Capri Global Capital Ltd Q4 FY2023 Concall Summary

Key Takeaways

• Profit surge despite investment drag: Net profit rose 55% YoY in Q4 FY23, and would have been ₹84 crore higher absent the gold loan branch opex, signaling the core business is generating strong earnings power.
• Gold loan is scaling fast and profitably: AUM crossed ₹1,125 crore in just two quarters of operation, with onboarding yields now at 18% and realized yields expected to reach 20.5%, while the branch network hits 750 this quarter.
• The cost hump is peaking: Cost/income ratio hit 69.5% in Q3 and softened to 68.2% in Q4; management expects gold loan breakeven to bring this down significantly, with the core business already running at 48%.
• Capital raise removes growth constraint: The ₹1,440 crore equity infusion pushed CAR to 40%, and management says no further capital is needed for 6–7 years, or even 10 if co-lending takes off.
• What to watch next quarter: Whether gold loan branches reach breakeven as promised, the pace of cost/income ratio improvement, and any stabilization in NIM as low-yield MSME and housing portfolios stop compressing.

Gold Loan: The New Growth Engine

• Scale achieved in two quarters: Gold loan AUM reached ₹1,125.9 crore, or 11% of total AUM, up from 2% in Q2 FY23; disbursals led retail momentum at ₹958.2 crore, 34% of total Q4 disbursals.
• Branch rollout on track, then a deliberate pause: Branches grew from 449 to 562 in Q4, will reach 750 by end of this quarter, then management will pause to make them profitable before rolling out the remaining 750 toward the 1,500 target.
• Yield story is improving: Onboarding yield now 18%, up from 15% at launch, driven by a shift from higher-ticket jeweller loans to retail consumers with smaller ticket sizes; realized yield expected at 20.5% because most schemes carry default-rate step-ups on 25–30% of the portfolio.
• Competition is real but the market is shifting: Competition is increasing, but the gold loan market is growing 12–13% annually and the majority of lending still sits with informal lenders and jewellers charging very high rates; the structural shift from unorganized to organized lenders provides a long runway.
• Long-term ambition: Over the next 4–5 years, gold AUM is targeted at 25% of the consolidated book, making it a material, stable pillar alongside MSME and housing.

Sharma: "So 18% is our boarding yield. But realized yield is higher because most of the schemes are rebate schemes where on default interest rates go up further. So we expect the realized yield will be in the range of about 20.5%."

Profitability: The Cost Hump and the Recovery Path

• The gold loan investment is the entire margin story: FY23 net profit of ₹204.7 crore nearly equaled FY22 consolidated net profit of ₹205 crore, but would have been ₹288 crore without the ₹84 crore opex loss from gold loan branches, showing the core franchise is healthy.
• Cost/income ratio has peaked: The ratio hit 69.5% in Q3 FY23 due to aggressive hiring for the gold loan rollout, then softened to 68.2% in Q4; excluding gold loan expansion costs, the core business ran at 48% in Q4.
• Breakeven is the near-term catalyst: Management expects gold loan branches to reach closer to breakeven in FY23, with gold AUM touching ₹2,500–3,000 crore, which will soften the incremental opex impact and bring the consolidated cost/income ratio down significantly.
• NIM should stabilize: NIM trended lower during FY23 because of foreclosures and migration of higher-yielding MSME and construction finance loans, with repayments up to 10% higher than FY22; as those low yields stabilize and gold loan share improves, NIM should stabilize or improve.
• Credit cost is falling sharply: Credit cost declined to ₹11.2 crore in Q4 from ₹24.5 crore in Q3 and ₹57.1 crore in Q4 FY22; full-year credit cost was 80 bps versus 192 bps in FY22, while Stage 3 assets improved 65 bps YoY to 1.74%.
• Cost of funds will rise modestly: Borrowings from PSU banks reset annually, with the majority of resets completing by March 2023; cost of funds will rise another 40–50 bps going forward, but management is confident of passing this on to new customers.

Sharma: "Overall, within 3 to 4 years, you will see a significant improvement in margins as well as improved return on equity."

Car Loan Distribution: The Fee Income Multiplier

• A distribution business, not a lending business: Car loan distribution generated ~₹118 crore in fee income in FY23, with origination of ₹6,000 crore, over 2.5x FY22; the business matches customers to the best rate across 8 partner banks and focuses only on new cars.
• Non-interest income transformation: Share of non-interest income in net income rose to 33% in FY23 from 23% in FY22, with car loan distribution fees contributing 40% of FY23 non-interest income versus 19% in FY22, diversifying revenue away from pure lending spreads.
• Scale and competitive position: Present in 450 locations with a dedicated feet-on-the-street team; management claims the company is number one in new car loan disbursal other than dealers, with quick turnaround as the competitive edge.
• Growth target: The business is targeting 50% growth next year, supported by adding more locations and a few more bank partners.

Sharma: "Currently, in the new car loan disbursal, other than the dealers, I think we are number one."

Asset Quality and Portfolio Mix

• Asset quality is improving across the board: Stage 3 assets fell 65 bps YoY and 57 bps QoQ to 1.74%; PCR on Stage 3 assets at 30.9% is the highest since Q4 FY21, with negligible write-offs during the quarter.
• Retailization continues: Retail loan share improved to 79% from 76%, while construction finance share softened 165 bps QoQ to 18%, below the 20% threshold, in line with previous commentary that momentum would be softer in H2 FY23.
• MSME restructured pool resolved: The restructured pool of over ₹200 crore has been resolved; average ticket size will stay below ₹25 lakh, currently at ₹19 lakh, and gold loan branches will eventually cross-sell MSME loans.
• Home loan ticket size rising: Average ticket size rose from ₹12 lakh to ₹16 lakh QoQ, driven by rising house costs and expansion into cities with higher average ticket sizes.

Capital and Funding: Fortress Balance Sheet

• Equity raise removes all near-term capital constraints: The ₹1,440 crore raise in March 2023 pushed CAR to 40% from 24% in Q3; ₹200 crore was deployed in Q4, with the remainder to be fully deployed in Q1 FY24.
• No capital needed for years: Management states the company will not require capital for the next 6–7 years, and if co-lending takes off, may not need capital even for 10 years; the last capital raise prior to this was in 2010.
• Borrowing mix is simple and stable: Borrowings are primarily term loans from PSU banks with 5–8 year tenures and annual interest rate resets; less than 5% is in NCDs from the TLTRO scheme, mostly repaying by end of June.

Sharma: "I don't think company will require capital for the next 6 to 7 years. And in case the co-lending takes off, company may not use the capital even for the 10 years."

Cross-Selling and the Branch Network of the Future

• Gold loan branches will become full-fledged loan centres: Technology to enable cross-selling of home loans and MSME loans is under development and will take 6–9 months; after a pilot, all gold loan branches will convert into multi-product loan centres, which management says will further bring operating costs down.
• Housing finance is expanding geographically: The company is adding 25–30 branches this year in Uttarakhand and Uttar Pradesh, while strengthening existing locations with more manpower.
• Digital lending is on the horizon, not yet here: A team is in place and discussions with fintech players are ongoing, but the launch is still 3–6 months away while management reviews changes in RBI guidelines on FLDG and seeks clarity on repayment obligations.
• No new lending products planned: Management will consolidate and focus on gold loan branches to achieve faster breakeven rather than adding new product lines.

Sharma: "While we have a team in place, but still it is away by at least 3 to 6 months."

Guidance & Commitments

Key Metrics