Capri Global Capital Limited (531595) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Capri Global Capital Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] This conference is being recorded. I now hand the conference over to Mr. Hardik Doshi Head Corporate Finance and Investor Relations. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and a warm welcome to Q1 FY '27 Earnings Call for Capri Global Capital Limited. This is Hardik Doshi, Head Corporate Finance and Investor Relations. Before we begin, let me read out a brief disclaimer for today's call. The discussion around today's call regarding Capri Global Capital Limited's earnings performance is based of judgments derived from the results declared and information on business opportunities available to company at this time. The company's performance is subject to risks, uncertainties and assumptions that could cause results to differ in future. In that context, participants on today's call are advised to consider the same while interpreting the results. The complete disclosure is available on Slide 65 of the earnings presentation. Participants are requested to kindly take the note of the same. Format of today's call will be opening remarks by the management team followed by Q&A. Let me now introduce the management team for the Capri Global Capital present on the call today. With us, we Mr. Rajesh Sharma, Managing Director and Promoter; Ms. Divya Sutar, Executive Director, Business Strategy; Mr. Kishore Lodha, Chief Financial Officer; and Mr. Sanjeev Srivastava, Chief Risk Officer. I would now request our Managing Director, Mr. Rajesh Sharma, to present his opening remarks on the results. Over to you, sir.

