Capri Global Capital Limited analyst Q&A

Thank you very much. We will now begin the question and answer session. The first question is from the line of Hitesh Jain from Avagrah Capital.

My first question is on the Gold Loan business. At a branch level, how much business does a branch need to do to break even? And currently, how many branches are at that break-even level? I mean, I'm assuming a lot of -- there are a lot of new branch es which may be at -- which maybe incurring losses. So how many branches are already at break-even level? That's my first question.

Currently we have about 747 Gold Loan dedicated branches, which only book the Gold Loan businesses. And curre ntly, at ₹30mn business per branch we start breaking even. So out of 747, give me a couple of minutes, I will tell you how many branches are at ₹30mn and above. There are some branches which have even crossed ₹50mn, so they are reasonably good, profitable. But exact number, give me a couple of minutes. Meanwhile we can take up another question and then come back to answering your question.

So -- I mean, what if a branch doesn't reach ₹30mn? Like how much time do you all hold on to it and then decide, okay, fine, let's shut this branch?

So normally, for a branch to reach ₹30mn depends on location to location. Every branch doesn't have the same formula. Some branches reach ₹30mn within 12 months. Some branches have taken even 15 months. And some of the branches are going to take 18 months to reach that.

Have you ever closed any branches?

No, we've not closed any branches.

Okay. And what is like the cross-selling opportunities at these branches, the Gold Loan branches?

We all know there is an increased awareness about insurance. Every Gold Loan branch has capability to sell the insurance policy to their -- our borrowers. Now the customers when they come in, sometimes ev en Gold Loan customers, it's very easy to explain them and convince them that they take insurance policy, which take care s of their mediclaim and hospital bill s. And that policy will cost maybe about ₹5,000 per year. But we explain to them, even next 10 y ears, they get admitted by for any reason, any of their family member, even wife, they will be able to afford good treatment. At the same time, it will turn out to be cheaper. So with that connection, we have started selling insurance policy already. And I think from April onwards, we should be able to generate about ₹300mn a year insurance policy premium income, out of which, a significant portion of the commission will accrue to us. So it is very easy. We are targeting cross -sell. Our technology is already being made in-house for that. And our corporate agency license is already active now. So you will start seeing the traction. I think in Q4, we should be able to report the specific number on the insurance income earned from each segment, be it Gold Loan, be it MSME, be it Home Loan or be it Construction Finance. This is going to be a very sizable income next year onwards.

Okay. Sir. Just continuing with this question on the insurance. In yo ur opening remarks, you mentioned that you will touch ROE of 15% with the help of insurance. Can you just elaborate more on that? How is that journey going to be?

So if you talk about ROE, let us go step by step. First of all, this year, our Gold Loan loss will be in the range of about ₹1,000mn. Next year, our Gold Loan vertical will start delivering profit. So, this entire ₹1,000mn loss will go away and we should turn into positive where we expect anything between ₹400mn to ₹500mn of profit contribution from the Gold Loan business next year. So that is ₹1,400mn to ₹1,500mn upside from the current financial. Now Car Loan distribution will continue to grow and that is also going to be a good amount of fee income. If you say the gross revenue from Car Loan business comes in the range of about 2.3% on the volume originated. But this year, the gross revenue will be in the range of about ₹2,300mn from the Car Loan vertical. And next year, this business again should grow 20%. Even after all the expenses and the fee, commission payment, we should be able to generate about ₹500mn of profit from the Car Loan distribution alone. Insurance side, by putting the people, team, and license now in place, we should be able to generate income of about ₹400mn to ₹500mn again from the car insurance business. So the cross -sell is going to give us a fee income support from our customer base. And next year, we expect our number of custo mers would be in the range of about 800,000.

But when can you achieve this 15%, which year? I mean, next year or...

15% ROE, we hope to achieve by around -- between FY26 and FY27.

