Capri Global Capital Limited analyst Q&A

Thank you. We will now begin the question-and-answer session. The first question is from the line of Ishank Gupta from Choice Institutional Equities.

Sir, my first question is regarding our AUM mix -- gold loan AUM mix has already reached 46%. As of last quarter, we were targeting around 45% gold loan mix. So what would be our target for the gold loan mix?

Yes. Thank you. So gold loan mix looks like the way we are operating and opening more branches. Gold loan mix can reach to about 50%.

Got it.. And as of last quarter, you mentioned that you were going to -- go to RBI to seek permission to open new gold loan branches. But in RBI and February policy have done away with the requirement to take the permission. So what is the target for new branch addition, gold loan branch addition over the next 2 years?

So next 2 years, we would like to add about 700 to 800 branches, including gold loan. Majority will be the gold loan branches. And now as you rightly said, we don't require any permission. So that will make us plan in a manner that we will be able to open those branches in a very time-frame manner. This year, we should be able to add about 350 branches in gold loan alone, and all these branches should be operational within this financial year.

Got it. Our yields on gold loan have again dropped sequentially by 90 bps. Last quarter, we were targeting 18% gold loan yield. So what would be the sustainable yield for the gold loan segment and overall blended yield?

So if you look at th e growth, it has happened largely because we followed a high co - lending in Gold Loan book. And in that, we have decided that to capture the market and also to open the new markets, we lowered the yield, but we are able to do down sell through the co-lending route. So meeting those banks criteria and some of the customers whom we would not otherwise lend, we have decided to lend as part of the co-lending scheme. And overall, it is accretive to our overall profitability and contribution per branch. While the yield s have gone down, that is compensated by much higher volume growth.

Sir, but the co -lending AUM in the gold loan segment has reduced sequentially from 39 - odd percent to 31%. So going forward for -- specifically for gold loan, what would be the target in terms of co-lending?

So I think as a company between the DA and co-lending, it will remain in the range of 20% which is the target.

That is overall 20% to 25%?

Yes. 20%, not 25%. 20% of overall AUM will remain in the co-lending and DA across mix of all MSME, gold and housing loan products.

Understood. And my last question was regarding the cost of funds. So last quarter, we said that we will be targeting a reduction of 20 to 25 basis over the next year. But in the quarter itself, we have witnessed a reduction of 18 to 20 bps. So is there a possibility of further reduction? And if yes, how much over the course of next 2 years?

So overall basis, cost of funds have come down because we also changed the mix of borrowings by including the debentures and commercial paper. And I think this year, looking at the interest rate hike that might happen post-elections and other things, I think we should be able to do about 10 to 20 bps reduction. This year, we are not expecting much cost of borrowing going down. But even though we reduce 20 b ps, that will be very good from our perspective.

So exit of around 9% to 9.1% for the year?

9.1% is -- conservatively, you can consider 9%.

And for '28, any further reduction?

'28, I think it will also as we expect at some point of time credit rating upgrade to happen. And that will be in addition to this rate reduction. If the credit rating happens in the next 6 to 9 months, which we expect to, in that case, the further cost of fund will go down by another 20 bps .

So sustainable basis, our credit costs will remain by and large, in the range of 0.7%. This quarter increase has happened because we have taken that management overlay as guided by the Board, and we are very conservative that way. So we've taken about INR16 crores additional management overlay due to macroeconomic environment. And barring that, if you look at our asset quality, it has been best in the quarter and the year. So -- and almost majority of the provisions have also come because of the new loan book. So, there is no slippage.

The next question is from the line of Siddesh from PL Capital.

So sir, just wanted to understand on the car loan front. So what is the strategy to monetize? And what are the plans for starting other products in that entity?

