capri global capital ltd Management discussions

1. Economic review

1.1. Global economy

The global economy was sti_ed in 2022 because of inflationary pressures, the Russian-Ukrainian war and the resurgence of COVID-19 in China. Despite these headwinds, strong growth was witnessed in the third quarter in numerous economies, including the United States, Euro area and major emerging markets and developing economies. However, growth has declined across many major economies.

The stronger growth in the second half of 2022 was attributed to domestic developments such as higher-than-expected private consumption and investment, against a backdrop of tighter labour markets and stronger-than-expected fiscal support. Households spent more, particularly on services, to satisfy pent-up demand. Business investment rose to meet demand. On the supply side, easing bottlenecks and declining transportation costs reduced pressures on input prices and allowed for a rebound in previously constrained sectors, such as motor vehicles.

Signs are apparent that monetary policy tightening is starting to cool demand and inflation, but the full impact is unlikely to be realised before 2024. Global headline inflation appears to have peaked in the third quarter of 2022. Fuel prices and prices of nonfuel commodities are declining, lowering headline inflation, notably in the United States, Euro area and Latin America. Core inflation, however, remains well above pre-pandemic levels in most economies.

Advanced economies, which witnessed a GDP growth of 2.7% in 2022, are expected to slow down and grow at 1.2 % and 1.4%, respectively, in 2023 and 2024. On the other hand, growth in emerging markets and developing nations is expected to strengthen progressively from 3.9% in 2022 to 4% growth in 2023 and 4.2% in 2024. The headline (consumer price index) inflation rate is predicted to be lower in 84% of nations in 2023 than it was in 2022 and economists anticipate that global inflation would drop from 8.8% in 2022 to 6.6% in 2023 and 4.3% in 2024.

Global GDP grew 3.2% in 2022 and is poised to hit 2.9% in 2023 and 3.1% in 2024 reflecting the rise in central bank rates to _ght inflation and the war. The decline in growth in 2023 from 2022 is driven by advanced economies. In emerging markets and developing economies, growth bottomed out in 2022 and is expected to pick up, led by China, with the full reopening in 2023. However, India is expected to maintain the tag of fastest growing major economy over 2023 and 2024. The expected pick-up in 2024 in both groups of economies reflects a gradual recovery from the effects of the war and subsiding inflation.

(Source: IMF January 2023 – World Economic Outlook)

1.1.2. Indian economy

According to the provisional estimates by the National Statistics Office (NSO), in FY2023, the GDP growth rate is projected at 7.2%, lower than the 9.1% witnessed in FY2022, where pent-up demand boosted growth.

Retail inflation continuously moderated during FY2023 and is estimated by RBI to average 5.1% in FY2024. On external front, FY2023 witnessed robust exports led by both services and merchandise and a moderation in oil prices. This has aided the expectations of a fall in the current account deficit in FY2023 and FY2024. A well-balanced foreign trade and expectations of stable capital inflows has also led to expectations of a stable Indian Rupee in near future.

The easing of global inflationary pressure led by falling international commodity prices and strong government measures are expected to aid economic growth in India. Indias private non-financial sector debt has witnessed a steady decline since mid-2021, along with an improvement in the quality of debt. In FY 2023-24, the Indian economy is expected to continue to be the fastest-growing economy in the World. The Indian GDP growth is estimated at 6.9% in FY 2022-23 and 6.6% in FY 2023-24 by the World Bank.

The inflation trajectory in India is likely to be determined by extreme weather conditions such as heatwaves and the possibility of an El Ni?o year*, volatility in international commodity prices and pass-through of input costs to output prices. Infiation is expected moderate in FY2024 and is likely to remain at 5-6%, with risks evenly balanced.

(Source: NSO, World Bank, PIB, RBI)

*El Ni?o and La Ni?a are the warm and cool phases of a recurring climate pattern across the tropical Pacific. El Ni?o creates abnormal warming of the Pacific Ocean, and it is known to negatively impact the Indian monsoon.

