Capri Global Capital Limited (531595) Earnings Call Transcript

Housing finance, it would have been about 82%, 83%. Exact, I will get back to you.

Okay. And sir, like for -- we have not restructured any of the Construction Finance cases so -- but, I mean, the disbursement -- so how do you see that post the second wave will we need to then restructuring in that segment?

So in Construction Finance, we have not received any request for restructuring even in last year. And since we are funding smaller projects, wherever ticket size is less than INR 8 crores. And depending on city, their underlying ticket size of the apartment is between INR 3 million to about INR 4.5 million. And these are a smaller project, affordable home loan or that, I would say, in the larger cities, we had outskirts. So I believe their promoter skill is the plan is fully funded. Construction started after all the approval. And we are seeing that the focus approach of this smaller developer, we have not seen much restructuring request or delay from their side. So that portfolio, which is we are doing in a very retail, we are Construction Finance, is doing better despite it is perceived to be a little riskier. But almost we are handling this business in the last 9 years, and this continues to behave in a very predictable manner.

Okay. Sir, one last question. With respect to your Housing Finance disbursement, so how are we seeing that trend in the month of April and May? And if you can just give some color as to how will the share look like. Well, like disbursements for fresh approvals versus disbursements for [indiscernible] construction that is going on. As you say, a -- so how will that split are be looking like?

So we are not funding under construction properties in home loan, okay? Whatever we have done earlier, but now we're looking at the COVID situations and all affordable home loan side, we are funding only ready properties. So now if you see the disbursement trend in April, May, April and May, practically, there are no disbursements happening. There are very few negligible disbursements are happening in salaried segment, but we are being cautious. So I think June onwards, some disbursements will start again. April, maybe you're very cautious. And that our entire focus, entire team, even regional team, sales and credit and collection are working together to continue to be in touch with the customer and focus on collection and also remain in touch in getting a sense. So divestments have not happened in April and May, by and large.

[Operator Instructions] Next question comes from [ Arun Somani ] from [ RMS Capital ].

So I have a couple of questions. The first one, how are the things shaping up ground for MSME during the ongoing second wave? Any sort of feedback we might have received from our customer in terms of how the business [ passed ] hiring for them? And how soon do you expect this to be normal at being like 10, 12 months it was?

So I'm told our team on ground is constant touch with the customers and the sense we are getting in this time, COVID has impacted even the rural areas. So definitely, their business has impacted. But since they are very smaller businesses, the moment economy opens up with the result of lockdown and [ recreation ] drive picking up, we hope this business will bounce back faster because these are the light businesses we fund are of the essential items, maybe [indiscernible] store, maybe garment shop, maybe bike repairing shop. Maybe a job with small business. And these businesses are -- essentially are small in nature and run very efficiently by owner-driven small setup. So we believe that these businesses bounce back and there's adequate demand in this segment because these no income-proof customers, there are very few players who are catering to and they just use [ gap ], and there's a good opportunity to exist. So I think by July onwards, enough demand should be there in place.

Okay. And one of my last question is, in terms of asset quality, we have seen some increase over there as well. So...

Can you be a little loud, please?

Yes. In terms of asset quality, this is my question related to that. We have seen some increase over there as well. So with the ongoing situation, how do you see the credit cost shifting for the next couple of quarters? Is there any internal decision done for the same?

As you've seen this year, we have done almost 50% lower provisions to address the potential rise in delinquencies. And we believe that we are into secure space where most important collateral is mortgaged to us while in between, delinquency may rise because of the current quarter situation. But if next 9 months go well, which looks like as of now, in that situation, our collection efficiency will bounce back to normalcy and cases, which have faced difficulty, they should also with the resumption of economy activity at ground level, should restart bouncing back. If you look at our NPA, which has grown to about 3.3%, I think next year-end, it is difficult to predict but we should not see much surprise in this. We are keeping a very tight control on this. Recently, we hired a very new collection head also and we have about 180-plus collection team on ground. But entire regional team, relationship manager, credit team is also given the responsibility of managing their 1 plus and traction. So with these focused approach and increased efforts, we believe that, yes, there will be some in between rise but it should come back to normalcy level. So we don't expect that our net NPE will grow, gross NPE will grow significantly from the current levels.

[Operator Instructions] Next question comes from [ Preeti Singh ] from [ Value Investments ].

I just have a couple of questions from my end. So what is the potential of loan growth from our existing branch infrastructure? And what are cross-selling opportunities exist?