Thank you, Hardik. Good afternoon, everyone. I hope you are doing well. We announced our unaudited financial results for the first quarter of FY '27 on 27 July. I trust you have had the opportunity to go through our earnings presentation, which is also available on our website. Before I move on to the financial and operational highlights, I would like to touch upon the broader operating environment and key developments during the quarter. Uncertain global geopolitical situation, energy security, oil level price volatility, rupee appreciation and volatile capital market led to total macro environment being soft for the quarter. However, Indian economy continues to be resilient and better placed amongst global economic economies supported by its relatively higher GDP growth expectation, strong consumption-driven land, large employable workforce and faster adoption to rapidly evolving technology landscape. I mean the soft macro environment, I'm pleased to share that Capri Global has delivered yet another quarter of robust growth and profitability while safeguarding its asset quality. One of the major developments on the technology front is that we have now collaborated with OpenAI to bring enterprise-grade generative AI across key business functions to transform the way we sort our customers, empower employees and build an AI-native lending institution. Some of the other developments during the quarter were we established our first GMPN program for USD 1 billion global medium-term note, which will enable us diversified borrowing mix going forward. Besides this to establish our brand presence to support our expansion plan in South India, we have now collaborated with renowned actor Nayanthara as our brand ambassador. With this backdrop, I'm glad to share that Capri Global continued track record of delivering strong performance quarter-on-quarter in Q1 FY '27 delivered robust growth while achieving highest ever quarterly profit after tax of INR 353 crores, a 102% increase year-on-year basis. Let me now come to retail business and earnings performance for the quarter. We continued our strong momentum across all our lending businesses in Q1 FY '27. Our consolidated AUM stood at INR 40,112 crores, reflecting a robust 62% year-on-year and 10% quarter-on-quarter growth. Gold loans grew an impressive 111% year-on-year and MSME grew a healthy 24% year-on-year, while housing loans rose 42% year-on-year. Disbursements for the quarter rose 31% year-on-year to INR 11,114 crores on account of growing customer base and widening distribution networks. Our growth remains granular, diversified, and retail led with our customer base now exceeding 7.6 lakhs. For our gold loan business, we delivered a strong and well-balanced performance in line with our strategic objective of growth driven by geographic expansion in branch productivity while maintaining focus on effective risk management. Gold loan AUM saw robust growth to INR 19,179 crores, a sequential increase of 13% quarter-on-quarter. Despite correction in gold prices, primarily led by healthy customer demand and improving banker acuity. Collateral weight in custody increased from 19 tonnes to 20.2 tonnes, an increase of 6% quarter-on-quarter and number of active customers increased by 11% quarter-on-quarter. Following the addition of 89 branches in Q4 and 196 branches in FY '26, our gold loan branch network during the quarter stood steadily at 1,000 branches, allowing those branches to mature and contribute to productivity. Our agri branch productivity continued to see a strong gain and has increased now to INR 19 crores per branch versus INR 17 crores per branch at the end of previous quarter. Our branch expansion for the year is underway, and we expect to add 150-plus branches by end of Q2, reflecting our commitment to expand our presence in Southern and Eastern India. On the employee productivity front, while AUM has increased significantly, our employee base is increased only by 14% year-on-year thus resulting in a significant improvement in employees would attribute to INR 3.4 crore AUM per employee versus INR 1.8 crores year earlier. Despite the gold price volatility during the quarter, our efforts in controlling asset quality proved effective with growth NPA at 0.3%, amongst the best in the industry, underscoring our focus on portfolio performance for the gold loan business. Combining growth through capitalizing on vintage of existing branches while maintaining discipline on asset quality amid gold price volatility. Our MSME AUM grew to INR 6,779 crores, up 24% year-on-year and disbursements stood at INR 616 crores for Q1 FY '27, up 32% year-on-year, led by steady execution and network expansion. Our branches that opened in Uttar Pradesh in Q3 FY '26 are scaling up well and have started delivering INR 18 crore to INR 20 crore disbursement per month. We are further expanding our footprint into Telangana and Karnataka with 16 branches due to become operational from Q3 of this year. Within MSME, our micro LAP business which enable us to serve emerging self-employed borrowers with smaller ticket size requirement is seeing steady growth with AUM rising to INR 876 crores at the end of Q1 FY '27. On this segment, we implemented higher threshold for sourcing and selection of customers' levered data science capabilities, for example, a BRE and Bureau score card getting criteria to disqualify non-eligible customer upfront. Our housing AUM stood at INR 7,815 crores, delivering a year-on-year growth of 42%. We continue to see resilient demand across the affordable housing segment where rising income levels and low interest rate regime are driving demand for housing loans. Our expansion into high potential Southern India states such as Andhra Pradesh, Telangana and Karnataka with 30-plus branches in the last quarter is showing good traction with disbursement volume is scaling up to INR 65 crores per month. This strategic expansion is stepped towards geographical diversification, increased portfolio granularity and risk diversification while supporting improvement in yield over time. Further, our yield in housing finance segment have been improving as a result of our continued focus on self-employed customer segment, which now comprises about 75% of AUM. Our construction finance AUM saw healthy growth of 40% year-on-year to INR 6,332 crores spread across 291 active projects with an average expansion ticket size of INR 41 crores and outstanding portfolio ticket size of INR 20 crores. The book remains granular, secured and well diversified by geography, reflecting our focus on working with midsized developer in metro and Tier 1 cities. We continue to