Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL A1+’ rating to the commercial paper programme of Capri Global Capital Limited (CGCL).

 

The rating is driven by the company’s comfortable capitalisation, increasing segmental diversity in its assets under management (AUM) and, controlled reported asset quality metrics, albeit with limited seasoning. These strengths are partially offset by moderate earning profile with elevated operating expenses, concentrated resource profile, and limited stability of senior management in the recent past.

 

Promoted by Mr. Rajesh Sharma, CGCL commenced lending operations in fiscal 2011 and presently, offers loans to micro, small & medium enterprises (MSMEs), housing loans, construction finance, indirect lending (loans to other non-banking financial companies [NBFCs]) and gold loans, along with distribution services for third-party products.

 

AUM increased at a three-year compound annual growth rate of 37% through fiscal 2023, reaching Rs 10,320 crore as on March 31, 2023, from Rs 4,035 crore as on March 31, 2020. AUM further grew to Rs 13,362 crore as on December 31, 2023, driven by high traction in retail portfolio comprising MSME loans, housing loans and gold loans, which cumulatively form 80% of the AUM as of December 2023, up from 67% as of March 2019. The balance portfolio is deployed in wholesale lending, which constituted of construction finance and indirect lending. The other growth factor has been the off-book portfolio (partner book) which increased on account of co-lending arrangements entered into by the company since fiscal 2022. Resultantly, the share of off-book portfolio in overall AUM has increased to 8.9% as on December 31, 2023, from 1.7% as on March 31, 2022.

 

Alongside the scale up in business, the reported asset quality metrics have remained under control – reflected in gross non-performing assets (GNPAs) of 2.1% (Rs 255 crore) as on December 31, 2023, as against 1.7% (Rs 170 crore) as on March 31, 2023. Over the past five years, the company has cumulatively written off Rs 159 crore with nine-monthly write off for fiscal 2024 being small at Rs 27 crore (~0.3% of opening own book). Additionally, the company had a restructured portfolio of Rs 152 crore or ~1.1% of AUM as on December 31, 2023. However, given the rapid scale-up in the loan book in recent years, the portfolio seasoning remained limited, especially in the newly forayed gold loan segment wherein the company entered only in 2022. As the portfolio gains more vintage, the company’s ability to sustain asset quality at sound levels, will remain monitorable.

 

Furthermore, the resource profile of CGCL remains concentrated in relation to the company’s scale of operations with high reliance on bank borrowing (~86% of total borrowing).

 

The company’s financial risk profile is supported by its comfortable capitalization, marked by a consolidated networth of Rs 3,565 crore, an adjusted gearing of 2.1 times and a standalone Tier I capital adequacy ratio (CAR) of 39.4% and, as on March 31, 2023. The company raised Rs 1,440 crore in fiscal 2023 via rights issue which has augmented its networth, in addition to internal accretions through profits. This gradual buildup of capital has supported the company’s business growth over the last few years. As on December 31, 2023, the networth and adjusted gearing[1] stood at Rs 3,754 crore and 2.5 times, respectively.

 

CGCL’s earnings profile, however, has moderated in the recent past owing to high operating costs. Owing to infrastructural expansion for scaling the gold loan business, the company’s operating cost to average managed assets ratio increased to 6.1% for fiscal 2023 and further to 7.1% for nine months ended December 31, 2023, from 4.2% for fiscal 2022. Consequently, return on average managed assets (RoMA) declined to 2.1% for fiscal 2023 and 1.9% (annualised) for 9M 2024, from 3.1% for fiscal 2022. Going forward, scale-led operating efficiencies will be key to company’s profitability.

