Capri Global Capital Ltd Q4 FY2022 Concall Summary

Key Takeaways

• Earnings bottomed, says management: Q4 FY22 net profit grew 54% YoY but management called the quarter a bottoming-out level for earnings, pointing to one-off credit costs and front-loaded expansion expenses that should reverse.
• Co-lending is the strategic centerpiece: The company activated co-lending for MSME (₹115 crore in Q4) and Affordable Housing (SBI tie-up), framing it as a game changer that could lift leverage to 25x and retain customers who would otherwise foreclose.
• Gold loan launch is a big, expensive bet: 20 branches open in June 2022, 100 targeted for H1 FY23, and a long-term goal of 1,500 branches with ₹8,000 crore AUM by 2028, but each branch takes 15–18 months to turn profitable, so near-term costs will drag.
• Asset quality is cleaning up: Stage-3 assets declined in absolute terms, GNPA fell to 2.40% consolidated, and collection efficiency neared pre-COVID levels, though elevated write-offs of ₹41.3 crore in FY22 included a one-off prudential cleanup.
• What to watch next quarter: Whether co-lending scales to the promised ₹100–150 crore quarterly run-rate, the pace of gold loan branch openings and their cost impact, and if spreads stabilize after the RBI rate resets flow through.

Co-Lending: The Pivot to Capital-Light Growth

• MSME co-lending activated: The mechanism went live and achieved ₹115 crore AUM in Q4 FY22, its first full quarter, despite still operating through manual processes because PSU banks follow a very strong system of technology and firewall.
• Affordable Housing co-lending launched: A tie-up with State Bank of India was signed in March 2022 and activated in Q1 FY23, extending the co-lending model to the housing finance book.
• Technology platform coming: A dedicated technology platform is expected to be built in the next three to four months, after which management expects co-lending to take off.
• Customer retention is the hidden prize: Every year 10–12% of the loan book forecloses as customers move to lower-rate banks or NBFCs, costing the company over ₹600 crore in lost customers last year. Under co-lending, those customers can be offered reduced rates (housing finance at about 6.8%, MSME at about 8.5%) and shifted to the co-lending book, retaining an estimated 60–70% of them for future cross-sell.
• Leverage economics transform: Management argues that co-lending changes the capital equation entirely because the ability to leverage will become almost 25 times, reducing the need for fresh capital and improving ROE once the model scales.

Rajesh Sharma: "Our ability to leverage will become almost 25 times and this can be a real game changer."

Gold Loan: The Ambitious, Costly New Vertical

• Launch timeline and targets: The company is gearing up to open 20 gold loan branches in June 2022, with 100 branches planned for H1 FY23 and a long-term target of 1,500 exclusive branches and ₹8,000 crore AUM by 2028. Top and middle-rank leadership has been onboarded; lower-level recruitment is on a fast track.
• Profitability lag is structural: Each gold loan branch takes 15 to 18 months to deliver profit, meaning the entire branch network opened in FY23 will remain in an initial setup and loss phase throughout the year, consuming capital and depressing near-term returns.
• Geographic strategy targets underserved markets: The South is already well covered by incumbents like Muthoot and Manappuram, but the North and West still have significant scope, and 80% of competitors' newer gold loan expansion is happening in those regions.
• Scale is the moat and the barrier: The business requires a deep branch network of 1,000-plus to become profitable, which management sees as a deterrent that limits new entrants. NBFCs lend at 15–20% versus banks at ~9%, serving a distinctly different customer segment that values access over cost.
• Cost burden is acknowledged: Gold loan is a very high operating cost business in the NBFC segment, and the company is betting that profit generated from car loan distribution, co-lending fees, and high AUM growth will absorb the setup costs of the gold loan expansion.

Rajesh Sharma: "It is a business which requires a particular size. Without that this business will not be able to be profitable. Hence any NBFC will either plan for a deep branch network - 1,000 plus or it will not turn out to be profitable and this could be one deterrent."