emphasize disciplined underwriting through rigorous due diligence and escrow-based cash flow management, ensuring a risk containment approach. Our total branch network went steadily at 1,433 branches locations in Q1 FY '27 with plans to open around 400 branches for the current year. We will continue to invest in expanding our network and geographic footprint in line with our growth becoming a large-scale pan-India retail lender. Now coming to earnings performance. Let me now provide an update on our core earnings. Our blended yield and spreads on net advances improved further in the quarter to 17% and 7.8%, respectively, driven by increasing shares of high-yield products, increase in our gold loan yields and improvement in cost of borrowing. Our net interest income for Q1 FY '27 is to date INR 736 crores, up 79% year-on-year driven by strong loan book growth and margin expansion. In line with our focus on building a diversified and resilient earning profile, we continue to strengthen our noninterest income stream in Q1 FY '27, generating recurring quality fee income. Noninterest income grew 28% year-on-year to INR 217 crores, contributing 23% on our net total income for the quarter. This strong increase was largely driven by growth in commission and insurance and car loan distribution. In our insurance distribution business, we generated net fee income of which INR 42 crores during the quarter. The continued investment in technology and digital transformation established insurance partnerships and distribution capabilities is helping us strengthen Capri Care, our digital platform that is scalable and customer-centric insurance platform. Capri further expanded its product portfolio through the launch of 14 life and general insurance product, in partnership with leading insurers, strengthening the platform's ability to offer comprehensive insurance solutions. A significant milestone was the expansion of the Capri Care open market insurance distribution platform. The growing POSP network has enhanced insurance accessibility beyond the lending ecosystem providing seamless access to the distributors, connectors and partners associated with the Capri Group enabling efficient onboarding, policy issuance and customer service at scale. Going forward, we will continue to increase our insurance offering for gold loan, housing and MSME customers while expanding into cross-sell of retail health and motor insurance through digital channels. This digital first approach is expected to drive higher insurance penetration and meaningfully enhance fee income contribution over time. Our core lending and BA AUM year-on-year to INR 8,126 crores and 4% quarter-to-quarter, now accounting for 20% of total AUM, reflecting our strategy of capital-efficient growth. Co-lending volume slowed down during the -- it grew by 4% quarter-on-quarter on account of new co-lending guidelines coming into effect and requirement of partner banks to move to CLM1 model. Of our 11 partners, 6 banks have already moved to CLM1 model. We have completed tech integration for new arrangements with CLM1, and we are in the process of migrating other partner banks as well to further enhance capital efficiency, we are also leveraging direct assignment and PTC instrument, which is showing a good demand and given higher share of gold loan and the CGCL nature of our loan book. Our income from co-lending NDA for the quarter is to date INR 65 crores, down 8% year-on-year, driven by lower disbursal volumes. Our car loan distribution business grew strongly with evolution of INR 3,282 crores in Q1 FY '27, up 43% year-on-year. With growing footprint and deep relationship across the bank, and financial institutions, we have built a scalable platform with Pan-India network, which has potentially monetized further for distribution of other products. On the expenses front, our operating expenses remained flat quarter-on-quarter. This was mainly driven by only a modest increase in number of our employees by 156 employees on account of branch and optimization. In line with our guidance and conscious effort towards improving operational efficiency, our cost-to-income ratio further improved to 44.2% in Q1 compared to 49.4% in Q4 FY '26. This sharp improvement signifies the benefit of investment in technology, vintaging branch network and rising productivity and improving operational leverage across our businesses. As a result of margin expansion, operating efficiency improvement and strong traction in fee income, our pre-provision profit surged 71% year-on-year to INR 532 crores for the quarter. Further, we have continued our strong profitability momentum in Q1 FY '27, during a robust PAT of INR 353 crores, up a strong 102% year-on-year. Our return ratio has continually improved during Q1 FY '27 with return on average equity at 19.1% versus 13% a year before. And return on average asset at 4.1% versus 3.2% a year before. Coming to asset quality. Now look at the trend on asset quality, our growth stays to assess increase by INR 385 crores, largely driven by increase of INR 373 crores in the gold loan, which is low risk in nature. It results our gross stage 2 ratio for the quarter increased to 3.8% from 2.8% in previous quarter. At consolidated level, our gross stage 3 ratio at 1.1% and net stage 3 ratio stood at 0.6%, which is amongst the top quartile in the industry. During the quarter, our growth stage 3 assets increased by INR 74 crores quarter-on-quarter, mainly on account of the INR 31 crore increase in Construction Finance. Our gross Stage 3 ratio for the other segment largely remained in the range of range bound with a gold loan at 0.3%. Our impairment cost for the quarter stood at INR 62 crores, up by 67% quarter-on-quarter and was 0.7% on average total assets, which is in line with our historical average of 0.6% to 0.8%. During the quarter, we increased PCR on Construction Finance segment to 17.5% and PCR on consolidated level increased 43.3%. This is in line with our prudent provisioning policy of maintaining healthy PCR across segments and keeping buffer for evolving macroeconomic condition in the form of management projects. Coming to capital liquidity position and borrowings. Let me now talk about our liability side. Our borrowing increased by 73% year-on-year and incremental borrowing sanction limits by around INR 3,868 crores during the current quarter. We added 5 new lender relationships during the quarter, taking the active relationship now to 40 plus. We also continue to diversify our core -- our borrowings mix by raising funds through capital market borrowing, such as nonconvertible debentures and commercial paper, which now contribute to