(Source: CNBC TV18)

2. Review of the financial services industry

Indias diversified financial sector is undergoing rapid expansion. The Indian financial sector currently comprises several segments, including commercial banks, new-age fintech start-ups, non-banking financial companies (NBFCs), co-operatives, insurance companies, pension funds, mutual funds, small and medium financial entities and recently established payment banks. Together, they provide solutions to a wide range of customers based on their requirements and accessibility.

After the pandemic, the world economy underwent significant changes, including the financial services industry. The sector witnessed unprecedented disruption, digital proliferation and upending of business models. Customers now opt to manage their finances from home and prefer online payments over cash.

2.1. Non-banking financial companies (NBFCs)

NBFCs play a significant role in financial inclusion in India by providing tailored solutions to various individuals/groups needs who are excluded from banking services. NBFCs operate in locations where banking services are unavailable partially/ completely, providing last-mile connection to the unorganised sector of society. They also contribute significantly to the state exchequer and are a significant source of capital for start-up companies and the trade and commerce industry. NBFC activities include loans and advances, the acquisition of shares, stock, bonds, debentures, or other comparable marketable instruments, leasing, hire-purchase, insurance business, etc. NBFCs aid in fund mobilisation by allocating funds that result in income regulation, thereby influencing economic growth.

According to Crisil research, in FY2023, the assets under management (AUM) of NBFCs was expected to grow between 8-10% aided by improvement in economic activity and strengthened balance sheet buffers. The sector saw a slowdown between FY2020 and FY2022 with a modest 2-4% AUM growth due to the Covid-19 pandemic. The vehicle finance segment, which constitutes nearly half of the assets, is expected to act as a catalyst in FY2023, growing at 11-13%, up from 3-4% in the previous two years. Strong demand from the infrastructure sector as well as demand for fleet replacement and focus on last-mile connectivity will buoy commercial vehicle sales while pent-up demand and new launches will drive car and utility vehicle sales.

As lenders focus on higher-yield assets, unsecured loans, the second-largest segment at about 20%, is likely to be the only segment to touch the pre-Covid era growth of 20-22%. NBFC loan growth is also expected to come from other segments such as personal loans, consumer durable loans, loans to SMEs, and property and gold loans. Consumer loans are being supported by rising retail spending across consumer durables, travel and other personal consumption activities, while business loans are expected to benefit from macroeconomic tailwinds. Loan against property (LAP) and gold loan segments are also expected to grow at 10-12%, supported by demand from small businesses and individuals.

NBFCs will continue to face competition from banks and higher interest rates will weigh on their growth leading them to focus on higher-yield segments. The wholesale finance segment, which has seen multiple players exiting the market over the past few years, will continue to lag with declining AUM. Higher-than-expected interest rates and inflation are factors that will play a vital role in altering the dynamics of the industry.

Source: NBFCs turn around, likely to expand AUMs by 11-12% by FY23: Report_ : The Financial Express; NBFCs Asset Growth Set To Touch Four-Year High In FY23: Crisil Ratings (outlookindia.com)

2.2. Micro, small and medium enterprises (MSMEs)

The MSME sector, known as the backbone of the Indian economy, has been a significant contributor to the expansion of entrepreneurial endeavours through business innovations. The MSMEs are widening their domain across sectors of the economy, producing a diverse range of products and services to meet the demands of domestic as well as global markets. The sector is playing a crucial role by providing employment opportunities to over 110 million people at comparatively lower capital cost than large industries, as well as through industrialisation of rural and backward areas, thereby reducing regional imbalances and assuring more equitable distribution of national income and wealth. Presently, 63 million MSMEs in India account for ~30% of GDP and have contributed to half of Indias annual exports in 2022. The credit growth to the MSME sector was over 30.6% on average from January to November 2022.

The sector is rapidly moving from of_ine to online mode and adopting technology to improve its operations, increase efficiency and provide providing timely services to its customers and clients. The use of cloud computing, artificial intelligence, machine learning and blockchain technology is enabling MSMEs to reach a wider customer base, streamline their processes and reduce costs.