So if you've seen even in the most difficult time during last year also when only second half was functional, even the last month, March, 15 days is impacted by the COVID. We have grown almost about 20%. And we believe that second half of the year, hoping that normal will be back, will be actually more branches. And with that, we should be able to achieve a growth despite assuming that first quarter is completely gone almost. We should be able to grow 25% to 30%, hoping that 9 months remains stable and business bounce back, and there is no much impact to the COVID and lockdowns. So this is that we can easily -- our current branch potential has to deliver that 25%-plus growth, even though we don't get much significant branches. With regard to cross-selling opportunities, so far, our customer segment remained the same, whether MSME or home loans. And recently, we have started new car loan origination to capitalize our understanding of these small customers, we are tied up with nationalized banks, and we are able to generate very good traction in that. And that should add some fee income in the year-end. Besides we are evaluating more product addition, and I think the next 3 months, that strategy will be clear. And when we announce our next quarterly results, I believe by that time, it should be very clear which are the products we want to add. That will remain of the same kind of a customer cross-selling ideas. It can be potentially used car, it can be potentially short-term loans or it can be maybe gold loans. So we are working on that. That strategy is work in progress. And once we finish, we'll share with all of you.

Okay. Perfect. And another question is all our loans fully [indiscernible]. So what has been our past account in recoveries [indiscernible] through sale of assets?

So recovery of sale of assets happened through 3 means. We agree to the customer to find a buyer to dispose of the property and repay our loan in case the business is not able to regularize the loan. Second can be we can invoke arbitration. And through that, we can attach the property and recover -- and auction the property and recover the loan. And third one is we can use the surface notification under which we can take all the assets. Now during last year budget, surface limits have also been reduced from INR 50 lakhs to INR 20 lakhs, and our majority of the loan are covered in that category. So we believe a combination of this, depending on what tool we are able to implement if this surface during 12 to 18 months, we are able to dispose of the property and realize the loan. And that is what our experience is. Arbitration, if in case you are not able to invoke surfacing because of the lower amount of the loan, then it takes almost about 2.5 years to auction the property. But our experience is that majority of the time, we are able to make customer agreeable to find a buyer and dispose of its property, so that we can face a better vessel rather than the attach a tag of fail by an auction, by a lender, and thereby, this value will deteriote. So with this, our experience is good that except for cases, we are able to recover money in all the NPAs. Most of the time, it is principal plus interest. And some of the cases, we had to take a slight hit, maybe in the interest, in some cases in principal, depending on the situation. So depending on litigation, if it can break many years, we settle the loan. So a cash-to-cash basis approach is adopted.

[Operator Instructions] Next question comes from [ Rajagopal Ramanathan ], an individual investor.

I have a few questions. When you say a few questions, probably 4 or 5. You can jot them down and then respond accordingly. The first one is the -- what are your expected [indiscernible] the various product offerings? What was that [indiscernible]

I would suggest if you can be a little loud because some background noise is also coming.

Is it better?

It's not better but you can speak more louder, maybe that would be helpful.

Sorry to interrupt, sir. Mr. Rajagopal, this is moderator here. So can you speak a little bit better? Can you come close to the speaker and speak? Yes, yes, it's better now, sir. You can proceed now.

Okay. What are the expected [indiscernible] product segments that you offer? That's the first question. The second one is, I actually wanted to understand your Construction Finance business a little better. You did explain certain assets. But typically, what would your typical customer be like? The added tender of [indiscernible] with these customers. And what are the security structures and what has been your NPA experience in this business? That is as far as the Construction Finance business is concerned. The third question relates to the risk-weighted assets, which get applied on the various product segments. If my understanding is right, the Home Finance business would be 50% or sub-50%. So what is the [indiscernible] that is applied on your MSME loan segment and Construction Finance? And a couple of other questions. What is your aspirational ROA, ROE steady state? Or -- obviously, these are conditions which are not steady state. But let's say, if I were to take an adjustment debt on you, what should be the ROAs, ROEs that I should be building in when I would be taking an equity exposure on a company like you? And lastly, what are your values or plans in your Housing Finance segment?

