Capri Global Capital Limited analyst Q&A

The first question comes from the line of Aman A. Baheti from InCred.

My first question comes in context of our branches. So our net addition for this quarter was 86 branches, which was quite sharp compared to the earlier quarters, and most of these are non - gold branches. So how should we look at the overall branch expansion strategy? Is the focus now shifting back towards MSME and housing verticals?

So this quarter, we added 86 branches. MSME added about 13, Micro LAP we added about 43, which is a newly introduced product 1 to 1.5 year ago. Gold loan, we added 21 branches. So focus is back to MSME, you can say that. But at the same time, in gold loan also, we are going to add more branches. By the end of the March 2026, we should have gold loan branches in the range of about 995. So there will be more branches that we'll be opening in the South. And Micro LAP, we will be adding more branches in the last quarter. So the expansion will continue to remain. Last quarter, we expected to add another 50 -plus branches and this expansion will continue. More branches we'll open in the gold, and some expansion in the Micro LAP too., so we’ll keep on adding branches.

Second question was about co -lending. So now our co -lending forms about 20% - 21% of the total AUM. So how are the unit economics working out in terms of the spread and the fee income? And do you see a meaningful improvement in ROE in this space?

Regardless the spread, co-lending remains the same. It is just a tool to use your treasury in a manner that you need not to provide any capital and credit line. The exposure by the bank sits in the books of the bank on the individual borrower rather than the NBFC, nor those limits count in our borrowing. At the same time, we get the entire spread. So there's a lower capital requirement. So while we get the spread on the entire 100%, capital is required only for 20%. So it is a very capital - efficient model without compromising any margins or the spread. And going forward, I think our co -lending still will remain in the range of about 20%. Last quarter, there's a change in the co-lending guidelines. And that will not impact as such, because all the banks will shift from CLM 1 to the one common CLM new guid eline. And we expect that all the banks will align, and we'll be able to maintain this. In longer term, we intend to keep this co-lending in the range of about 20%, plus/minus 2%, 3% here and there.

Sir, one last question. So you have started issuing NCDs and the share of market borrowings are going up. So over the next year or couple of years, what's your target mix between NCDs and bank loans? And what will be the blended cost of funds?

So cost of fund s currently is about 9.6. We expect that reduction in MCLR rate plus diversification and some mix of commercial paper in short -term borrowing should bring our cost of fund down by another 30 to 40 basis points gradually in next 2 to 3 quarters. And as regards to the mix is concerned, now the more borrowing will happen from the alternative sources. So that mix will go up. It can be public issuance of the bond. It could be borrowing from the various other sources like ECB, foreign currency loans as well as the borrowing from the mutual fund. So we believe that next year, which is by end of FY '27, you will see significant jump in share of finances from nonbank sources.

Our next question comes from the line of Karan Kamdar from Choice Institutional Equities.

Hello. Hope I'm audible? Congrats on a good set of numbers. Sir, the MSME provision has decreased. How do we see the stress in this segment going forward? Do we see that the stress has declined and is been on a declining trend? Or do we see something else happening here?

I'll ask Kishore to answer this, who is the CFO.

Yes. So I'll take this. So if you look at the quarter -on-quarter, then MSME NPA numbers have reduced from 4.3% to 3.1% on gross. And subsequently, the net NPA has also gone down. However, there is no significant change in the external environment as far as overall MSME book is concerned. This reduction is largely on account of the ARC sale, which we have done. So what we have done as a strategy, wherever we have lent, where the property value is below INR20 lakhs, where we do not get the benefits of SARFAESI, we have transferred those to an ARC, which is of the value, sir has earlier explained that it is INR79 crores. So that at ARC level SARFAESI is available for anything, any exposure above INR1 lakh, so that we can invoke SARFAESI and expedite our collection effort. So if we take that out, then we are almost flattish quarter-on-quarter as far as overall NPA in MSME book as well as credit cost.

If you look at our Construction finance book over the period of years, it has remained very stable. And as you understand that our construction finance book is also in a very retail way of doing very smaller ticket size, outstanding which is INR17 crores, sanctioned which is INR51 crores. So that reflects that risk is very granular. Markets are doing well. Housing market is very, very strong. So we don't see any risk emanating from that. Besides our underwriting standard is as such that we do only residential project, money is disbursed linked to the construction only after RERA approval in place. So considering all these parameters, we don't expect any slippage or surprises in that segment.