In the Union Budget 2023-24, the government continued to extend its support to the sector by:

• Allocating an Emergency Credit Line Guarantee Scheme (ECLGS), which has delivered additional credit to more than 13 Million MSMEs, of 500 Billion to a total cover of 5 Trillion.

• Providing 2 Trillion additional credit for Micro and Small Enterprises to be facilitated under the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE)

• Raising and Accelerating the MSME Performance (RAMP) programme with an outlay of 60 Billion to be rolled out

• Interlinking Udyam, e-Shram, National Career Service (NCS) and Atamanirbhar Skilled Employee Employer Mapping (ASEEM) portals; they will now serve as portals with live, organic databases, delivering G2C, B2C and B2B services relating to credit facilitation, skilling and recruitment

• Proposing deducting expenditures on payments made to MSME by buyers to ensure MSMEs receive timely payments It is expected that 2023 will be a bright year for the MSME sector led by the promotion and entry of fintech and other digital lending solutions in the sector, which will help these businesses access formal channels for credit, further helping them eliminate all operational bottlenecks to make them competitive globally. The rising penetration of the internet and smartphones and affinity to online marketplaces is expected to boost growth and movement towards the formalisation of this sector. According to Crisil, bank credit to MSMEs will witness 16-18% growth during FY2023 and FY2024.

Source: Schemes for MSMEs in India (investindia.gov.in)

2.3. Affordable housing

Affordable housing is a crucial sub-segment in the housing and real estate sector. Real estate prices are gradually rising led by the pent-up ready inventory and keenness of potential homebuyers. Continuous support of the Indian government in the affordable real estate sector is driving demand further. With the Credit-linked Subsidy Scheme, homebuyers of the economically weaker sections are finding it easier to acquire a home. The Reserve Bank of India (RBI) doubled the limit for individual housing loans offered by urban cooperative banks (UCBs) and rural cooperative banks (RCBs) to improve credit flow for the housing sector. Given the rise in housing prices, the revised limits will facilitate the growth of the sector.

In the Union Budget 2023-24, the Finance Minister announced increased allocation for Pradhan Mantri Awas Yojna by 66% to over 790 Billion. This step will significantly boost the growth of this sector. Moreover, the Budget also announced a slew of measures to further extend support to the sector:

• Launch of the Urban Infrastructure Development Fund (UIDF) to improve urban infrastructure in Tier 2 and Tier 3 cities

• Allocation of USD 9.85 Billion to the Ministry of Housing and Urban to construct housing for both urban and rural residents

• Allocation of USD 130 Billion to develop the infrastructure sector, providing a considerable boost to the infrastructure industry across India

According to TechSci Research, the Indian affordable housing sector was valued at USD 1.8 Billion in 2022 and is expected to grow at ~19.8% CAGR during 2022-2028. The sector is reaping the benefits that the government has placed on urban infrastructural development and planning. The unwavering focus on infrastructure will indirectly drive real estate growth in the future.

2.4. Construction finance

The Indian construction industry is the engine of the economy as it is responsible for propelling the countrys overall development. In value terms, it was estimated at USD 738.5 Billion in 2022. The sector is witnessing good growth momentum supported by a sharp increase in government capital expenditure, thus boosting economic growth and increasing job creation. Increased focus on renewable energy needed in facilitating the transition of the economy to low carbon intensity and reducing dependence on fossil fuel imports, will, in turn, provide a boost to the construction sector. Further, a strong government focus on transport, health, energy and housing infrastructure will aid the sector further.

Emerging trends that directly impact the dynamics of the construction industry include a rise in the need for green construction to reduce carbon footprint, bridging lock-up device systems to improve structure life, building information systems for efficient building management, and using cutting-edge technologies. With an emphasis on rebuilding infrastructure, sustainable buildings and smart cities, and an accelerated pace of adoption of technological advancements, Indias construction industry is witnessing massive growth.