Yes. So your first question, I'm not able to hear clearly, but I'll answer whatever I understood, and if anything is left, you can ask again. How do we run our Construction Finance and what is your experience? So Construction Finance, our approach is to lend to small developer and do Construction Finance also maybe retail rate. So if you see our ticket size is less than INR 8 crores, find a developer who is having experience of delivering at least 300,000 square feet, operating in that geography more than 5 years. And most of this time -- most of the time, these are families and businesses, small developer, family members are doing their business in last 1 or 2 decade. And they are building small, small project in one very specific geography. So for example, a developer operating in the outskirts of Pune is only in that surrounding area, keep buying land, taking approval, launching projects. So -- and they are doing 4-story to 7-story or 10-story buildings. But the apartment size is small in terms of cost-wise, so there are sometimes INR 35 lakh to INR 75 lakh value of apartment, and land is fully funded, approval in place, and they need money so that they can complete quickly their construction and get out of the project. Now these projects being there 4-story, 7-story or 10-story project, they don't take normally more than 18 months to 36 months maximum to complete. So our entire -- for such finance book, if you've seen, always see through at least 40% of prepayment, then we give extension. And almost generate a lot of cash every year and give lower OpEx and better yield. So far, our experience in Construction Finance is, except 1 or 2 cases where bigger size was larger and then we modified and corrected our course that we will not give loan more than INR 25 crore to every developer, and most of the time, they are less than INR 15 crores. And by the time we disbursed the last INR 2 crore, INR 3 crore, INR 5 crore, because of this sale of apartment, we are able to get back INR 3 crore, INR 4 crore, INR 5 crore out of the escrow cash flow sharing mechanism and its loan peak exposure never cross INR 8 crore, INR 9 crore despite sanctions of INR 15 crore. So that is done very in a focused manner by our experienced team. And we have very strong monitoring and risk management. Every project is monitored closely, the progress, the sale of unit, and we constantly push the developer. We don't deal with the larger developer. Our size or period of the loan is more important for him. So we are the largest lender who don't share [indiscernible] the lender. And entire Construction Finance book is only residential. There's no commercial, there's nothing else. So this is done in a very focused manner, and we have kept this book focusing on the profit and margin. We never chased the number. If you've seen last -- as compared to last year, this book has de-grown by 25% because we are very cautious last year. Last year, a lot of repayment and prepayment have happened. And we have decided to go slow on the COVID situation. We have not seen any NPA or even not even a restructuring request in this portfolio last year. So this book is doing quite well. And what would be the value unlocking for our Housing Finance company? I think we will continue to grow this book for the next 2, 3 years. And once it reaches some sites, that is a time we will think there's no concrete plan yet. We might be -- we can attract some strategic investor. Maybe we can list it separately. But this is too early to say because the next 2, 3 years, I think we will be able to infuse adequate liquid in this. This company is already having 4 to 5x leverage and generating an ROE of about 17% kind of ROE. So this business has continued to do well. This book is having only home loan. There's no diluter book. There's no lab account in this book. So this book is focusing only on home loan and this book has our MSME [ homogenized ] synergies, same geography, same customers, same underwriting. So operating cost also remains well balanced. And can you repeat if any of the question is left because first question, I was not able to hear very clearly. Your voice is not coming audible.

Sorry to interrupt, sir. Mr. Rajagopal, hello? Mr. Rajagopal? Mr. Rajagopal, we request you to join back the queue for further questions since we are unable to hear you, Mr. Rajagopal. All right, sir. I'll inform them. [Operator Instructions] That would be the last question for the day. Now I hand over the floor to Mr. Rajesh Sharma for closing comments.

Yes. Thank you. As you would have noticed from the presentation that we remain very focused on the segment we operate in. And the liquidity position last year also, we have done a lot of prepayment and negotiated a better interest rate. And there's a -- from 10%-plus consolidated cost of fund, we had brought it down to about 8.5%. And resultant is that while we had passed on this benefit to our customer also by lowering yield, still, we have improved our overall spread by 50-plus basis points. We believe that we have -- we understand the business very well. There's a huge growth opportunity. Our entire business is having collateral assets. So there's no much concern on these kind of time that this unsecured portfolio might face. We believe that there's a huge growth opportunity lying ahead. We have about -- added 400 employees in last quarter, keeping in mind the potential. And we are able to grow about 20%. I believe in next year, despite first quarter, have -- looks like we will not be seeing much of the business action. First 9 months, you shouldn't be able to come back to the group. And we will continue to grow our books for next 3, 4, 5 years, add a few more product and maintain our liquidity position very well. So with a combination of this, we see that there will be constant improvement in our ROE earnings and remain a very predictable, well-managed asset quality in place. Thank you. Thank you so much.

Thank you, sir, and thank you, everyone. Ladies and gentlemen, this concludes your conference for today. Thank you for your participation and for using Door Sabha's conference call service. You may disconnect your lines now. Thank you, and have a pleasant evening.