Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Capri Global Capital Ltd (BOM:531595, Financial) reported a strong growth momentum in Q1 FY25 with AUM reaching INR17,457 crores, a 56% year-on-year increase.
- The company's disbursement for the quarter was INR5,619 crores, reflecting a 109% year-on-year growth.
- Gold loan AUM increased by 55% quarter-on-quarter, supported by an extensive branch network and co-lending partnerships.
- Net interest income (NII) during Q1 FY25 was INR301 crores, an 18% increase quarter-on-quarter and 27% year-on-year.
- The company has successfully implemented several technological initiatives, leading to improved operational efficiency and productivity.
Negative Points
- Credit costs increased in Q1 FY25 due to one-off slippages in the construction finance book, resulting in a technical write-off of INR28 crores.
- The GNPA ratio and NNPA ratio remained broadly flat at 2% and 1.1%, respectively, indicating some asset quality concerns.
- There was a significant decline in disbursement in MSME and housing loans due to the transition to a new loan origination system.
- The cost-to-income ratio, although improved, still stands at 64.6%, indicating room for further efficiency gains.
- The company faces increasing competition in the granular retail loans segment, which could impact future growth and margins.
Q & A Highlights
Q: What was the net fee contribution from the insurance business during the quarter, and can you explain the 11 tie-ups for insurance distribution? Also, when do you anticipate reaching a sustainable 15% ROE?
A: We achieved about INR12 crores in insurance income for Q1. The 11 tie-ups are with different insurance companies offering various products like medical, health, life, and accident cover. We expect to report an ROE of 10.5% to 11% for FY25 and aim to achieve a 15% ROE by FY27 as we scale up to INR25,000 crores AUM.
Q: Could you explain the impact on net interest margin during the quarter in the gold loan business following the RBI regulations? Also, what are your expansion plans for the gold loan segment?
A: Net interest income improved significantly, with Q1 FY25 NII at INR301 crores, up 18% from Q4 FY24. The gold loan segment has turned profitable as branches have crossed INR5 crores AUM. We plan to add about 50 branches in the current financial year, focusing on gradual expansion.
Q: How much of the total book is on floating rate?
A: Gold loans and construction finance are fixed and floating, respectively. Home loans and MSME loans offer both options to customers. Exact percentages can be provided separately upon request.
Q: What factors contributed to the significant rise in yield on advances?
A: The yield on advances increased from 15.6% in Q4 FY24 to 16.3% in Q1 FY25, primarily due to the growing contribution from the gold loan segment, which offers better yields than other products.
Q: What is the cost of borrowing for market borrowings, and how does it compare to bank borrowings?
A: Recent capital market borrowings are around 9%, with an overall cost of borrowing at 9.3%. Most bank borrowings are MCLR-linked.
Q: Do you expect the cost of funds to increase further in the coming quarters?
A: The cost of funds should remain largely stable, with any increase likely to be within 10 to 20 basis points, which we can pass on to new lending.
Q: Are you planning to expand the gold loan business in Southern and Eastern parts of the country?
A: Our expansion will continue in the North and West regions, avoiding the South due to high penetration and competition. Our existing network in the North and West will support this strategy.
Q: What is the impact of the reduction in import duty on gold prices on your gold loan business?
A: The reduction in import duty has softened gold prices, affecting LTV ratios. We will manage this by ensuring LTV remains within acceptable ranges through customer collections.
Q: Could you explain the new micro LAP segment and its differentiation from the existing MSME business?
A: The micro LAP segment is a different vertical with a focus on smaller loans (average ticket size of INR5 lakhs) in rural areas, offering yields around 22%. We plan to open about 70 branches in the next three quarters.
Q: Could you provide more details on the asset impairments and write-offs?
A: We had a technical write-off of INR28 crores in construction finance, with an expected recovery of 80-90%. Additionally, there was an INR18 crores provision as part of the normal course of business.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