So currently, car loan is a completely distribution business model. We are currently distributing the leads generated by our team with about 12 -plus institutions and partner banks. And in the times to come, we'll add more product s like used car s, credit card s, personal loans and mortgages over the period of next 3 to 4 years. This year, we'll be adding used cars. And the advantage will be the same supervisory team and team of 1,800 people will be able to drive the same business. So , that cost allocation will happen on the higher revenue. And next year, we will be able to see that about INR20 crores of profit is able to deliver by the car loan entity alone. And idea is and target is that over the next 4 to 5 years, this INR20 crores has to become one significant amount of INR60 crores, INR70 crores income, which will be coming purely from the fee income. So , in that direction, this year, we're adding another product from used car loans distribution through our partner banks.

Understood. And how do you see AUM mix changing at the company level?

So as of now, AUM mix is about 46% gold. I think gold will become about close to 50% and rest of the 3 segments of MSME, housing finance, construction finance will range between 16% to 18% each.

Okay. And so -- lastly, can you help me with your AUM, ROA and ROE targets for FY '27 in terms of guidance?

So as I said in my opening remarks also, our guidance for the FY '27, our aim will be to achieve an ROA about 4% and ROE not less than 16%.

Am I audible? Just wanted to understand the strategy apart from gold loan on the other 3 verticals, MSME, HFC and construction finance, how aggressive are we planning to grow these other 3 verticals? And what can be the growth expectations? I agree that 16% to 18% is the tentative mix, but just wanted to understand as to how aggressively will these 3 grow over the next 2 years?

So individually, I think the segments will also grow; MSME will grow in the range of about 20% to 25%, construction finance will also grow in the range of about 25% to 30% and housing will also grow at 25% to 30%. So overall, if you look at our business mix is designed in a manner to grow in tandem with the overall growth. Gold has done wonderfully well because gold price increase also helped in the faster growth. So we assume that price remain ing stable, we should be able to grow all the segments together. Gold can still rise more because there are a lot of branch addition s underway. But all other segments will grow in the range of about 25% to 30%.

The next question is from the line of Suhani Singh from Seja Capital.

I wanted to understand how do you see origination growth trending in the car loan segment?

So car loan, if you see, we have seen about 18% growth. We expect our car loan origination will continue to grow in the range of 12% to 15% year -on-year. And next year, our more focus will be improving the margins rather than the volume growth alone. FY '26, we originated about INR11,910 crores and which was up by 13% year-on-year.

Okay. Okay. Also, with pressure on fee margins despite higher growth volumes, where do you see margins stabilizing and profitability settling?

You are asking about the car loan or overall?

Sir, overall.

So overall, we clearly see there are 2 things. One is the operating scale is kicking in. So that efficiency is coming in ; wherein the cost/income ratio is declining and our overall efficiency is improving because of the technology part as well. And on similar lines, the gold loan branches, the old branches which are growing, which are already delivering high profit s with break-even point being achieved long back and with more growth in volume per branch, expect more profitability improvement in the gold loan segment as well. So currently our AuM per branch is about INR17 crores, and we break-even at about INR5 crores. I think per branch AUM basis, we are among the top 3 players in the country. And that speaks for our profitability of the branch. So , I think gold loan business will start delivering higher profitability ahead. This is the scenario for the gold per branch AUM in the coming year. And as far as the MSME and home loan s are concerned, home loan s have achieved a base of about INR7,500. So operating scale will kick in there a s well and margin s will significantly improve in the coming year. MSME has already stabilized and MSME margin will remain stable on the similar pattern what was in the current year.

The next question is from the line of Prince Choudhary from PINC Wealth.

Sir, can you share more light on what are the changes of RBI for the new guidelines of co- lending? And how this will impact our growth for a couple of quarters?

So per RBI guideline, the co -lending norms come with more clarity. Second, on the moratorium loan, they have advised that interest accrued should be included in the LTV. And third, the income assessment of the customer s above loan of INR250,000 should be mandatory. So, these are being implemented across our co-lending partners but technology integration will take some time. So , we expect the company to resume the full business volume with the co-lending partners in the quarter of July to September. By June, I think most of the players will go live. A couple of players have already gone live and the rest of the partners will go live by the next quarter. So, I think the full volume we'll be able to see from the September quarter.