Asset Quality: Cleanup Executed, Optimism Ahead

• GNPA trajectory improved: Consolidated GNPA fell from 2.99% in Q2 to 2.40% in Q4 FY22. Housing finance GNPA dropped to 1.5%, while the NBFC book improved from 3.5% to 2.7%.
• Collection efficiency normalized: Collection efficiency is nearly at pre-COVID levels, with housing finance crossing 99%. MSME collection efficiency caught up strongly to touch 100%.
• Write-offs were elevated but explained: FY22 write-offs of ₹41.3 crore were the highest since FY16. About 25% was in Construction Finance and purely technical with full recovery expected; the remainder in retail had a sticky element and was prudently written off based on collection team feedback and track record. Management described this as a one-off cleanup, not to be repeated.
• Restructured book is manageable: The NBFC has about 3.3% of its book still under restructuring, with the moratorium period now over. Housing finance moratorium continues on a small ₹13.14 crore portfolio. Restructured book collection efficiency is about 80%, slightly lower than the normal pool, but all restructured loans are secured and SARFAESI action enables recovery within nine months if they become NPA.
• Forward view is confident: Management stated that no trend is emerging that would produce negative surprises, and expects delinquencies and GNPA levels to be lower going forward.

Spreads, Margins, and the Cost Jigsaw

• Spreads weakened in Q4 after a resilient year: Spreads and NIMs showed resilience and expansion through 9M FY22 but exhibited weakness in Q4 FY22 after adjusting for one-off effects. Rate increases were held back during the year, but after the RBI rate action, the company is resetting yields on all loans where resets are due or overdue across both Affordable Housing and MSME.
• Incremental yields already improving: Incremental yields in affordable housing loans were already better in Q4 FY22, and management expects spreads to stabilize and maintain in the 6.3% to 6.5% range, with the entire cost increase passed on to customers.
• Cost ratios are inflated by expansion: Cost ratios were pushed up by the strongest expansion since FY19, with headcount increasing 1.7x YoY and 32 branches added, some of which was front-loaded. The car loan distribution team (~400 employees, roughly one-sixth of headcount) generates fee-based AUM rather than on-balance-sheet spread-generating AUM, so including car loan AUM in the denominator deflates the Cost/Average AUM ratio by 50–60 bps.
• Cost-to-income guidance held at ~40%: Management reiterated that the cost-to-income ratio should be kept in the range of about 40%, and expressed confidence that course correction on earnings will eventually nudge cost ratios lower.

Rajesh Sharma: "Our customers are from low-income proof category - the smaller customers - they care more for the availability of funds than the cost of funds. So passing on 30 to 40 basis points to the customer will not be difficult."

Car Loan Distribution: The Capital-Light Fee Engine

• First full year delivered scale: The car loan distribution vertical originated ₹1,740 crore in new car loans in its first full year of operation, with performance progressively improving and peaking at ₹780 crore in Q4 FY22. It contributed ₹46.7 crore in gross fee income and turned profitable from Q3 FY22.
• FY23 target is ambitious: Management is confident of doing upwards of ₹3,000 crore in car loan origination in FY23, generating almost ₹75 crore in fee income. The business requires no capital, instead leveraging banking relationships and the branch network.
• Fee contribution still maturing: The fee contribution from car loan distribution has yet to achieve maturity and is expected to be a growth contributor going forward, helping offset the cost burden from gold loan branch expansion.

Housing Finance and MSME: The Core Portfolio

• Housing finance grew 51% in FY22: AUM growth was supported by 32 new branches, low-cost NHB funds (~4%), and strong demand. Management expects to continue 30%-plus growth next year, with margins improving due to low-cost NHB funds, sustained demand, and branch expansion.
• MSME remains the largest segment: MSME is currently ~50% of consolidated AUM and will continue to be the biggest contributor even as gold loans scale, though its share may come down to ~35% once gold loans are included.
• Foreclosure leakage is material: Every year about 10–12% of the loan book forecloses as customers move to lower-rate lenders, costing over ₹600 crore in lost customers last year. Co-lending is the planned fix, allowing the company to offer reduced rates and retain 60–70% of those customers.

Rajesh Sharma: "Those customers are our best or cream portfolio. With co-lending, we will be able to hold those customers with us rather than they leaving us and that will bring a big change in our foreclosure trend."

Guidance & Commitments

Key Metrics