The Indian construction industry is forecast to register an annual average growth of 6.2% from 2023 to 2026, supported by a strong pipeline of infrastructure projects across various sectors. Various government programs such as Atmanirbhar Bharat, which are expected to boost domestic industries, and the Pradhan Mantri Gati Shakti National Master Plan, which aims to drive economic growth through infrastructure development, are also expected to attract investment to the construction industry in the coming years.

Source: "India Construction Market Size, Trends and Forecasts by Sector - Commercial, Industrial, Infrastructure, Energy and Utilities, Institutional and Residential Market Analysis, 2022-2026" report

2.5. Gold loans

India owns more than 14% of the worlds gold and Indias gold loan market is largely underpenetrated at ~7%. As per World Gold Council, the share of jewellery in the consumer gold demand has averaged 75% in the ten years between the years 2013 to 2022. In terms of tonnage, Indian consumers bought more than 6,800 tonnes of gold in the same period or approximately 700 tonnes annually. Households are estimated to hold between 24-25,000 tonnes of gold with just 4-5% of these gold holdings estimated to have been monetized. This explains the scale of opportunity in the gold loan segment. Although the share of organised sector has been rising, the unorganised sector comprising moneylenders and pawn brokers still dominates the gold loan business with a share of nearly 65%. NBFCs, with their dedicated gold loan branches offering quick turnaround time, systematic gold valuation, and trustworthy safekeeping have become the preferred leading players in the smaller ticket size segment (0.1-0.2 Million) of gold loans. Customers residing in rural India are gradually switching to these NBFCs.

Increased digitalisation in the sector with the emergence of online and digital models in the gold loan space by NBFCs and new-age fintech players that offer gold loans at the customers doorsteps have opened up an untapped market among digitally enabled customers. Gold loan NBFCs will continue to witness huge growth in the future as they are well-equipped with digital adoption for quicker decision-making. Capturing new markets coupled with lesser regulations provides them with a natural advantage over the competition.

2.6. Car loan distribution

The Indian car loan market is witnessing robust growth mainly driven by growing disposable income and increasing ownership of vehicles. Moreover, the shift from combustion engine vehicles towards electric vehicles, product launches, subsidies offered by the government on the purchase of electric vehicles, and high vehicle replacement rates are promoting sale of cars across India, which is consequently boosting the Indian car loan market. Currently, the EV landscape is dominated by 2-wheelers with the popularity of the electric cars slowly increasing. The low share of 4-wheelers in the EV space presents huge scope for growth, driven by the premiumisation trend gaining traction with growing disposable income, government push for EV and increase in awareness. This trend in turn is expected to drive growth in the premium car loan segment.

In FY2023, the car loan segment witnessed 23% growth. The surge in auto loans is owing to multiple factors such as the growing participation of international players in the Indian auto market, the presence of features such as installment and hire purchase finance in auto loans meeting securitisation criteria, safety due to title over assets and development of a resale market for cars that let financiers use foreclosures effectively in the event of delinquencies. The car loan market is forecasted to grow to $60 Billion by FY2026.

Banks, original equipment manufacturers (OEMs) and non-banking financial companies (NBFCs) are the main players in the car loan segment. Public and private sector banks are the major dominators when compared to NBFCs and OEMs due to their large customer base and competitive rates

In FY 2022-23, SUVs dominated the PV segment sales clearly indicating the shifting consumer preference towards SUVs, given rise in disposable income. Automakers have also sharpened their focus on producing SUVs, as consumers continue to opt for the feature-packed cars despite inflation trending higher. This premiumisation trend bodes well for the car loan segment.

3. Company overview

Since 2011, Capri Global Capital Limited, a diversified NBFC, is playing a crucial role in the financial inclusion of India. We primarily cater to the financial needs in the North and West India. Our diversified portfolio spans segments such as MSME, Affordable Housing, Gold Loans, Construction Finance, Indirect Lending and Car Loan Distribution segments. We boast of an AUM of 103,204 Million, with a strong distribution network of 736 branches spread across 15 States and Union Territories. Our perseverance and endurance have helped us to establish strong brand equity in the NBFC industry.

