Capri Global Capital - Getting back to normalcy - ICICI Securities

Capri Global Capital (Capri), in its recent business update call, highlighted that while it would remain cautious in growing its construction finance (CF) portfolio (~22% of AuM) in the near term, its ample liquidity and strong capital position would help grow focused segments like MSME, Home loans, and indirect retail finance. Company derives comfort from better collections in HL at 94%, CF at 92% and 100% in indirect retail. While collections remained relatively lower in the MSME segment at 81%, improving economic activities in rural and semi-urban regions (Capri's customer segments) and ~93% of borrowers paying at least one EMI during the moratorium, it expects MSME collections to improve in coming months. Further, based on latest interaction with borrowers, it expects restructuring requests to remain lower. The stock rerated sharply over past six months capturing most positives and thus leaving limited scope for rerating. Maintain HOLD with a revised target price of Rs328 (earlier: Rs215), valuing at P/BV of 2.6x to FY23E BVPS.

- MSME, HL and indirect retail lending to remain focused growth segments - Management is confident on the resiliency of its CF portfolio, given that most developers fall under the affordable housing category. Nevertheless, it reiterated its cautious stance on near term growth in the CF portfolio. Over the medium term, management expects MSME and HL to remain key growth drivers and get back to growth trajectory quicker than peers given comfortable liquidity and capital.

- Focus on cost rationalisation. To improve operational efficiency and productivity, Capri initiated a series of measures such as implementation of hub and spoke model, realigned the branch network, identified discretionary expenses and focused on curtailing them. It also rationalised the headcount, especially in branches where productivity was lower. Going forward, it plans to increase customer reach in a calibrated manner in existing geographies and branch expansion will be gradual. Company targets to bring down cost ratios on sustainable basis - had already shrunk to ~3.1% in Sep'20 (4.5% in FY20).

- Comfortable liquidity and capital position to ensure quicker return to normalcy - During the past six months, management has rightly focused on maintaining robust liquidity level (Rs5.5bn of surplus liquidity as at Sep'20- ~13% of AuM) and healthy capital adequacy (41.6%) to tackle any unforeseen Covid-related challenges. Further, it has made repayment and prepayment of loans ahead of schedule - amounting to ~Rs8.5bn in H1FY21 (~91% of overall scheduled payment in FY21).

- Outlook. We expect Capri's AUM to return to growth trajectory from the next fiscal with RoA/RoE at 4.0%/12.4% in FY23E aided by ample liquidity, comfortable capital and improving collections. We increase our target price to Rs328 (earlier: Rs215) as we roll over our estimates to FY23E and assign a P/BV multiple of 2.6x to FY23E BVPS. Maintain HOLD. Key upside remains higher than estimated AuM growth (17% CAGR over FY21-FY23e) and lower credit cost, while higher-than-expected incremental stressed asset formation remains key downside risk.

Shares of Capri Global Capital Limited was last trading in BSE at Rs.349.45 as compared to the previous close of Rs. 339.15. The total number of shares traded during the day was 93965 in over 3716 trades.

The stock hit an intraday high of Rs. 356.2 and intraday low of 338.2. The net turnover during the day was Rs. 32692851.

Source : Equity Bulls

Keywords