| Experienced management & healthy resources raising ability
Capri group, through its flagship company CGCL, forayed into lending business in 2010, primarily focusing towards wholesale lending and gradually shifted towards a retail book. The Group’s flagship company CGCL is listed on both BSE and NSE. Capri Group is promoted by Mr. Rajesh Sharma, with an experience of around three decades in financial services sector. CGCL has a board comprising of six members with an experience of more than three to four decades in the banking, financial services, public administration sectors. The promoter group holds ~70 percent and the remaining 30 percent is held by public, which includes mutual funds, foreign portfolio investors, individuals, bodies corporate etc. CGHFL, the housing finance arm of Capri Group is a wholly owned subsidiary of CGCL. On a consolidated basis, CGCL’s Networth stood at Rs. 3565.47 Cr. and AUM of Rs.10,320 Cr as on March 31, 2023. Further the AUM increased to Rs. 11,226 Cr as on June 30, 2023. The group in Q4FY2023 has raised capital through a rights issue of Rs.1,440 Cr which has led to healthy capitalization levels. The capital adequacy levels of CGCL (standalone) stood at 39.86 percent as on March 31, 2023. The Group is moderately levered and its consolidated gearing stood at 2.11 times as on March 31, 2023, which provides scope for incremental leverage to support the growth in loan book.
Sustained growth in AUM through focus diversification of portfolio
Over the last few years, the group has been diversifying its portfolio towards granular MSME and housing loans. The Group’s portfolio comprises of four product verticals namely, loans to MSMEs which are secured against property, housing finance, construction finance, gold loans and indirect lending to smaller NBFCs and MFIs. The company had forayed into the gold loan vertical during FY2023 as a conscious attempt to increase their focus towards diversification of the loan book. CGCL has added 562 dedicated branches in FY2023 which has helped them scale up the gold loan book to Rs 1,120 Cr (as on March 31, 2023) in a short span of time. The consolidated Asset Under Management (AUM) increased to Rs. 10,320.40 Cr. as on March 31, 2023 from Rs. 6,632.90 Cr. as on March 31, 2022. Further the AUM increased to Rs. 11,226 Cr as on June 30, 2023.The growth in AUM was driven by growth across all product verticals. The Group has adopted cautious strategy towards its Construction Finance segment and intends to limit the exposure to Construction Finance to under 20 percent of AUM going forward. Under the construction finance vertical, the company majorly lends to small and medium sized developers with an average ticket size of Rs,7-10 Cr amidst a range of Rs.2 to 60 Cr exposure towards a project.
Acuité believes that the management’s philosophy of focusing on the retail segment and lending towards granular assets is likely to augur well from a risk standpoint.
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| Susceptibility of asset quality to inherent risks in MSME segment and real estate sector
Capri Group has a presence in the lending space since 2010. The company’s primary focus of lending is MSME & Housing Finance segment which jointly contributes ~68 percent of the overall portfolio as on March 31, 2023. The Group primarily caters to borrowers who are self-employed and are engaged in small businesses and trading activities. The cashflows of these borrowers are dependent on the overall economic activity in the region. The Gross NPAs in the MSME vertical stood at 3.5 percent as on June 30, 2023. Through its construction finance segment the company continues to be exposed to the vagaries of the real estate industry. Though these exposures are secured by way of an exclusive mortgage of immovable properties with an escrow mechanism. Additionally, a sustained slowdown in funding to the wholesale segment over the near to medium term may adversely impact the developer’s ability to complete the existing projects in a timely manner as well as launch new projects.
Acuité has observed that the group’s initiated steps to take on granular exposures by focussing on housing finance. However, since MSME and Construction finance segments comprise considerable portion of the portfolio, the risk of slippage in asset quality will be a key monitorable.
Moderate Earning Profile
On a consolidated basis, Capri Group’s profitability indicators have moderated during FY2023 marked by Return on Average Assets (RoAA) at 2.17 percent as on March 31, 2023 from 3.18 percent as on March 31, 2022. The decline is attributable to increase in Operating Expenses, the Operating Expenses to Earning Assets (Opex) stands at 6.21 percent as on March 31, 2023 from 4.10 percent as on March 31, 2022. Net Interest Margins (NIM) also declined to 8.73 percent as on March 31, 2023 from 9.05 percent as on March 31, 2022. The group’s PAT levels have remained stagnant over the last two years through FY2023. The group reported PAT of Rs.204.6 Cr in FY 2023 and sizeable income is derived from CSA (Corporate Selling Agent) business for car loan origination indicating contribution of fee based revenue in the overall revenue stream. While there has been some moderation in the profitability levels due to the heavy opex incurred on the gold loan vertical.
Going forward ability of the company to build its loan portfolio while improving its profitability and sustain the growth in its fee based income will remain a monitorable.
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