We have embarked on a journey of digitisation, with a strong focus on improving operational efficiencies through IT enablement. This strategy has aided in effectively tapping the underserved markets, optimising and realigning our branch network, and enhancing efficiency.

3.1. Operational performance

3.1.1. Segmental performance

MSME Loans: We address the capital needs of MSMEs through the SME & Retail Lending vertical through term loans secured against residential or commercial property. Our borrower segment comprises first time as well as existing to credit borrowers.

During the year under review, the MSME segments AUM including co-lending witnessed 32% growth. The AUM increased from 31,911 Million in FY 2022 to 43,580 Million in FY 2023. The co-lending AUM more than quadrupled, from 1,155 Million in FY 2022 to 5,004 Million in FY 2023, which was the first full year of operations under the co-lending mechanism. MSME disbursals touched 17,525 Million in FY 2023, implying a 40.6% growth over 12,463 Million of disbursals achieved in FY 2022. The share of MSME AUM softened to 42.2% in FY 2023 from 49.8% in FY 2022 owing to a stronger growth in Affordable Housing and introduction and strong scale up in Gold Loans.

Affordable Housing: CGCL offers affordable housing and home equity loans to the underserved and deserving lower and middle-income families through its wholly-owned subsidiary Capri Global Housing Finance Limited (CGHFL). As at March 31, 2023, CGHFL had 58% of its outstanding loans to self-employed borrowers while 42% of the loans were given to salaried borrowers.

During the year under review, the Affordable Housing segments AUM including co-lending witnessed a growth of 53%. The AUM increased from 17,474 Million in FY 2022 to 26,657 Million in FY 2023. The segment commenced co-lending operations and had an outstanding of 465 Million under the mechanism. Affordable Housing disbursals touched 12,893 Million in FY 2023, implying a 64.4% growth over 7,845 Million of disbursals achieved in FY 2022. The share of Affordable Housing AUM was 25.9% in FY 2023, marginally lower than 26.3% in FY 2022.

Construction Finance: Our Construction Finance vertical focuses on construction finance and project related expenses for residential real estate in the affordable and mid-income projects. We focus on developers having experience in Tier 1 and 2 cities, where we have developed expertise since over a decade after first commencing this vertical in FY 2011.

During the year under review, the Construction Finance segments AUM witnessed a robust growth momentum of 44.5%. The AUM increased from 12,662 Million in FY 2022 to 18,301 Million in FY 2023. The disbursals increased 56.0%, from 9,237 Million in FY 2022 to 14,406 Million in FY 2023. The churn in the portfolio, as indicated by the repayments and foreclosures to opening AUM, was 69.2%, slightly higher than 60.8% noted in FY 2022. The high churn is also testimony to CGCLs strong underwriting standards and timely recovery and repayment of loans.

Indirect Lending: Through this vertical, we extend loans

a) to NBFCs engaged in MSME lending, microfinance, as well as to fintech-based NBFCs, and

b) against pledge of debt securities to debt issuing borrowers.

During the year under review, the Indirect Lending segments AUM increased 8.9%, from 3,128 Million in FY 2022 to 3,408 Million in FY 2023. The disbursements under the segment were lower 11.3% at 12,825 Million compared to 14,467 Million in FY 2022.

Gold loans: CGCL had announced its foray into the Gold Loan business in February 2022. At the time of announcement, CGCL had unveiled a business plan that aimed at achieving a 80 Billion Gold Loan AUM through a network of 1,500 exclusive branches in North and West India within five years after launch. We began operations in August 2022 with 108 branches in 7 States and UTs. Over the next 7 months to March 2023, we rapidly scaled up to 562 exclusive branches across 7 States and UTs with an AUM of 11,256 Million. The Gold Loan AUM constituted 10.9% of consolidated AUM on March 31, 2023. The segment achieved loan disbursements of 18,812 Million comprising a significant 26% of consolidated disbursements during FY 2023. The vertical had a dedicated staff count of 3,847 on March 31, 2023 with a strong experience in gold loan business. Gold Loan in a short span has emerged an important growth driver for CGCL.