Now I've got the data -- sorry, I've got the data of the Gold Loan branch. Out of 747, 313 branches ha ve already crossed ₹30mn, 113 branches were already more and are making -- already started contributing to P&L.

The next question is from the line of Rajat Roy from Investec.

I just wanted to sort of get an understanding on the growth in the Gold Loan business at about 250% YoY with regard to AUM. Could you please shed some light on, one, how this growth was achieved as well as forward guidance for what we could expect with reg ard to specifically Gold Loans as well as the other business segments?

If we talk about Gold Loan growth, this year we have added about 298 branches in Gold Loan alone. On back of that, we expect to close our Gold Loan AUM this year at about ₹30,000mn and next year we should achieve a Gold Loan AUM in the range of about ₹47bn to ₹50bn. So that is wh ere our growth will come to. You can say next year's Gold Loan business, again, will continue to grow in the range of about 50% to 60%. If we talk about our MSME business, it has grown about 24% and our Home Loan business has grown in the range of about 50%. Next year, if we talk about overall growth, we should -- we are confident to achieve a growth in the range of about 35%+.

The next question is from the line of Gaurav Sharma from HSBC.

So a couple of questions, Sir. A couple of NBFCs mentioned in their results that they are slowing down their co -lending disbursement in housing finance as they received some directions or formulas from NHB to maintain certain threshold of home loans in their own book. So, they are slowing down their co -lending disbursement. Just wanted to know whether you have also received such directions from NHB to slow down co -lending disbursement. That is question number one. And second, Sir on the margin outlook, you have seen a 40bps compression in margins. So where do you see that further going in FY25? And what will be the key drivers for sustainable margins?

So, we have not got any direction to slow down co -lending or otherwise in home loan disbursal s. On the contrary, now NHB is holding the meeting of all CEOs and key management every six months and asking them if they are facing any difficulty or how they can improve the business, expansion etc. So I can clearly see, it is a thrust of the government, it is the thrust of the regulator that how the first home buyer can be serviced by making the credit easily available. And in affordable housing another plus point is that smaller houses are getting built by developers because the people have started getting the loan. So we see this segment will continue to grow for the next few years. And while we are growing at a 50% pace . I don't think even next year we will be slowing down this segment. So this is one part. What was the other question? Other part of your question?

Sir, on the margin outlook, so how can you protect margin s going forward? And what will be the key drivers?

So there are two ways to protect the margin. There are three things we will do rather. One is that we have currently got from the six banks co -lending lines. So co-lending line, efficiently, what they do is that 20% money we have to put, 80% they do. We have got about ₹30bn plus of co -lending line. This will give us an ability to service even those customers we otherwise would have said no because there's low interest rate. So it will help us to control the balance transfer to the competition. Plus, it will give us an additional layer of the customer we would have said no. And third, the Gold Loan contribution in the overall yield will continue to grow. Gold Loan realized yield in the range of about -- targeted yield for the next year in the range of about 18%. So overall, our spread will continue to improve. Fourth, our fee distribution from the Car Loan business and the insurance business will be additional support to improve overall our margins.

The next question is from the line of Satyaprakash Pandey from Haitong.

Could you please provide further details regarding our plan for insurance business? Specifically, what policies are we intending to launch? And what is the current progress regarding the establishment of team and infrast ructure to finish it?

So we are not going to start an insurance company. We are just partnering with the existing life, non -life, and health insurance companies to distribute their products among our customers and earn the commission out of cross selling insurance policies.

Okay. And i f I may ask one more question , just wanted to understand your distribution and network reach in Car Loan business. Capri's presence across locations is actually constant at around 715 since last few quarters. Any specific reason for not widening the presence? Additionally, I would like to understand how our new subsidiary, Capri Loans Ca r Platform will integrate into our existing Car Loan distribution business.