[1]Total debt includes off-book portfolio (partner book)

Analytical Approach

For arriving at the rating, CRISIL Ratings has assessed the consolidated business and financial risk profiles of CGCL and its wholly owned subsidiaries. These entities have significant operational, financial, and managerial integration and operate under a common brand name.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Comfortable capitalization: CGCL’s capitalisation is comfortable, with respect to its nature and scale of operations. Consolidated networth increased to Rs 3,754 crore as on December 31, 2023 (from Rs 1,383 crore as on March 31, 2019), while overall CAR was comfortably above the regulatory requirement at 28.0% and adjusted gearing at 2.5 times. On a steady-state basis, the company intends to operate at a consolidated gearing level of around 4-5 times.

 

Since inception, the company has cumulatively raised ~Rs 1,885 crore of which Rs 1,440 crore was raised in fiscal 2023 via rights issue. The promoter group holds 69.9% stake in CGCL, followed by Life Insurance Corporation of India (9.4%) and SBI Life Insurance Company Ltd (3.0%).

 

CGCL provides housing loan through its wholly owned subsidiary -- Capri Global Housing Finance Ltd (CGHFL) -- in which CGCL has invested Rs 525 crore thus far, of which Rs 200 crore was infused in fiscal 2024 itself and another Rs 200 crore will be infused in fiscal 2025. The other subsidiary -- Capri Loans Car Platform Pvt Ltd -- was established in October 2023 for carrying out the distribution business of CGCL and has low capital requirement given the nature of the business. However, CGCL would infuse Rs 50 crore as capital into this entity in the near term, for working capital and operational purposes.

 

In the normal course of business, the company’s consolidated capitalisation is expected to remain comfortable with adequate cushion being maintained in CARs over the stipulation and adjusted gearing remaining controlled.

 

• Improving segmental diversity in portfolio: The company started its lending operations in 2011 with construction finance and has, since then, diversified its product offerings by venturing into, and scaling across segments such as: secured loan against property (which the company terms as MSME), housing loan, indirect lending and most recently- gold loans. The company also provides distribution services for multiple third-party products.

 

CGCL’s AUM grew 39% (annualised) in the first nine months of fiscal 2024 to reach Rs 13,362 crore as on December 31, 2023, from Rs 10,320 crore as on March 31, 2023 (Rs 6,633 crore a year ago). Growth in recent years was primarily driven by scale up in retail book and co-lending partnerships entered into with large banks.

 

The company started co-lending arrangement with the banks in the MSME segment in 2022 and eventually, expanded into housing and gold loan segments as well. Over time, the company has established co-lending tie-ups with large banks such as State Bank of India, Union Bank of India, Central Bank of India, Indian Overseas Bank, Bank of Baroda, UCO Bank, Indian Overseas Bank, Bank of India and Punjab and Sind Bank.

 

In terms of portfolio mix, the share of wholesale book in the overall AUM was higher until a few years ago. However, having witnessed a few asset quality issues stemming from inherent risks of wholesale lending, the company reduced the ticket size in construction finance and MSME portfolio and has been making efforts to diversify across asset classes with primary focus on retail lending. As on December 31, 2023, AUM (including co-lending portfolio) consisted of MSME loans (35.7%), housing loans (26.1%), gold loans (17.9%), construction finance (17.0%) and indirect lending (3.3%). Over the medium term, CGCL plans to maintain a retail focused portfolio with the share of wholesale book being capped at 25% of the overall AUM.

 

CGCL aims to replicate the diversification strategy in its distribution business as well. The company provides distribution services for third-party car loans and has intermediated Rs 7,073 crore worth of car loans in the first nine months of fiscal 2024 (Rs 5,694 crore in fiscal 2023). The company has also received the license for distribution of third-party insurance products, which is further expected to improve CGCL’s overall business risk profile through cross-selling opportunities, also imparting diversity to the earnings profile.