Co-Lending: Under the co-lending arrangement, CGCL co-originates MSME and Affordable Housing loans and retains 20-30% of a co-originated loan on its balance sheet while the remaining 80-70% is held by the co-lending partner bank on its balance sheet. CGCL earns a fixed spread or service fee on the co-originated loan retained by partner banks on their balance sheet.

We first entered into co-lending partnerships during FY 2022 with Union Bank of India for MSME and State Bank of India for Affordable Housing. During FY 2023, we expanded the co-lending partnership with State Bank of India to start offering MSME loans. Additionally, we also entered into co-lending agreements with Punjab and Sind Bank (MSME and Affordable Housing), and UCO Bank (Affordable Housing). Our total co-lending partnerships stood at 3 for MSME and 3 for Affordable Housing across 4 leading commercial banks.

As highlighted earlier, the co-lending AUM under MSME nearly quadrupled during FY 2023 to touch 5,004 Million from 1,155 Million in FY 2022. Disbursements under MSME co-lending was 3,894 Million compared to 1,155 Million in FY 2022. Co-lending under Affordable Housing commenced during the year and the outstanding AUM stood at 465 Million. Disbursements under Affordable Housing co-lending was 465 Million.

Going ahead, co-lending shall be an important growth driver. Co-lending partnerships for MSME and Affordable Housing with other leading banks is under discussion. During FY 2024, we also intend to launch co-lending product in the Gold Loan segment.

Car Loan Distribution: CGCL is a corporate selling agent for new car loan products of our partner banks. We earn a fee income on the proposals sourced by us and disbursed by the partner banks. At end of March 2023, we had a team of ~1,200 sales personnel with a robust understanding of the trends and customer requirements in the passenger vehicle segment and strong connects within the passenger vehicle OEM ecosystem. This has propelled us in the top league of car loan distributors in the country.

During the year under review, we originated new car loans amounting to 56,728 Million compared to 17,020 Million in FY 2022, a growth of 3.3x. We earned a net fee of 1,179 Million in FY 2023 compared to 276 Million in FY 2022.

Our car loan distribution segment has an asset-light business model with minimal requirement of own physical infrastructure in our locations. It does not require allocation of risk capital and we do not carry any credit risk for the car loans originated by us.

We expanded our presence from 213 locations (including 5 branches) in FY 2022 to 450 locations (including 9 branches) in FY 2023.

3.2. Financial performance

Our consolidated AUM stood at 103,204 Million, up 56%. Net Income stood at 9,081 Million. Despite rising cost of funds due to the policy tightening initiated by RBI during the year, the Net Interest Margin was robust at 8.5%. Credit cost declined 39% to 642 Million. Operating expenses increased 127% led by the rapid expansion in Gold Loan business. PAT stood at 2,047 Million, similar to that in FY 2022 level of 2,050 Million. Adjusted for the income and opex in Gold Loan vertical, FY 2023 PAT was 39% higher at 2,855 Million (for a comparative understanding, see table on next page).

I. Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations therefor, including:

(i) Debtors Turnover: Not Applicable;

(ii) Inventory Turnover: Not Applicable;

(iii) Interest Coverage Ratio: No significant change;

(iv) Current Ratio; Not Applicable;

(v) Debt Equity Ratio: No significant change;

(vi) Operating Profit Margin (%): Not Applicable; and

(vii) Net Profit Margin (%): Net profit margin declined from 20.9% in FY 2022 to 14.0% in FY 2023. Profitability measured in terms of Return on Assets¹ declined from 3.33% in FY 2022 to 2.32% in FY 2023.