about 10%. During the quarter, we raised INR 3,868 crores from bank borrowing and INR 1,271 crores from nonconvertible debentures and commercial paper as a result of our active effort of repricing existing borrowing MCLR reduction and optimize ALM through charging mix, our cost of borrowing has been consistent improvement quarter-on-quarter. Our balance sheet remains robust with comfortable leverage ratio of 3.7x capital adequacy ratio for the both entities remains quite healthy at 24.7% for the Capri Global Capital and 27.8% for Capri Global Housing Finance, thus providing headroom to support growth across business segments. Our liabilities, our long tenure and our assets are short to medium tenure, placing us in a favorable position on the AUM front with cumulative surplus across all buckets. Liquidity remains convertible with INR 4,037 crores and cash and bank balance investment and undrawn credit lines. Coming to technology. This quarter marks an important milestone in our technology journey. AI had moved beyond being a capability. We were building to become a capability that is delivering measurable outcomes across organization, origination, underwriting, collections and customer engagement. Today, every customer interaction is analyzed by AI, not nearly sampled. During last quarter of FY '27 alone, the platform analyzed 6.7 lakh customer calls competing every conversation into structured intelligence beyond compliance monitoring, it identifies more behavior patterns, repayment intent, emerging signal, fraud indicators and sentiment shifts, generating insights that strengthen underwriting, optimized collection strategies, improve customer engagement and support targeted coaching for frontline teams. Beyond action, we have also created a rich layer of physical intelligence during the quarter. Over 2.64 lakh geotech field visits were recorded across sales rep personal discussions, technical evaluation and collection activities. Every visit is usually verified and a location is stemmed creating high-end, high-quality intelligence that strengthens fraud detection, while we process adherence in which underwriting and collections data and provide a more comprehensive view on borrowers' behavior than digital interaction alone. Together, this creates a continuously expanding data ecosystem where every transaction and every field interaction feeds back into AI models, AI volume scales the platform, becomes progressively smarter, enabling faster decisions, stronger risk management and improving operating efficiency, creating a technology advantage that strengthens with every customer interaction. Collection is where our AI platform delivered its most tangible financial impact. Kronos 40 is acquired across the entire correction portfolio continuously protecting repayment behavior, prioritizing customer outreach and optimizing the next base recovery actions through a self-learning decision engine. Every customer interaction feeds back into the model, making subsequent intervention and more precise and improving recovery outcomes over time. Supporting this is our in-house omnichannel engagement platform, whose throughout -- throughput has increased more than threshold from 166 to 529 messages per minute, reducing campaign execution time by 53%. In the first 12 days of June alone, the platform reached over 1.3 lakh customers with a 95.5% delivery rate for pre communication, demonstrating its ability to execute large scale, high targeted engagement with the speed and consistency. Layered on top is our multi-rig voice platform, operating across 9 Indian languages, which analyzes every customer conversation for repayment intent, sentiment, risk signal and promise to pay while continuously enriching our current intelligence. Field recovery has also become technology led with our geotech collections visit, providing complete visibility, stronger governance and measurable on the ground. Business impact is already evident. Nearly 90% of inbound payment across the organizations are digital with MSME in housing finance exceeding 93%, reflecting case shift towards more efficient, lower cost and data lead recovery journey. Further, approximately 35% of collection across the MSME and housing finance verticals are now managed through technology-enabled solutions and the direct digital engagement with customers to create a scalable collection engine that simultaneously improved productivity, lower service cost, strengthen risk management and continuously enhance model performance on transaction volume grow creating a compounding operating advantage. Underlying, all of this is our API first micro services architecture, pacing nearly 70 million actional API transaction every month. And enabling real-time or cash till across origination, services and collections, as transaction volume increases our AI model continuously learn and improve creating a compounding advantage rather than a strategic technology platform. Most importantly, these are not technology metrics that -- this translates directly into faster turnaround times, lower operating costs, stronger control and better collections, the 4 operating levers that ultimately drive profitability. And every one of these systems improves as it processes more transactions, the advantage compounds with scale, making our technology platform an increasingly meaningfully competitive differentiator for the business. In addition, as part of collaboration with OpenAI, over the coming months, we will explore the implementation of secured AI-powered deployments and workloads tools to enhance customer service, knowledge, management and the operational processes across its branch network. So in summary, 4 quarters ago, AI at Capri was about building capability today, it is delivering measurable business outcomes. Before we open the floor for question and answer, let me sum up. We're delivering a strong performance in Q1 FY '27 with healthy AUM growth across our key lending segments as supported by a diversified and predominantly retail secured portfolio. Profitability improved further during the quarter driven by all-round performances across all metrics, robust AUM growth, improving margins, strong growth in the fee income and opening leverage from existing branch network, while asset quality remained resilient. With a strong capital position and a continued investment in technology and distribution, we are well positioned to scale proficiently and confident of revising our AUM target to INR 65,000 crores by FY '28 and consistent return on average equity of 19% to 21% and return on average asset about 4.2% would be to 4.7%. We shall now be happy to take questions.

