The Story behind Capri Global Capital Limited

Stock Data
Ticker	CGCL
Exchange	NSE and BSE
Industry	NBFC

Price Performance
Last 5 Days	-0.48%
YTD	+43.04%
Last 12 Months	+36.27%

“We will continue to remain in the retail lending side. 80% of our portfolio is going to remain secured retail lending and on that path we will continue to grow. We see MSME, affordable housing, and gold loan, all the segments where we are in, are a huge opportunity and a huge gap exists. The next five years is a big runway for us and we are quite confident of good times ahead. Our car loan origination is generating very good fee income for us and that will be ROE accretive. Overall, we are quite confident that we are on a growth path.”

– Rajesh Sharma, Founder & Managing Director

Company Description:

Capri Global Capital is a NBFC with a diversified loan book. The firm’s AUM composition is currently dominated by MSME, Housing Finance (HF), Construction Finance (CF), and Indirect Retail Lending (IRL). The firm also generates net fee income through its car loan distribution business and has taken major steps to expand into the gold loan segment.

Equity Performance:

Equity Prices have rallied over the years. The reason being the company’s increasing profitability and strategic growth plans. 

Here are some recent major events regarding the company’s Equity:

• Issuance of fully paid-up equity shares of the company for an amount of ₹1,200 crore by way of a rights issue to equity shareholders.
• Co – Lending Agreements with State Bank of India and Union Bank of India.
• LIC increases its stake in Capri Global Capital by 7%.

Momentum Generated through the Co – Lending Model

The Reserve Bank of India sought to provide access to formal credit to the various sectors in India. To ensure the flow of formal credit to these sectors, RBI came up with the Co – Lending model. This particular model allows NBFCs to enter into an arrangement with banks to ‘co – lend’ with a 80% – 20% ratio on loan exposures, where the NBFCs could provide 20% of the loan and the bank could provide 80% of the loan. This allows the NBFCs to collect the ROI on 20% of the loans as well as the differential between the bank rate and the ROI as a fee on the remaining 80% of the loans.

The Co – Lending strategy allows Capri Global to expand its operations and provides the firm the access to leverage to about 25 times. As higher volumes of loans come under Co – Lending, the ROI generated by the firm increases. Without the co – lending model, Capri Global suffered from 10% – 12% foreclosures on loans annually. This resulted in the loss of the firm’s most reliable customer base every year to NBFCs or other banks that can provide these customers with a lower interest rate. With the Co – Lending model, the firm has the capability to lower interest rates on this customer segment. If the company retains a portion of this customer segment by providing a lower interest rate through co – lending, then the company can earn higher income. The retention of this particular customer base will allow Capri Global to take on cross selling initiatives that would also add to the firm’s profitability. Capri Global has tied up with State Bank of India and Union Bank for the co – lending strategy. The firm estimates that ROE of around 25% will be generated through this arrangement.

Foray into Gold Loans

The Gold Loan Segment has historically been identified as a high margin segment with a minor cost of delinquency. Capri Global along with Boston Consulting Group and several other credit bureaus have identified business opportunities in this segment in the North and Western regions of India. The gold loan segment has a high opex requirement, so firms that decide to venture into this segment try to create an extensive branch network. Aligning with that, Capri Global Capital have developed an expansion plan to create 1500 branches in order to profitably reach their customer base. The extensive branch network would allow the firm to reach the customer base that provides a higher rate of interest. The targeted customer base for the gold loan segment are similar to customer bases for other loan segments, this provides the firm an opportunity to incorporate cross sell initiatives.

Asset Quality & Collection Efficiency

The high Provision Coverage Ratio indicates the high asset quality. The Provision Coverage Ratio is showing an upward trend over the last few quarters. This suggests that the asset quality of the firm has been improving. PCR of at least 70% is suggested by the RBI but the firm has taken additional steps to keep PCR at the rates seen below.

The low proportion of Gross Non – Performing Assets reveals the superior underwriting process of the firm. The Net NPA for Construction Finance and Housing Finance were negative. The superior asset quality of the Housing Finance segment proves itself to be an additional advantage considering the fact that Capri Global earns better margins in this segment due to the low cost fund availability from NHB.

As the overall collection efficiency revolves around 98% for the last five quarters, it is evident that the firm’s collections have remained high and stable. Additionally, the collection efficiency was higher for the wholesale segments in Indirect Lending and Construction Finance while the collection efficiency for the retail segment was marginally lower than overall efficiency.

Financial Performance:

The overall positive trend showcases the fact that the strategies inculcated by the firm had a significant positive effect on the bottom line.

Consolidated Income Statement

INR Mn.	FY18	FY19	FY20	FY21	FY22
Net Income	2,462	3,822	4,305	4,484	6,319
Operating Expenses	1,285	1,790	1,732	1,520	2,536
Operating Profit	1,178	2,032	2,573	2,964	3,783
Profit Before Tax	1,082	1,867	2,220	2,357	2,726
Profit After Tax	649	1,357	1,612	1,770	2,050