So this Car Loan distribution business, while we have about 700 -plus locations where our employees are present, we have a dealership network about 1,800 locations. And with pride, I can say that right from Jammu to Kanyakumari, we have a network either of dealership or ou r employees on the ground. So there is no place left where if there is car loan business is happening and bank branches are there, we are not there. So we have already deeply penetrated in this. And that is the reason you can see that among the non -car de aler segment, we are the number one. And by far, margin, we are number one in that segment. This year, we're close to ₹100bn distribution. And next year, we are putting all efforts to grow that business by another 20%.

The next question is from the line of Darshil Pandya from Fintree Capital.

Sir, I just wanted to understand how will the cost of funds evolve in the light of restrictions on bank lending? And what is the expected lag between the increase in the cost and the pass-through to the customers?

So you've seen recently, RBI has also issued the circular where the risk weightage based on the rating s have been increased and that the bigger increase has happened for the AAA companies and AA companies because flatl y the risk weightages have been doubled. As far as we're concerned, our risk weightage has been increased only by 5 bps. However, the cost of fund s has become costlier as compared to six months ago. As far as the new lending is concerned, we are able to pass on that increase. Our existing portfolio, about 45% of the customer we are able to pass on. The rest we have to absorb. So whereby you could have seen there's a little compression in the spread. B ut since Gold Loan business is going to increase in overall proportion, our spread will improve in the next year. But a lot of efficiency is coming from our existing branches. And our technology initiative, where about 100 -plus people in our technology team, along with outside vendors, we are putting up our loan originating system, which will be launched in the April. That will bring a lot of efficiency in PAT and thereby improve the productivity. So next year, a lot of things are happening where our Gold Loan branches are going to turn positive. Since we are not going to do more expansion in the Gold Loans, investmen t losses will stop happening . Plus, with the expansion of and scale up of insurance distribution business, we'll see a lot of positives in the FY25.

The next question is from the line of Kunaal N from Emkay Global.

Sir, my question is your MSME contribution as a percentage of your total AUM has come down to close to 35.7% from 44.5% a year ago. So are there any intentions to further reduce this contribution? And what are the strategies the company has in place for MSME business segment? And additionally, are there any plans to expand SME lending into new geographical areas?

So since we launched the Gold Loan, new product in Gold Loan is increasing also, but overall AUM and percentage of the overall AUM and also contributio n will come down. However, our MSME business, as you have seen, has also grown about 24%. We are evaluating utiliz ing our existing branch network to launch the micro-LAP, which means secure lending in the segment where ticket size is less than ₹7.5 lakh. Once we decide which branches and how to launch, then we will set up the team. But that is in active consideration. So that is where the expansion will happen. As far as the new geography in MSME is concerned, at the moment, we are not thinking. Next quarter, which is the Q1 FY25, we will draw a plan, but that is only under consideration - we still have not chosen yet. However, overall, MSME is going to be a key contributor because there the tenure of loan is 15 years and that is a loan with even longer horizon of income. The rundown doesn't happen the way rundown happen s in Gold Loan. The balance tenure of customer in MSME is five years. So I think that will continue to show a decent growth.

Got it. Just one more question. So after adjusting for the Gold Loan vertical, the cost-to-income ratio remains slightly elevated at over 50%. What do you anticipate this -- like when do you anticipate this to modera te? And what would be like a sustainable level in the near future?

Okay. And by when are you expecting this to happen in the near future?

We expect that next year because of the various initiative plus technology, I think it should come down in the next year itself. We will see the traction in the first quarter FY25 itself.

Okay, Sir. And this 45% would be a sustainable level, right?

I think we are hoping that once the technology Phase 1 comes, then another Phase 2 will come in another six months' time. And then we clearly see our productivity level improving from the same manpower. So I don't want to give you a number, but we are working towards to bring it down in the range of 40%.

The next question is from the line of Tanishq Makwana from Elara.

Sir, I would like to know what is the rejection rate for this quarter in our loans compared to FY23 and what would be our credit top-up for the same?