[Operator Instructions] Our first question comes from the line of Kedan Shah with KSA Shares & Securities.

Congratulations on a strong quarter. I just had a couple of questions. So on the Stage 2 increase, can you please split the INR 384 crores sequential rise by segment? And is it recent origination? Or is it seasonal on older vintages. And also why is the coverage being cut from 11.8% to 9.4%, while the pool grew from 47%. What changed in the last estimate? And any mix shift into gold.

So your -- thank you for your first part of the question related to Stage 2. Out of INR 385 crores, which is increased in the Stage 2, INR 10 crores have increased in MSME, INR 15 crores have been increased in housing. Construction finance, it has been decreased by INR 13 crore. Gold loan, it has increased by INR 373 crores. Thus, total increment in Stage 2 by INR 385 crores. Gold loan, primarily has gone up because the gold prices have on the lower side. And quarter-on-quarter basis, we have seen a 4% decline in the price, and that has resulted in more Stage 2 cases. .

Okay. And 1 more question on the project finance. So INR 125 crores under DCCO extension. Is it inside or outside the 0.7% construction finance GNPA? And also, is it real slippage or does the new norm?

So it is outside. And the construction finance, GNPA is not 7%. 0.7%. Yes, so and it is outside the...

So DCCO cases are not considered as GNPA. They are still considered as standard. .

The next question comes from the line of Rushi Baghul with khokim bank.

First of all, congratulations to the Capri Global, one of the leading NBFC. And my question is, Ms. Divya posted 1 statement about the weak monsoon will impact on the gold loan increase. So my question is, if the margin comes stronger, then it will increase the requirement of the gold loan.

So what you say is, yes, if the monsoon is weaker, some of the micro finance and farmer -- marginal farmer will go for the requirement to meet their cash gaps by way of adopting the gold loan. However, I think the normal growth will keep coming. And in any case, we have seen that on a stablished share basis, growing at 25% of book is absolutely possible. Plus, we'll keep on adding the branches. So the more new branches will add, the more growth. So the growth will happen by 2 accounts, number one, from the existing branches in a normal case, about 25%, assuming that there's no growth in the gold loan prices, plus the new addition of the branches will further add to this.

