Capri Global Capital Ltd Q3 FY2024 Concall Summary

Key Takeaways

• AUM surged 54% YoY, Gold Loan the engine: Total AUM hit ₹13,362 crore, with Gold Loan AUM up 235% YoY after adding 298 dedicated branches.
• Cost-to-income fell sharply as branch pause bit: The ratio dropped 651 bps YoY to 63% because opex stayed flat QoQ at ₹220 crore, ending the steep climb that began with the Gold Loan launch.
• Gold Loan nears break-even, profit promised next year: The business is likely to break even in Q4 FY24; management expects it to deliver ₹40-50 crore profit in FY25, eliminating a ~₹100 crore drag.
• Asset quality wobbled but resolution bets are placed: GNPA rose 80 bps QoQ to 2.10% as restructured MSME and Housing assets exited moratorium; management expects to resolve a chunk of legacy NPAs in Q4 with minimal haircut.
• What to watch next quarter: Whether the Q4 legacy NPA resolution materialises, the Gold Loan break-even is confirmed, and the insurance fee income starts to show up in segment reporting.

Gold Loan: The Growth Engine Approaching Payback

• Scale built fast, now pausing: 747 dedicated branches were added, with 313 already above the ₹3 crore break-even threshold and 113 contributing to the P&L. Management stated no further Gold Loan branch expansion is planned, so the investment phase is ending.
• Break-even mechanics: A branch breaks even at ₹3 crore of business; some have crossed ₹5 crore. The time to reach that level varies by location, from 12 to 18 months.
• Profit turn expected in FY25: The vertical is likely to break even in Q4 FY24, and management guided for ₹40-50 crore of profit next year, reversing the current ~₹100 crore loss.
• Yield support for group margins: Targeted Gold Loan yield next year is ~18%, which management says will help improve overall spreads even as cost of funds has risen.

Rajesh Sharma: "Currently we have about 747 Gold Loan dedicated branches, which only book the Gold Loan businesses. And currently, at 3 crore business per branch we start breaking even."

Cost Efficiency: The Inflection Quarter

• Opex flatlined after a long climb: Operating expenses were flat QoQ at ₹220.3 crore, a sharp contrast to the steep increases seen since the Gold Loan launch in Q2 FY23, driven by the pause in branch expansion.
• Cost-to-income ratio dropped hard: The ratio fell 392 bps QoQ and 651 bps YoY to 63%. Excluding the Gold Loan drag, management expects the ratio to fall to ~45% next year, with traction visible from Q1 FY25, and is working toward ~40%.
• Technology as the next lever: A new loan origination system launches in April, with a second phase six months later; management expects productivity improvement from the same manpower base and tangible cost savings from FY25.
• Insurance fee income to help: The newly active corporate agency license is expected to generate ~₹30 crore in annual insurance premium income from April, with significant commission accruing to Capri; segment-level reporting begins in Q4.

Rajesh Sharma: "I don't want to give you a number, but we are working towards to bring it down in the range of 40%."

Asset Quality: A Bump with a Resolution Narrative

• GNPA rose on restructured flow: Gross Stage-3 increased 80 bps QoQ to 2.10%, with ₹14.8 crore from MSME and ₹10.6 crore each from Construction Finance and Housing. The MSME and Housing increase came from restructured assets now fully out of moratorium since Q2 FY24.
• Provision coverage improved: PCR rose 243 bps QoQ to 34.7%, with a target to stabilise at 37-40%. Credit cost for the quarter was ₹40.3 crore, or 1.25% annualised, and full-year FY24 credit cost is guided to remain within 1%.
• Resolution bets placed for Q4: Legal and collection teams expect to resolve a chunk of legacy NPAs in MSME and Housing during Q4 FY24 with minimal haircut. A stressed Construction Finance project from Q1 FY24 has been approved for the SWAMIH fund and is likely to be resolved during FY24 with a likelihood of full recovery.
• Net profit held up despite the noise: Net profit of ₹68 crore was up 82% YoY and 4% QoQ; excluding the Gold Loan loss, it would have been ₹80.3 crore, showing the core business absorbed both spread compression and higher credit costs.

Diversification Bets: Insurance, Car Loans, and Micro-LAP

• Insurance distribution is now live: The composite IRDAI license is active, a distribution team is in place, and an in-house technology platform is being built. Management expects ~₹30 crore in annual premium income from April, with ₹100 crore in gross fee income targeted between FY25 and FY27, contributing ~2% to ROE.
• Car Loan subsidiary operational: Capri Loans Car Platform became operational in Q3 FY24 and has begun accruing income. The entire car loan origination business will move to this subsidiary in due course, and the FY24 origination target of ₹10,000 crore (75% YoY growth) was reaffirmed.
• Micro-LAP under active evaluation: Management is considering a secured micro-LAP product with ticket sizes below ₹7.5 lakh, leveraging the existing branch network; a decision on which branches and team setup is pending.
• Co-lending lines as a margin shield: Over ₹3,000 crore in co-lending lines allow Capri to serve customers who would otherwise be declined due to low interest rates, helping control balance transfers and protect spreads.

Rajesh Sharma: "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."

Margin & Spread Dynamics

• Spread compression is real but managed: Cost of funds has risen over the past six months, and while new lending can pass on the increase, only ~45% of the existing portfolio can reprice, causing slight spread compression. The RBI risk-weight increase added only 5 bps for Capri.
• Three-part margin defence: Management pointed to co-lending lines that retain customers who would otherwise leave on rate, Gold Loan yield targeting ~18% next year, and fee income from Car Loans and insurance as the offsets that will improve overall spreads.
• Gold Loan yield is a structural tailwind: As Gold Loan grows toward a targeted ₹4,700-5,000 crore AUM next year (50-60% growth), its higher realised yield lifts the blended portfolio yield.

Rajesh Sharma: "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."

Guidance & Commitments

Key Metrics