One last question, if I can squeeze in, about gold loans. So now that gold price has rocketed, like everyone knows, what kind of top-up loans are we seeing? What is the consumer behavior regarding this?

So top-up loan or repeat loan, they are the one and the same thing in the gold loan, because same customer keep repeating coming again and again, be it a top -up loan or be it is even after repayment with 100%, again he comes back or he comes back for the increased value of the top- up loan, 55% customers are repeat customers. And top-up loans keep happening, is a regular feature. So I think with the increase in the gold loan, that helps growing book better. And even though if you look at our loan -to-value, despite top-up, it still remains very, very conservative at the level of about less than 65%.

Our next question comes from the line of Sagar Shah from Spark PWM.

And first of all , congratulations to the entire team of Capri for delivering such numbers. Sir, I had some few questions. So my first question was related to the previous participant's question, actually, as we are growing very fast actually in gold as well as housing and now our focus, as you said, that we'll be shifting towards MSME. So what kind of mix are we targeting for next year between these 3 segments out of your total loan portfolio, sir?

So I think our gold will remain in the range of about 40%, plus/minus 2%, 3% here and there. And the rest of the segment of affordable housing, MSME, and construction finance will remain in the range of 20% to 22%.

So our current portfolio yield is in the range of 16.5%, and there could be a slightly improvement of 25 basis or so on account of gold loans and on account of Micro LAP. However, we are also improving our yield in affordable housing. So overall, you can expect that about 25 basis improvement in the yield of the advances will be there. Besides that, we also expect our cost of funds to go lower. So that also bring some benefit, which can be in the range of anything between 30 basis to 40 basis.

My next question was related to the gold loan AUM. We saw almost 58% growth actually in that segment. So I wanted to know how much was the tonnage growth actually that we have as collateral in our total AUM out of that?

So the growth under tonnage is about 16.4 tonnes, which is an increment of about 18% Y -o-Y and 3% quarter-on-quarter.

Okay. So 18%?

Our tonnage is around 16.4 tonnes as of second quarter FY '26, which implies an 18% growth Y-o-Y.

My next question was related to MSME. The MSME AUM growth is around 16%, but our live accounts under the MSME actually are up by 35%. So basically, what I wanted to know that are we incrementally, on the MSME side, are we increasing our average ticket size? Are we looking to tap actually higher turnover MSME clients? Is the change in mix is there? Is it there in MSME?

Can you repeat the question, please?

Yes. So MSME AUM growth is around 16%, but the number of live accounts which we envisage, they are actually down Y -o-Y but they are growing Q -o-Q, but a very marginal number. So what I wanted to know is that, are we incrementally, are we increasing our ticket size? Are we looking for higher ticket clients in MSME?

So while you're taking the growth, you are taking the growth of MSME, including Micro LAP. While you are taking the number of custome rs, you are taking only of MSME, s o that is why this disconnect is happening. On the contrary, Micro LAP ticket size is lower, the average ticket size is about INR5 lakhs. So overall Micro LAP is a subsegment of the MSME. And also, the total number of customers including Micro Lap is 45,505. It is not 31,100.

You would have to see MSME AUM and then MSME customer and Micro LAP and Micro LAP customer. But one hand, you are seeing the AuM number of MSME including Micro Lap. On other hand, you are seeing only customer of MSME without Micro LAP. So I think that is causing a disconnect. Total number of MSME customers, including Micro LAP are 45,505, and the growth within that is happening at about 16%.

Okay.

It is not 31,100 but 45,505 customer.

So my next question was related to housing yield. The housing yields actually even though we saw almost 100 bps of repo rate cuts, so still our housing yields haven't decreased. So is it safe to assume that you will be passing on some sort of benefits to our housing customers in the next 2 quarters, sir?

I think passing on the benefit is taken care of the open market competition. It is a ticket size granularity and a conscious decision, how do you play between salaried, non -salaried, self - employed and then we focus on the yield. Our focus is that our yield, which is currently 13.3%, we are targeting the yield has to improve to 13.7%. And for that, we are going a smaller ticket size, smaller locations, Tier 3, Tier 4, and focusing on improving the yield of the overall housing finance business.

So the housing yields won't decrease even in H2 FY '26, that you're saying basically?

Incremental yield have already started coming in the range of 13.5 %. Our target is to take it to about 13.7%.

