Capri Global Capital Ltd Q3 FY2023 Concall Summary

Key Takeaways

• Gold loan build-out dominates the P&L: Net profit fell 42% YoY as the gold loan vertical absorbed an estimated ₹97.5 crore loss before tax in 9M FY23, while the branch network more than doubled to 449 in a single quarter.
• Core lending franchise is intact: Excluding gold loan direct costs, 9M net profit would have been ~32% higher YoY; NII grew 17.5% YoY and the Stage 3 ratio improved 66 bps to 2.36%.
• Fee income is now a structural earnings driver: Non-interest income reached 32.4% of net income, powered by car loan distribution fees (₹33.3 crore) and co-lending portfolio income (₹20 crore).
• The gold loan bet is a scale-and-endurance play: Management is building toward a ₹10,000 crore gold loan book over 4–5 years, absorbing branch-level operating losses for the first 15 months per branch, with breakeven at ₹3.5 crore AUM per branch.
• What to watch next quarter: Whether gold loan yields improve toward the 19% target as branches gain vintage, whether the cost-to-income ratio begins its promised descent from 70%, and the timeline for the ₹1,440 crore rights issue.

The Gold Loan Scale-Up: Economics and Pace

• Branch rollout accelerated sharply: Exclusive gold loan branches jumped from 182 to 449 in Q3 FY23, taking the total branch network to 609; the company built over ₹700 crore of gold loan AUM in less than six months.
• Pre-rollout hiring inflated opex: Average headcount per branch was 13 at the start of Q3 FY23, normalizing to 7 by quarter-end; this front-loading of staff before branches opened pushed employee costs higher in the quarter.
• Branch-level unit economics: Each branch costs ₹2.5–3 lakhs per month to run; breakeven is at ₹3.5 crore AUM, after which incremental AUM flows directly to PBT; management targets ₹3.5–4 crore per branch within 15 months of opening.
• Yield trajectory is the near-term margin lever: Target gold loan yield is ~19%; yields are expected to improve significantly in Q4 FY23 and Q1 FY24 as branches gain vintage and the retail, low-ticket customer mix increases.
• The market-size argument: Management points to a ₹3,50,000 crore gold loan market growing at 12%, arguing that even with rising competition, a ₹10,000 crore book in 4–5 years is achievable if the branch network and brand are built fast enough.

Rajesh Sharma: "So our belief in and analysis is, if you want to enter into gold loan, you have to have a wider branch network in a very small ticket size... So unless you have a size, you cannot make profit out of it. And you should be able to absorb the first 15 months operating losses every branch will throw."

Profitability: The Gold Loan Overlay

• The headline profit drop is a gold loan story: Q3 FY23 net profit declined 42% YoY, driven by the cost of the gold loan vertical; excluding those direct costs, Q3 and 9M net profit would have been higher by approximately 32% YoY.
• Cost-to-income ratio hit 70%: The ratio was pushed up by gold loan branch opex flowing through the P&L; excluding gold loan, the ratio would have been ~47% in 9M FY23; management expects stabilization below 50% roughly a year out.
• Opex intensity should soften from Q4: With a significant number of planned branches already rolled out in 9M FY23, the need for pre-rollout hiring has reduced, so incremental employee additions and opex intensity are expected to ease.
• Gold loan vertical loss quantified: Estimated loss before tax in the gold loan vertical was ₹97.5 crore in 9M FY23.

Core Lending Franchise: NII, Margins and Asset Quality

• NII growth was healthy, NIM under pressure: NII rose 17.5% YoY; adjusted for one-off recoveries of ₹13 crore in Q2 FY23, NII was up 15.1% QoQ; adjusted NIM improved 34 bps QoQ, but unadjusted NIM fell 41 bps QoQ due to lagged repricing of loans versus borrowings.
• Cost of borrowing rose across entities: NBFC cost of borrowing increased ~70 bps YoY to ~9%; the housing finance subsidiary saw cost of funds rise from ~7.25% to ~8%.
• Rate pass-through is largely complete: Rate hikes have been passed on to all floating-rate customers; only customers on three-year fixed-rate loans cannot be repriced, but management argues these do not create much bottomline pressure over a full cycle because they keep paying higher rates when the cycle turns down.
• Asset quality improved: Stage 3 ratio declined 66 bps YoY to 2.36%; provisions on Stage 3 assets were marginally better at 29.1%; annualized credit cost improved to 94 bps from 124 bps in 9M FY22.
• Credit cost detail: Net credit cost of ₹24.5 crore in Q3 FY23 included ₹18.8 crore of net write-offs; cumulative 9M FY23 credit cost was ₹53 crore, 50% of the full-year FY23 credit cost.
• Restructured assets watchpoint: Approximately ₹35 crore of restructured assets will exit moratorium in Q1 FY24; management expects cash recoveries from some slipped accounts in Q4 FY23.

Fee Income and Co-Lending: The Capital-Light Engine

• Non-interest income share hit 32.4%: Driven by car loan distribution net fee income of ₹33.3 crore and co-lending portfolio income of ₹20 crore; management is not targeting a specific mix but sees strong growth runway in both streams.
• Car loan distribution scaled rapidly: Loan originations grew 3.1x YoY and 24% QoQ; 9M FY23 originations at ₹3,997.5 crore were already over 2.3x FY22 full-year originations; presence now spans 322 locations across 29 states and UTs.
• Co-lending is framed as RoE-accretive: The model requires no capital allocation because the company originates, collects and earns a fee while the partner bank funds the loan and shares risk; co-lending done so far is in the range of about ₹450 crore.
• Gold loan co-lending partnerships in the pipeline: Management expects a few co-lending partnerships in gold loans next year; technology interface integration with banks is underway; co-lending is expected to change cost-to-income ratio dynamics in the company's favour and enable competing in lower-ticket gold loan segments.

Rajesh Sharma: "And this has an edge where we get a cheaper rate and the risk is shared. We originate, we collect, and we get a fee. So, while on the profitability side, it has no impact, but on the allocation of capital, these are not required. So it becomes very-very highly RoE accretive."

Portfolio Mix and Segment Dynamics

• Construction finance share softened as guided: Construction finance fell 200 bps QoQ to 19.4% of AUM, consistent with earlier commentary that momentum would be softer in H2 FY23.
• MSME disbursals showed some softness: Quarterly MSME disbursals were lower than the Q3–Q4 FY22 run-rate; management attributed this to combined MSME/home loan teams facing stiffness on MSME pricing and growth, shifting focus slightly toward housing, and called it momentary with absolute disbursals still increasing.
• Steady-state AUM mix (4–5 year view): Gold loan ~25%, MSME ~25%, home loan ~30%, construction finance ~20%.
• Cross-selling ambition: Management sees potential for cross-selling across MSME, home loan, car loan referral and gold loan, with the combination of multi-product presence and cost efficiency expected to help over time.

Capital, Funding and the Rights Issue

• Rights issue of ₹1,440 crore is pending: Management hopes to communicate the timeline in the near future; until the proceeds are concluded, the company is refraining from giving specific forward guidance.
• Cost of funds expected to stay in the same range in Q4 FY23: New borrowings are happening at increased rates, but management argues this will not put much pressure on the bottomline because rate hikes are passed on to customers and new loans are booked at higher rates.

Rajesh Sharma: "With our right issue proceeds yet to be concluded, we will have to refrain ourselves once again from giving a specific forward guidance."

Guidance & Commitments

Key Metrics