The next question is from the line of Saumya from Nirvana Capital.

I just have a couple of questions. Starting with what is the strategic rationale behind entering capital markets? And how do you see this contributing to fee income?

Yes. So on the fixed income side, since we are NBFC, we always maintain a high liquidity in our treasury. And some of those treasury holdings remain in the negative carry most of the time because we put the money in the debt mutual fund, where negative carry is sometimes even 2% and 2.5% to 3%. Against that, we have decided to start this vertical where some part of the book will be maintained as part of the treasury operations by buying the bond and down selling them and also helping some of the issuers to raise the bond from the bond market b y managing their public issues. So, it will contribute to the fee income as well as also to reducing our negative carry in our treasury income. So, it is incidental to what we are doing today. And I think next year, you will see the same once we get this category -- license under application . And we have been told that by end of June, we can have that. We will see some income flows. But our income target , net fee income target is in the range of about INR40 crores to INR50 crores at gross level. At net level, it will be in the range of about INR20 crores to INR25 crores.

Okay, sir. Got it. And secondly, what is the current scale of revenue contribution from fixed income and bond-related activity?

So, bond-related activity, the contribution is that highly likely it reduces the negative carry first. So, if we earmark about INR600 crores to INR800 crores book re tain, we expect to reduce almost 3% negative carry on this portfolio. So, it helps contributing indirectly about INR25 crores of income to the bottom line.

The next question is from the line of Kushal, an Individual Investor.

Since, we are expanding a lot of branches. Currently, we have 1,400 branches and those old branches are going to become efficient in next year. And our target is to open around 700 branches in next two years. What is the PAT guidance we are giving for FY '27?

So we have given the PAT guidance for next year or FY '27 at about INR1,300 crores.

The next question is from the line of Ameya Khandekar from HDFC ERGO.

My question is if you can give like the LTVs on the book for the gold loans. So , we have the disbursal LTV, but if you can provide the LTVs on the gold loans which are on the book currently?

So, portfolio level LTV is about 66%. And on the new disbursement, LTV is about 70%.

Okay, understood. And on the overall AUM guidance, so I think previous quarter, you had said we would be doing around INR55,000 crores of AUM by FY '28. So is there any update on that number? Because I think what we have said as a target for FY '26, we have surpassed that. So, is there any upward guidance on the AUM front? And also in the overall -- so you have mentioned individually MSME would grow between 20% to 25% and construction finance and housing would grow between 25% to 30%. So in this kind of a mix, how do you see the gold loans also growing because we are adding branches. So how do you see that also growing if you can give that number?

Yes. So overall growth, we are targeting conservatively 25%. And we are giving a guidance of INR46,000 crores by end of FY '27 and about INR57,000 crores by FY '28. So we revised FY '28 guidance by about INR2,000 crores. And as gold loan is concerned, you have rightly said that, , we are adding more branches. So gold loan proportion in overall AUM will grow. Gold loan will grow in the range of about 25% to 30%. So overall growth may remain in 25% to 30% range, but conservatively, we are saying 25%. And gold within that segment will grow a little higher because we are adding more branches as well.

The next question is from the line of Kashvi Dedhia from Centra Insights.

Sir, since the cost of borrowings are declining, how much scope remains further for expansion in spreads?

So cost of borrowing s further decline d. I said earlier also that by the year -end, we are targeting about 20 basis points. And another 20 basis points can also be achieved further from the rating upgrade from the 12 months from the time the rating upgrade happens. So I think we expect some positive news on that over next 6 months. However, it depends on various other factors, and it doesn't remain in our complete control. But we hope that all the environment and macro environment remain positive. We can expect and aim for that.

Okay. And do we see any impact of recent macro situations on MSME book?

So far, we have not seen any deterioration in our collection efficiency or asset quality. So we have not seen any signs till now .