My last question, sir, was related to our…

I'm so sorry, sir, to interrupt you. Mr. Shah, sorry to interrupt you. Please come back in the queue for the next question.

Sure, sure.

Our next question comes from the line of Varun Dubey from Share India Securities.

Congratulations on your strong set of numbers. Sir, just wanted to understand what's driving the overall net interest margin for the company, because the net interest margins have gone up by around 60 bps on a quarter -on-quarter basis. Your cost of borrowi ng is down by 10 bps and spread is up by around 20 bps. So what's actually driving the overall net interest margin? And with the 30 bps to 40 bps decline in cost of funds that you are expecting in the next 2 to 3 quarters, where will they stabilize?

I think the improvement in net interest margin is also supported by the capital infusion. So that has helped, and in addition, margins have expanded slightly due to a higher mix of gold loans and micro LAP.

Sir, but this 30 bps to 40 bps that you're expecting cost of funds to go down. So where will your margin stabilize going ahead, expecting a 30 bps to 40 bps decline in cost of fund? And also when you say 30 bps to 40 bps decline in cost of funds, are you f actoring the further rate cuts by RBI?

No, we don't expect the further rate cuts. What we are saying is because a lot of our interest rate loans are now happening at the lower rate, plus old loans are getting reset and those rates are happening on an annual basis. So whenever the annual reset date comes, they get aligned with the new MCLR and MCLR has already gone down between 15 to 30 basis. Plus new loans are happening at a slightly better pricing on account of capital infusion and better risk profile. So because of the 2 things, our cost of fund will come down. It will happen in a gradual manner in next 2 to 3 quarters, you will see that getting reflected in our cost of funds.

Sir, just one clarification I wanted. You said in the starting that you would be ending with 995 gold loan branches by end of FY '26. Is it 995 or 895, because currently you have 842 branches?

995.

So it's going to be addition of 150 more branches for next 2 quarters in gold loan?

Yes. South, we are entering. There could be some rollover in April, but we already have planned that. And I think the intention is to close March by 995 branches gold alone.

But then what would be the total branch addition? If 150 branches addition would be in gold loan alone, so what would be the total branch addition for next 2 quarters?

So we'll add about mix of Micro LAP, housing, and gold loan. It will be in the range of about 200 branches in the next 2 quarters.

Our next question comes from the line of Priyanshu Jain from GrowthX Infinity.

First of all, congratulations on a good set of numbers. The whole Capri team is like doing a phenomenal job over there. I have a few questions, my most of the questions have been answered already. So I just want to know like what will be your credit cost going forward, because like it's been in a range less than 1% as of today, so like?

So while credit costs have been lower than 1%, but on a safer side, while we have to project, we will say it will be in the range of about 80 bps to 90 bps.

Sorry, can you repeat?

While our credit costs have consistently remained below 80 to 90 basis points, we prefer to stay conservative in our projections. So, for our planning purposes, we have assumed credit costs in the range of 80 to 90 basis points.

And likely target for the upcoming year for ROA and ROE, like can we expect around?

So our ROA, we are targeting anything between 4.25% to 4.5% and ROE in the range of about 16%.

And sir, like my last question will be on the gold yield. So like as a customer, I just want to know like, who are those people who are paying like this 20% yield on gold loan? So how the process take place? Can you just throw some light on it?

Yes. So it's a very good question. So we have to understand what amount? Who is borrowing? And what purpose? So somebody is borrowing a INR1 lakh, let's say, for the sake of convenience, you assume 20%. So somebody is borrowing INR1 lakh for 20% for 6 months would mean that he has to end up paying INR10,000 of interest cost. Now he is using that money, for example, somebody is buying when the -- giving advance to farmer, buying some crop, getting at 20%, 30% discount or somebody putting the agriculture product in the cold storage, when you know the prices are lower at the time of crop and selling it later, earning a margin 30%, 40%. So these are the businesses, they look at, my cost will be INR10,000 for this loan, whereas in 6 month, he would generate INR40,000, INR50,000, INR60,000 of margin. For example, recently concluded Diwali, there are a lot of people on a seasonal business, they will buy firecracker in bulk, set up 2 to 3 stall in the town. And on a INR1 lakh inventory, they will make INR70,000, INR80,000. So by paying just INR10,000 interest even for 6 months. Most of the people borrow for 3 months to 4 months. So they do not calculate the rate of interest. It is the availability of money without going through a complex credit sanction requirement, within 30 minutes, that makes them avail this loan. So their business essentially runs on return on effort, rather than return on equity. So it is the absolute interest in such a low amount is very practical for them rather than just looking at the rate of interest.

