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Capri Global Capital (Capri), in its analyst day on Sep 15, ’23, reiterated its vision to grow its portfolio to INR 30bn in the next five years, while continuing to pursue ‘granularisation’ strategy. New products, i.e. gold loans, car loan distribution and colending are likely to be its primary growth drivers, coupled with >30% growth in existing product segments. The management also highlighted its plans to heavily invest in technology/data science (~INR 500mn budgeted for FY24) in order to enhance risk management and improve operational efficiencies. It also targets a mid-teen RoE by FY24 driven by high yielding gold loan portfolio (~18%-21%), higher growth in fee-based co-lending and car loan book and operational efficiencies, However, the stock rerated sharply over the past six months capturing most positives, thus, leaving limited scope for rerating, in our view. We maintain REDUCE rating on the stock with TP unchanged at INR 695, at a multiple of 3.5x to Sep‘24E BVPS.

Expects AUM growth of ~37-40% in FY24 Capri’s AUM grew robust at 61% YoY in Q1FY24 supported by steady growth in all focused segments (MSME, construction finance, home loan and gold loan). While MSME and home loan grew YoY at 33% and 53%, respectively, the newly launched gold loan (launched in Q2FY23) grew 42% QoQ in Q1FY24. Construction finance book, which got impacted during the pandemic, also saw a revival with YoY growth of 38% YoY in Q1FY24. Going ahead, gold loan (680 gold-only branches), car loan distribution (8 partners with presence across 714 locations) and housing finance may remain the key growth drivers. Furthermore, technology and data science are going to be the key enablers; it is planning to invest INR 500mn in FY24 to bring in efficiencies. Overall, the company expects to grow ~37- 40% in FY24 with an AUM target of INR 150bn

Upfront investment towards branch expansion impacted earnings; increased focus on productivity improvement to drive profitability RoA during FY23 moderated sharply to 2.2% from 3.2% in FY22 largely due to its strategic investment towards accelerated gold loan branch rollout. However, RoA, adjusted for upfront investment towards gold loan branches, stood ~3% in Q1FY24. It launched gold loans in Q2FY23 by opening >100 branches at one-go and then expanded to 680 branches by Mar’23. While near-term profitability was impacted due to branch expansion, entry into high yielding gold loan portfolio (18%-21%) enabled overall spread expansion to 7% by Q1FY24 from 6.3% in Q1FY23. Additionally, the expansion of fee-driven businesses of co-lending and car loan origination further added to the topline, as co-origination income constituted 6% of net income in FY23. Increasing productivity from gold branches and operational efficiencies through tech initiatives may bring down cost-toincome ratio going forward. Key risks: a) AUM growth exceeding our expectation, and b) higher fee income from car loan distribution and co-lending.  

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