Okay. And also the decline in capital adequacy appears mainly driven by subsidiary investments. So how do we think about this? Like how -- what will be the capital allocation going forward?

So going forward, we will increase the DA /co-lending that will conserve some part of capital. And at some point of time, if required, we will raise Tier 2 capital also to shore up the capital base. So in a nutshell, about 18 to 24 months, our aim is to effectively utilize all the DA and co -lending and also raise Tier 2 capital. So capital requirement is taken care off.

The next question is from the line of Pehel Sharma from PG Capital.

I just want you to put some light on the strategic intent, like what is the objective behind the proposed international bond issuance?

So international bond issuance is with the purpose to diversify our resources of borrowings. And it will give us one more avenue to borrow the money, and it can be done every year. We being into lending business always require the debt capital and which is one of the major raw materials. So I think it is just opening that avenue, and we have got the international ratings done. But we are a little cost conscious in terms of our cost of funds. And currently, because of the macroeconomic environment and West Asia crisis, the hedging cost has substantially gone up. So we are waiting that to settle down and hoping that happens in the next 2 to 3 to 4 months, whenever it happens, we intend to access the market depending upon the underlying situation.

Great, great. In addition with that question, I have one more question that what are the key drivers like behind the improvement in GNPA and NNPA during the quarter?

So key driver to NPA improvement is, of course, collection efficiency because a lot of emphasis is put not only on the technology, but also on the ground by right hiring, right push, right training program, right AI -enabled videos on various fronts and at customer engagement levels. So that all put together has helped all verticals to improve collection efficiency. And hence, our GNPA, net NPA numbers are on the lower side .

The next question is from the line of Kalmesh, an Individual Investor.

So my question is currently, we are at 70% loan -to-value ratio. So what if the gold prices crash by 10% to 15%? And how would you manage that?

So I think you have very relevant question in terms of current volatility. So gold loan prices will not fall in one single day. So assuming that gold loan prices fall 4% and customer LTVs decrease to that extent, either we request the customer to pay additional money to bring back his loan -to-value within the norm of 75% or he has to give additional gold to pledge to bring the LTV back in the norm. And failing which we give him a notice that within 14 days, if he don't take back those pledged goods, margin goods, we have right to auction the gold and recover money. So, whenever it happens our team on ground does collection calling and is able to recover the money. For example, if on INR l lakh , 2% gold rate falls, we need to recover INR 4000 and a jewellery worth INR 5500 and the mix of those we are able to do so easily in most of the cases. And in case the customer doesn’t fulfil this requirement, we have the right to auction the jewellery and recover the money. So we hope the gold will not fall 10%, 15% in single day.

Yes, sir, yes. I just asked a hypothetical question, thank you, sir.

The next question is from the line of Vignesh Iyer from Sequent Investment.

Just one question from my side. So, I wanted to understand what is the kind of growth that we can see on the insurance income side and fee income side as a whole in FY '27?

I think insurance distribution is purely in line with our AUM growth target. So insurance income should also grow in tandem at about 25% to 30%.

And overall, the fee income, I mean, on the noninterest income...

Car loan income will grow about 12% to 15%. Insurance income will grow in the line with our AUM growth of 25% to 30%. And co -lending income, I would say that it will remain more or less same as the last year because co -lending now at least for one quarter will be tad on the lower side. So there may not be any growth in the co -lending income, but that will be compensated by the DA. So more or less, it will remain the same.

Ladies and gentlemen, we take this as a last question. I now hand the conference over to Mr. Rajesh Sharma for closing comments. Rajesh sir, please go ahead.

I thank you for participating in the earnings call today. Should you have any questions, you can reach out to us or to our IR Advisors, and we shall be happy to answer your queries. I reiterate we are on track to achieve an AUM of INR55,000 crores by FY '28 with return on average equity of 16% to 18% and return on average assets of 4% to 4.5%. Thank you once again, and have a happy week ahead. Thank you.

Thank you. On behalf of MUFG, that concludes this conference. Thank you for joining us. You may now disconnect your lines.