During FY 2023, CGCL commenced its Gold Loan business rolling out 562 exclusive branches in 7 States and UTs. The staff count in the Gold Loan business was 3,847 as of March 2023, constituting 42% of consolidated headcount. This led to a significant increase in the initial operating expenses with cost-income ratio increasing to 63.4% in FY 2023 from 40.1% in FY 2022. The estimated loss in the Gold Loan vertical was 808 Million. Adjusted for this loss, the Net Profit after Tax during FY 2023 would have increased 39% over FY 2022 to 2,855 Million. Despite the steep increase in operating expenses and an initial loss of 808 Million in the Gold Loan vertical, CGCL nearly matched the consolidated net profit of FY 2022, reporting Net Profit after Tax of 2,047 Million in FY 2023 (fiat YoY). The Gold Loan vertical is expected to break-even in FY 2024 and significantly boost profitability during FY 2024.

Note:

1. Return on Assets = Net Profit After Tax for the Year / Average Assets * 100, where, Average Assets = Average of Total Assets of Five Trailing Quarters

II. Details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof.

The Return on Net Worth¹ declined from 11.3% in FY 2022 to 8.8% in FY 2023. The Return on Net Worth declined due to static Net Profit After Tax (unchanged YoY) and an increase in the Net Worth owing to equity infusion in the last fortnight of March 2023 to the tune of 14,400 Million (40% of post-issue Net Worth). This increased the outstanding and consequently average equity on the date of balance sheet. The unadjusted and adjusted effects are summarised in the table below:

Particulars	Reported RoNW	RoNW excl. Rights Issue Equity	RoNW excl. Rights Issue Equity and Gold Loan Loss
Net Profit After Tax ( Million)	2,047	2,047	2,855
Net Worth ( Million)	35,655	21,255	21,255
Average Net Worth ( Million)2	23,128	20,728	20,728
Return on Net Worth (%)	8.85%	9.87%	13.77%

Note:

1. Return on Net Worth = Net Profit After Tax / Average Networth * 100 2. Average Net Worth = Average Net Worth of Five Trailing Quarters

3.3. Strategic outlook

3.3.1 Business Outlook: Our growth has been underpinned by a strong focus on the retail segments comprising MSME, Affordable Housing, and Gold Loans (commenced in August 2022). Together, these three segments comprised 79% of consolidated AUM in FY 2023. The growth in the wholesale segment, comprising Construction Finance and Indirect Lending is anchored to the momentum in the retail segment and is expected to stay at ~20% of consolidated AUM. In the past two years, non-fund based business represented by the Car Loan distribution vertical has rapidly scaled up and made meaningful contributions to Companys net income. The share of net fee income from car loan distribution was 43% of non-interest income during FY23.

MSME: CGCL launched its MSME business in FY 2013. In the decade since its launch, CGCL has continuously _ne-tuned the processes, strengthened underwriting, while ensuring consistent granularity in the portfolio. During the year, the Average Ticket Size (ATS) on incremental disbursements averaged 1.74mn. The ATS at portfolio level was 1.4mn, declining from 2.5mn in FY 2018. Thus, growth over the years has been driven by a strong volume growth than just ticket size inflation. The live relationships in MSME increased at 35% CAGR between FY 2018 – FY 2023 whereas the on-balance sheet portfolio increased at 20% CAGR in the same period. This has been a result of CGCLs focus on the micro segment within the broader MSME category, which as evidenced from credit bureau data, exhibits better asset quality compared to other MSME segments.

Going ahead, MSME shall remain an important growth driver for CGCL. Incrementally, the share of co-lending in MSME AUM is expected to improve. Compared to a 9.3% share in MSME disbursements during FY 2022, the share of co-lending in MSME disbursements increased to 22.2% in FY 2023. The share of co-lending AUM within MSME increased from 3.5% in FY 2022 to 11.5% in FY 2023. In FY 2022, CGCL had co-lending partnership with 1 bank – Union Bank of India. During FY 2023, the Company added State Bank of India and Punjab and Sind Bank taking total number of co-lending partnerships to 3. CGCL shall further expand the co-lending partnerships in FY 2024.

