Key highlights from Capri Global Capital Ltd (CGCL) Q3 FY23 Earnings Concall
Q&A Highlights:
- [00:14:25] Uday Pai from Investec asked about the gold loan yield on a steady state basis and the quarterly disbursement. Rajesh Sharma CFO said gold loan yields are currently around 15.5%, but the target is 19%. The gold loan book is expected to reach INR850 crores in 4Q23, and each branch is targeting an AUM of INR3.5-4 crore within 15 months of opening operations.
- [00:16:30] Gaurav Sharma from HSBC asked about the steady state mix of CGCL AUM. Rajesh Sharma CFO replied that CGCL has built a very fast AUM of INR700 crore in less than six months, and it feels the competition is there but the market size is growing.
- [00:16:48] Gaurav Sharma from HSBC enquired about the operating model of a company regarding its car loan disbursement. Rajesh Sharma CFO replied that car loan is a mix of technology and feet on the street, which provides a hassle-free disbursement in a fast turnaround time. CGCL added it’s one of the largest players in this segment, and the fee income will contribute significantly to its bottom line. This year CGCL is targeting a fee income of INR100 crore.
- [00:19:50] Gaurav Sharma from HSBC asked about the share of gold loans and MSME at the steady state of AUM mix. Rajesh Sharma CFO said that in 4-5 years, gold loan is expected to make up 25% of the AUM, MSME will make up 25%, home loans will make up 30%, and construction finance will make up 20%.
- [00:20:39] Bunty Chawla from IDBI Capital queried about the incremental cost of borrowings in 3Q23 and how it’s shaping up in 4Q23 and its impact on margins. Rajesh Sharma CFO answered that the cost of borrowing for NBFCs has gone up by 70 basis points from one year ago, and the housing finance cost of funds has gone up to 8%. The cost of fund increase will not put much pressure on the bottom line as new loans are booking at an increased rate of interest and customers on fixed loan terms are not able to pass on this hike until the cycle turns.
- [00:23:21] Bunty Chawla from IDBI Capital enquired about liability mix with bank borrowing increasing and if CGCL is focused more towards bank borrowing. Rajesh Sharma CFO replied that the company decides which bank to borrow from based on who can give CGCL the best long-term loan at the lowest interest rate.
- [00:24:21] Bunty Chawla from IDBI Capital queried how Bajaj Finance’s focus on gold loans will impact the overall market share and how it should be compared to CGCL. Rajesh Sharma CFO said that there is competition in any sector offering margins, but the market is growing so there is still room for existing and new players to grow.
- [00:25:57] Ashish Kumar from Infinity Alternatives asked about the opex to AUM ratio once a target of INR3.5-4 crores in AUM per branch has been achieved. Rajesh Sharma CFO answered that a branch would cost around INR2.5-3 lakhs a month, and the breakeven point is at INR3.5 crore.
- [00:31:23] Gaurav Somani from Korman Capital asked about the mix of lending in terms of fixed and floating. Ravikant Bhat IR said gold loans are fixed for the duration of the loan, while housing and MSME loans may be reset after a certain period. Construction finance loans may be reset more frequently.
- [00:33:29] Gaurav Somani from Korman Capital asked where the cost-income ratio is expected to normalize once the gold loan business stabilizes. Rajesh Sharma CFO replied that without the gold loan profit, the cost-income ratio would have been in the range of 47%. The aim is to bring it to 35-36% for MSME and home loans and 45% for gold loans. Cross-selling and co-lending partnerships should help to compete with lower segment customers, changing the dynamics in favor of the company.
- [00:35:00] Gaurav Somani from Korman Capital enquired about the amount of co-lending done until now and its outlook. Rajesh Sharma CFO said co-lending until now is done in the range of INR450 crore. Co-lending business is not currently impacting profitability but it will be highly ROE accretive once the technology interface with banks is established.
- [00:39:35] Kartik Gada at Multipl Wealth asked about the avg. ticket size in the home loan segment and how it has been moving lately. Rajesh Sharma CFO answered the CGCL saw housing prices ranging from INR12-13 lakh and since the housing prices are growing, it might reach up to INR16-17 lakh.
- [00:40:40] Pravin Mule from ICICI Securities enquired about the incremental demand in MSME segment and in any specific segment or geography CGCL is seeing the strong demand. Rajesh Sharma CFO replied that the demand for CGCL products is determined by its branch network – the more branches in a certain area, the stronger the disbursals will be. In Q3, CGCL saw disbursements of INR286 crore in MSME finance and INR278 crore in construction finance.