Our next question comes from the line of Aditya Sen from RoboCapital.

Sir, my first question is about the spread. As of now the spread is of 6.9% in this quarter. And can you please let us know how will it shape going forward?

Can you speak a little loudly? We are not able to hear clearly.

Clear now?

Please carry on.

The spread as of now is 6.9%. Going forward, can you please let us know how will it shape?

So spread should become slightly better by reduction in cost of fund and operational efficiency, we expect the spread quarter -on-quarter should improve ultimately. We expect this spread should be in the range of about 7.2% or so.

7.2%. All right. That was my question. Rest have been answered.

Our next question comes from the line of Vikrant Pankaj Shah from Choice Institutional Equities.

Hello. Firstly, congratulations on good set of numbers. So where do you see the AUM number and PAT at the end of FY '26 and FY '27?

So AUM at the end of FY '26 should be in the range of about INR32,000 crores. Profit should be in the range of about INR850 crores. At the end of FY '27, AUM should be in the range of about INR42,000 crores and profit should be in the range of about INR1,200 crores.

And my second question is, as the company increases its focus on the MSME segment, so do you have any plan to further expand AUM mix for the segment in the future?

Next year plan is frozen. We will continue to remain in the segment we operate in. And as I said earlier, the overall mix will be 40% in gold loans and rest MSME, affordable housing, and construction finance will be in the range of 2 0%. There could be variance between 2% to 3% here and there in any of the segments.

Our next question comes from the line of Aakash Jha from AJ Wealth.

So just one question. I think in the last quarter, you had guided for 70 bps of credit cost. And now we have increased it to 80 bps, 90 bps, I think. So is this purely out of conservatism? Or are we seeing something on the ground that led to this revision?

No, no. I think when we have to give guidance, we should be a little bit more conservative. So we project that credit cost to be 90 basis. While historically, it has always been in the range of about 70 basis. But you always account for slightly increased credit cost when our Micro LAP portfolio is growing in proportion. So bei ng on a conservative side, when we project, we have say about 90 basis.

Our next question comes from the line of Devansh Chandan from FinDock.

My question is regarding the cost -to-income ratio. In this quarter, it increased from 46.9% to around 49% Q -o-Q. And as we know that we are going to add branches going ahead. So will there be any effect on cost-to-income ratio?

So first of all, the first quarter there is a INR15 crore one-off item. Last investor call also, we have disclosed that. And because of that, the cost -to-income was lower. Actually, if we adjust that amount of INR15 crores, it would have been in the range of 49%. So cost -to-income ratio more or less have remained the same. And as you know that despite putting up 86 branches, the cost-to-income ratio have been fairly in the same range. Looking at the expansion, it can be 1%, 2% here and there. But by and large, coming year, cost- to-income ratio will remain in the same way. We expect it to be maybe in the range of 47% to 50%. In the 2 years' time, we expect it to come down by another 4% to 5%.

Our next question comes from the line of Vansh Solanki from RSPN Ventures.

Yes. So my question is that as we have a very new book of Micro LAP and gold loan, so our credit cost is in a limit in 70 bps you have told, it is very natural. But if I see next 2 to 3 years, is there a chance that this will go to 1% or more even when our book gets old and Micro LAP also will increase. So there is a chance that our credit cost will also increase, right?

So I do not think that our credit cost will go up more than 1% ever. And if you talk about the gold loan, there is no higher credit cost. Credit cost is coming only from the mortgage business. Micro LAP, the way we are building it with the help of data analytics and technology, we expect it to do better than many other players in the segment. And so far, our all metrics of collection efficiency and others are giving that indication to us that Micro LAP will also behave in a very predictable fashion to us.

And the second question is that you just guided for financial '27, is it AUM INR42,000 crores, that's really possible, 30% Y-o-Y growth you have mentioned, right? So will this be achievable because now the growth is also slowing down? When I see the last year, we have a growth in March '25 of 46% Y-o-Y. As of September '25 we are standing at 40% growth. So annually the growth percentage is coming down, and our book is getting larger in size. So will the 30% be achievable in FY'27 or FY'28 or so?

