there's such a high-level KMP is entering the company and leaving in such a short span of time, it might have a signal that there are some type of underlying issues or something. But, I guess, your answer addresses my question.

Ladies and gentlemen, due to time constraint, that was the last question. I would now like to hand the conference over to the management for closing comments.

Yes. Thank you. To conclude, we all know that we delivered a strong performance in Q3 FY '26 with a healthy AUM growth across our key lending segments, supported by a diversified and predominantly secured portfolio. Profitability improved during the quarter, driven by changing mix to high-yield products, improving margins, strong growth in fee income and operating leverage from our existing branch network, while asset quality remained resilient. With a strong capital position and continued investment in technology and distribution, we are well positioned to scale efficiently and are confident of increasing our AUM target to INR55,000 crores by FY '28 and sustainable return on average equity of 16% to 18% and return on average asset in the range of about 4% to 4.25% by FY '28. Thank you.

On behalf of Go India Advisors, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.