Can you please repeat? We are not able to hear clearly.

So what will be rejection ratio for the quarter as compared to FY23? And how are you evolving in the filtering process, how are we -- like what is basically -- on what basis are we accepting the consumer, rejecting it? And also what will the loan top-up amount to these existing customers?

So you are asking about which segment?

Sir, all. Like a blended on a whole level basically. You can give us segment -wise as well, that would be very helpful.

If you talk about our MSME and the Ho me Loan, log-in to disbursement ratio is in the range of about 30%. Log -in to sanction ratio in the range of 40%, but disbursement ratio is 30%. And in Gold Loan, there is no log -in and disbursement because on the spot, we decide whether to do it or not do it. Whether the customer is accepting or whether we are rejecting the customer. So that happens on the spot itself. So there is no log-in and all that ratio.

No, no, Sir, I wanted to know the conversion ratio. I guess if 100 consumers are there, like what is your rejection ratio? Not log -in, rejections, Sir? Like how many do you reject and how many do accept on the basis of what are your like -- do you accept a CIBIL of 700 or 750, around the lines of that?

If we are saying 30%, then 70% -- our 60% you can say rejection ratio because 40% you'd sanction, 60% you'd reject it.

Does that answer your question? Mr. Tanishq Makwana, do you have any further questions?

Yes, I would like to -- yes, I have on e more question. So where do you anticipate your ROA and ROE for -- ROA for basically FY25, FY26?

Members of the management, if you are speaking at the moment, you are not audible.

Yes. So next year, ROA -- ROA, we should be having in the range of 2.75% to 3%, and ROE should be in the range of about 11.5% to 12%.

The next question is from the line of Jai Daxini from IIFL Securities.

Yes. What would be our incremental cost of fund for the quarter? And second would be, is the PCR increase on an overall level or led by housing and gold segment?

So PCR increased at overall level, which is about 30%...

34%.

34% overall. And our cost of funds is overall about 9.3% fo r CGCL, about 8.3% for the housing finance company.

On the incremental level, right?

If you talk about the incremental cost of funds, incremental cost of fund is about 9% for the housing finance and about 9.8% for CGCL.

The next question is from the line of Kunaal N from Emkay Global.

Sir, I just wanted to understand who are your key co -lending partners for gold loan, mortgages and SMEs?

Okay, Sir. And Sir, RBI has recently shown some uneasiness in digital lending and they have also shown some concerns in co -lending space. Do you see any regulatory action on this front?

So I don't think on co-lending side, RBI ha s any concern because they are -- the RBI and banks are more keen to increase its volume for the purpose of making customers' cost of funds going down. That is their sole objective. So we are seeing more and more line s coming to us from the co -lending partners. As compared to last year, I think we have at least 5x to 6x more co - lending sanctioned by this year. So we think co -lending is going to be very acceptable and growing future between the banks and NBFC partnerships.

We have no further questions, ladies and gentlemen. I would now like to hand the conference over to the management for closing comments. Over to you, Sir.

Yes. So thank you. If you have seen, all of you would have noticed that as an organization and the management, we have shown our ability to build the new businesses. In last three years, we have started Gold Loan, we have built the Car Loan distribution platform. Now we have launched this insurance platform based on the technology. So we have shown as an organization successfully doing that . In Gold Loan business, we have activated 747 branches in a short span of time, . Now we are thinking about the micro -LAP, which is the s ame kind of a customer for a smaller ticket size to leverage our branch network. Going forward, cross -sell utilizing our existing customer base to reduce the cost income ratio and to improvement in margins will be the focus. And we hope with the technology focus which has increased our cost -to-income ratio significantly, because we are spending a lot of money on the technology side, will come down in the next year. The effort of technology will be seen in the next year. So we are quite excited th at FY25 hold s lot of hopes and a lot of good things, which will translate into better income and earnings. With that, I conclude my speech and address. Thank you so much.

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