 

• Controlled reported asset quality metrics, ability to sustain the same with portfolio seasoning remains key: CGCL’s reported GNPAs remained sub 3.5% over the past five fiscals. GNPA increased to 2.1% (Rs 255 crore) as on December 31, 2023, from 1.7% (Rs 170 crore) as on March 31, 2023, due to regularisation of the restructured pool of Rs 203 crore which the company had created during the Covid-19 pandemic. As on December 31, 2023, the restructured book accounts for ~1.3% (Rs 152 crore) of own book. Furthermore, the company has written off ~0.3% (Rs 27 crore) in the first nine months of fiscal 2024 and Rs 159 crore cumulatively in the past five years. On account of limited provision coverage ratio of 35%, net NPA stood at 1.4% as on December 31, 2023, as against 1.2% as on March 31, 2023

 

With the objective of strengthening its risk management systems and practices, the company has made significant investments in technology, operational systems and underwriting processes. Additionally, the company’s portfolio is primarily secured and diversified (with no product contributing more than 40% of the portfolio). The success of upgradations made to internal risk monitoring systems alongside portfolio growth will remain critical for sustaining asset quality metrics.

 

However, given the aggressive growth of AUM in the past few years, the track record of profitability scaling some of the new portfolios such as gold loans, remains limited. In the context of limited vintage in AUM, the company’s ability to ensure strong collection and recovery mechanism, while keeping GNPA levels within controlled limits, shall remain a key monitorable

 

Weaknesses:

• Moderate earnings profile with elevated operating expenses: After maintaining RoMA above 3% consistently till fiscal 2022, the company’s profitability moderated in fiscal 2023 owing to increase in operating expenses. This was on account of infrastructural expansion for the gold loan business, expenses incurred in strengthening overall technology, hiring at senior management level and, marketing overheads.

 

The company started gold loan business in August 2022 with 108 dedicated gold branches and within a span of 16 months, expanded to 747 branches as of December 2023. Additionally, the company has invested heavily in technology in the last two years to build in-house technology team (92 employees) to strengthen their technology infrastructure.

 

The company reported profit after tax (PAT) of Rs 197 crore for the first nine months of fiscal 2024 (RoMA of 1.9%) against Rs 205 crore in fiscal 2023 (2.1%) and Rs 205 crore in fiscal 2022 (3.1%). PAT is supported by the upfront booking of gain realised on the direct assignment portfolio (sale of loans). Excluding the same, RoMA stood at 1.3% for the first nine months of fiscal 2024, against 1.5% in fiscal 2023 and 2.9% in fiscal 2022. For the respective periods, net interest margins were 7.1%, 6.5% and 7.8% whereas operating expense as a percentage of average managed assets rose to 7.1%, from 6.1% and 4.2%, respectively.

 

Ability to restore overall profitability with economies of scale, by keeping operating and credit costs under control, will remain a key monitorable.

 

• Concentrated resource profile marked by high reliance on bank funding: CGCL had total borrowing of Rs 9,318 crore as on December 31, 2023, which was dominated by bank loans to the tune of 86%, followed by loans from financial institutions (FIs) forming 12% and remaining 2% comprising non-convertible debentures (NCDs). With respect to lender mix, the company has access to multiple banks with active lending relationships with more than 20 lenders as on December 31, 2023. The company’s average cost of borrowings was 9.4% for the first nine months of fiscal 2024 (consolidated basis), compared with 8.6% for fiscal 2023 and 7.7% for fiscal 2022.

 

With the launch of short-term lending product (gold business in fiscal 2022), the company is planning to incrementally raise some borrowing via commercial paper/ working capital demand loan (WCDL) to better match their overall asset liability maturity (ALM) profile, though the focus will remain on bank borrowing going forward.

 

• Stability in senior management: CGCL has been focusing on strengthening its board as well as its leadership team. However, due to a relatively higher churn in its leadership team in the recent past, coupled with fresh on-boarding of senior executives for multiple new roles created within the organisation, the average association vintage of the leadership with CGCL – remains limited to about six and a half years. Between fiscals 2020 and 2022, there were five exits from three senior management positions of the company. While this rate of attrition has reduced over the past fiscal, the company has added 9 new positions to its organisation structure in the last 3 fiscals and, has hired executives for the same. Considering the erstwhile churn in, and sizable fresh additions to, the leadership, the company’s reliance on a limited number of senior management executives, including the managing director and promoter, remains high which exposes the enterprise to high key person risk. 