Yes, we will be able to do that. We'll be able to do that, because we are doing branch expansion. And with that, it should be achievable.

And the last question from my side, sir, you have mentioned 55% is repeat customers in your cycle. So what is the trend in the past, like there was 70%, 80% and that has reduced to 55%, which is increasing in the number of repeating customers? Can you just give the past history?

So I was talking about gold loan. Gold loan, there was earlier 50%. Now it has gone to 55%. Same customers keep coming back. So at least the business 55% customers are repeating, and that is very healthy. I would say the gold loan customers keep borrowing, again, repaying. This is the way gold loan operates. And this is a good number to have, that our customers who will come experience us. keep coming back to us.

Our next question comes from the line of Manishankar Mandal from Alembic.

Hello. Most of the questions that I had has been already answered. So you can pass on to the next participant.

Our next question comes from the line of Shasank Shah, an individual investor. Since there is no response from Mr. Shah, we'll move forward to the next participant. Our next participant, the call from the line of Devansh Chandan from FinDock.

I have one follow-up question. Do you have any guidance regarding the PAT number in next 3 years to 4 years?

PAT number?

So we said, this year INR850 crores, next year INR1,200 crores.

And by FY '28, what number you are looking at?

PAT number for FY28, we are not projecting yet.

Our next question comes from the line of Gaurav Purohit from Systematix Group.

Congratulations on a great set of numbers. Just one question from my side, sir. You just mentioned that you are planning to grow the AUM to INR 32,000 crores this year and INR 42,000 crores next year. So are you essentially upping the growth guidance from a 30% CAGR to a 35% CAGR?

Yes, because the first half has gone very well, we are already up 40%. So basis these numbers, we have revised our guidance from earlier one to INR 32,000 crores.

Our next question comes from the line of Vansh Solanki from RSPN Ventures.

You just mentioning FY27 - INR1,200 crores of PAT on AUM of INR 42,000 crores. It's giving me approx. 2.8% ROA. So like we have just guided that it will be a 4.25% or 4.5% in financial '26. And we are guiding indirectly for FY27 of 2.8%, like very big mismatch as I see?

So I think you have to look at the number of return on average asset rather than return on average AUM, because you have included the co -lending data also in that. So if you look at the ROA, that you have , there is a 20% co -lending. So if you adjust those data, the ROA will be in the range of 4% plus.

So even I just assume there is the 20% book will be the co -lending and 80% of the AUM will be on-book AUM, then also it is coming around 3.5% only, like very far from 4.5% what we have guided for '26.

Can you explain about how you're calculating?

So like you just told that INR 42,000 crores AUM, then the 80% of that is INR 33,000 crores approx., will be my on-book AUM. And INR 1,200 crores from INR32,000 crores will be only 3.5%. That's why, is there any mismatch what I am calculating or what?

You have to do opening and closing balances average also. You cannot take only closing.

See, I think the guidance, which we just gave 4%, that is a return on average asset. So when you calculate, given the numerator is the P&L number, the beginning total asset is somewhere in the range of around INR 25,000 crores. So then if you do an average, you will get to a number of around 4%.

So I want to explain, if you would like this. So closing of FY26 and opening of FY27 year will be INR 32,000 crores, assume 20% in co-lending. So it will reduce INR 6,400 crores from that. So it will become about INR 25,600 crores. Then you have to take closing of FY27.

Yes, yes.

Average both of them. And then if you calculate ROA 4%, it's about INR1,200 crores.

So the same we can , we will be able to maintain for '27 and '28 also like, that I want a bigger picture in '28, will it be possible for 4% in long term also?

Yes, we are going to do business in a manner that we are able to deliver 4% ROA minimum.

Ladies and gentlemen, due to time constraint, that was the last question for today. I now hand the conference over to the management for the closing comments. Thank you, and over to you, sir.

So to conclude, Q2 marked another quarter of a strong broad -based performance driven by geographical expansion, improving margins, enhanced cost efficiencies, and ongoing technology-led transformation. We remain well positioned to achieve 30% plus annual growth, while delivering sustainable ROE of 16% to 18%, ROA of 4% to 4.5% over a period of time. Thank you for your continued trust, and we look forward to building on this momentum in the quarters ahead. Thank you.

Thank you, sir. On behalf of Capri Global Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.