The next question comes from the line of Suhani Singh with Ross Capital.

I had a couple of questions. Earlier, you had indicated plans to add around 350 dedicated gold loan branches during FY '27. But however, the branch additions in quarter 1 appear to be relatively more debt? Could you provide an update on the rollout then?

So our rollout plan will be in the quarter 2 about 150 branches. And then by balance Q3 we will add another 250 branches. So total 400 branches, we should be up and running by Q3. That is the plan, and I think plan is on the track. .

Okay. Are you still confident of achieving the full year branch expansion target? And should the addition would be more back ended?

I think as we predicted -- as we communicated earlier, the branch expansion -- now we have revised upward to 400 branches, and that will be completed on or before December 2026. .

Okay. That's helpful. So the gold loan yields have improved to around 18.6% this quarter. Do you believe the current yields are sustainable or should we expect some moderation or competition increase?

So a change in strategy, we have gone for the smaller ticket size. And accordingly, we gain our incentive plan to bring the attention on the smaller ticket size where the yield improvement is possible and which has taken place. So I think next quarter also, we'll see some improvement in the yield and current improvement have happened to about 8.5%. I think another 50 to 75 basis further improvement will happen in the yield. .

Okay. That helps. Also, the cost of funds declined down 10 basis points during the quarter. So given the current interest rate environment and your evolving borrowing mix, how should -- what scope do you see for reducing funding costs over the remainder of FY '27.

So I think FY '27, we don't see so much scope in the cost of fund reduction from this level. However, diversification perspective, we already approach public issuance of the bond, capital market, raising the commercial paper, raising the refinancing from institutions and then bank borrowings. And now some point of time, depending on the market condition and -- we will also have a set of GMTN program, so we can access that offshore dollar bond market. So they'll be end up diversification efforts have taken place and we'll see that the overall bank borrowing percentage will come down. But as regard the cost is concerned, I think costs will remain more or less stable during the remaining quarters. .

[Operator Instructions] The next question comes from the line of Somia Raghuwanshi with Nirva Securities.

My first question was on gold loan. Gold loans now account for nearly 47%, 48% of the overall AUM. Considering the recent volatility and correction in gold prices, how do you see the optimal portfolio mix evolving over the medium term, do you have an internal target for the gold loan contribution to the overall loan book?

So I think in the medium term, gold loan should be -- overall AUM mix should be about 55%.

Okay, sir. Got it. Sir, my next question is on MSME portfolio. As a percentage of overall AUM, has it really declined over the last few quarters? Could you elaborate on the key reasons behind this strength. Is this largely a function of faster growth in gold loans? Or have you relatively more selective in MSME underwriting?

So it was primarily because our -- we were opening the new branches in the gold loan and we wanted those branches to achieve profitability for us. So all the credit allocation of capital was towards the gold loan segment and keeping the overall growth in the range of about 50% to 60% annual growth, we have kept the gold loan on a higher priority. And accordingly, we have kept the very measured way of growth in the MSME segment.

The next question comes from the line of Nivedita Choudhary with ICICI Securities.

Congratulations on a very good quarter, sir. So I have 2 questions. Firstly, earlier, we had targeted FY '27 AUM target that was INR 47,000 crores. And now you have given INR 10 crores as FY '28 target . So is it correct to assume that we are also increasing FY '27 target and with an average of adding INR 3,500 crores in this quarter.

So I think FY '27, we are on course to achieve INR 50,000 crores and by FY '28, INR 65,000 crores. And you are right, that a quarterly basis, it can be in the range about INR 3,000 to INR 3,500 however, the last 2 quarters are always higher than the first 2 quarters.

All right. And can you please provide a productwise breakup there of the disbursement.

So we will give you those data offline.

[Operator Instructions] The next question comes from the line of Kaniksh Gupta with SS Family Office.