Liquidity: Adequate

Liquidity position is supported by sufficient cash and cash equivalents of Rs 1,355 crore (including Rs 701 crore of cash and cash equivalents for CGFHL), unutilised bank lines Rs 726 crore (incl. Rs 476 crore for CGCL) as on January 31, 2024, for the upcoming repayment of Rs 1,212 crore (incl. Rs 315 crore for Capri global housing finance ltd) over the following six months till July 31, 2023. With respect to the ALM profile as on December 31, 2023, there were positive cumulative mismatches across all buckets over the following 1 year period.

Rating Sensitivity factors

Downward factors

• Substantial deterioration in asset quality and/or overall profitability, leading to overall CAR declining to and remaining below 20% for a prolonged period.
• Inability to diversify resource profile while the company steadily scales its portfolio.

About the Company

CGCL is an NBFC-ND-SI registered with the Reserve Bank of India. CGCL was originally incorporated in November 1994 as Daiwa Securities Ltd. In May 1999, the name of the company was changed to Dover Securities Ltd. In April 2007, Mr Rajesh Sharma (Promoter) and Money Matters (India) Pvt Ltd acquired majority stake in the company and the name of the company was again changed to Money Matters Financial Services Ltd in October 2008. Subsequently, the name of the company was changed to CGCL in July 2013. The company commenced lending operations in 2011. CGCL together with its subsidiaries offers diversified financial services such as lending across multiple products - MSME loans, housing loans, construction finance, indirect lending (loans to other NBFCs) and has recently forayed into the gold loan as well. It also distributes third-party new car loans and has recently received the corporate agency license for distribution of third-party insurance products as well.

 

As on December 31, 2023, CGCL had AUM of Rs 13,362 crore and reported PAT of Rs 197 crore for the nine months ended December 31, 2023.

Key Financial Indicators: (Consolidated)

For the period ended	Unit	Dec 2023	Mar 2023	Mar 2022
Total managed assets	Rs crore	14928	12341	7268
Total income	Rs crore	1664	1465	982
Profit after tax (PAT)	Rs crore	197	205	205
Gross NPA	%	2.1	1.7	2.4
Adjusted gearing	Times	2.5	2.1	2.5
Return on managed assets	%	1.9^	2.1	3.1

 ^On an annualised basis

 

Key Financial Indicators: (Standalone)

For the period ended	Unit	Dec 2023	Mar 2023	Mar 2022
Total managed assets	Rs crore	11627	9793	5559
Total income	Rs crore	1316	1149	766
Profit after tax (PAT)	Rs crore	142	142	162
Gross NPA	%	2.3	1.9	2.7
Adjusted gearing	Times	1.9	1.6	1.9
Return on managed assets	%	1.8^	1.8	3.2

 ^On an annualised basis

Status of non cooperation with previous CRA:

CGCL has not cooperated with Brickwork Ratings India Private Limited, which have classified the company as non-cooperative through release dated August 25,2023. The reason for non-cooperation stated by Brickwork Ratings is non-furnishing of information for monitoring of ratings. 

Any other information:

In 2010, Economic offenses wing of Central Bureau of Investigation (CBI) had registered 5 cases against Mr. Rajesh Sharma, and some public servants on alleged charges of gratification. There were no cases registered against CGCL and all the cases were registered only in the individual capacity.

 

In June 2015, all the five cases have been disposed-off by the court and all the accused including the company officials have been discharged in all the cases.

ISIN	Name of instrument	Date of allotment	Coupon rate	Maturity date	Issue size (Rs.Crore)	Complexity levels	Rating assigned with outlook
NA	Commercial Paper	NA	NA	7 to 365 Days	500	Simple	CRISIL A1+