Affordable Housing: CGCL commenced the affordable housing business through its wholly-owned subsidiary Capri Global Housing Finance Ltd. (CGHFL) in FY 2017 and FY 2018 was the first full year of operations. The business has reported a CAGR 61% between FY 2018 - FY 2023. During FY 2023, The ATS on incremental disbursements averaged 1.3mn. The ATS at portfolio level was 1.1mn, moving up marginally from 0.9mn in FY 2018. The live relationships increased from 2,620 in FY 2018 to 24,335 in FY 2023, a CAGR of 56%. CGHFL commenced co-lending during Q3 FY 2023 with State Bank of India, Punjab and Sind Bank, and UCO Bank. The disbursements under co-lending constituted 3.6% of housing finance disbursements during FY 2023 while the co-lending AUM under Affordable Housing constituted 0.5% of consolidated AUM.

Affordable Housing has attained a strong growth momentum in last two years, growing at 72% CAGR between FY 2020 – FY 2023, compared to overall AUM CAGR of 60%. Going ahead, Affordable Housing shall remain an important growth driver. Given the sustainable and strong growth momentum, co-lending like under MSME, is expected to have a rising share in incremental AUM under affordable housing.

Gold Loans

The Company decided to ‘front-end its expansion in Gold Loans, scaling up to 562 branches within 8 months of launch. The Company shall pause branch expansion in the Gold Loan business after scaling up to 750 branches by September 2023. This will be 50% of the planned 1,500 branch network and sufficiently strong to provide CGCLs Gold Loan business scale and visibility in the geographies it is present. The focus in FY 2024 shall therefore be to achieve break-even in the Gold Loan business, which is expected to happen in Q4 FY2024. The business needs an average AUM of 40mn per branch to achieve break-even. We expect to achieve or exceed 30bn Gold Loan AUM in FY 2024.

Construction Finance

After taking a de-risking approach and de-growing the Construction Finance portfolio in FY 2020 and FY 2021, the Company once again adopted growth approach in the business as normalisation post-Covid19 pandemic set in. The portfolio has grown at 38% CAGR between FY 2020 – FY 2023, lower than the consolidated AUM CAGR of 60% during the same period. This is because growth in CF has been anchored to the growth in retail loan portfolio. The lower pace of growth reduced the share of CF in consolidated AUM to 18% in FY 2023 from 24% in FY 2020.

Despite stiff competition, CGCL has carved a niche in the small ticket non-luxury construction finance space. CGCL operates in micro markets of select cities like Mumbai, Delhi, Pune, Bengaluru, Hyderabad, and Ahmedabad, where demand for mid-sized housing remains robust. As a result, the Company built a strong sanctions pipeline during FY 2023. CGCL has also been careful in ensuring the average ticket size of exposure is well controlled. The ATS at sanction averaged 199.4mn during FY 2023 and the ATS on portfolio was 93.4mn as of Mar23 compared to 169.2mn at sanction and 74.8mn on portfolio as of Mar22. Despite the strong growth opportunities, the share of CF portfolio, as a matter of prudence, shall be restricted at or below 20% of consolidated AUM.

Indirect Lending

Under Indirect Lending, CGCL takes selective exposures to NBFCs including those in the fintech space through term loans or debt securities. The outstanding under Indirect Lending increased by a marginal 9% over FY 2022 to 3,408 Million. However, the share of Indirect Lending loans declined from 4.7% as of Mar22 to 3.3% as of Mar23. Based on opportunities, CGCL shall continue to deploy funds in this segment although the share of Indirect Lending in consolidated AUM shall remain low. Since inception of this segment in FY 2019, the share of outstanding under Indirect Lending in consolidated AUM has averaged 4.2%.

Car Loan Distribution

Pan-India presence, a team of experienced sales professionals with an intimate knowledge of the passenger vehicle industry, presence across top OEMs, tie-ups with leading financiers, and a service-oriented approach from assistance in choosing a vehicle to helping achieve a quick turnaround time in delivering finance has propelled CGCL to the forefront in the car loan origination business. As of March 2023, the Company had tie-ups with Bank of Baroda, Bank of India, HDFC Bank, Indian Overseas Bank, Indian Bank, Punjab and Sind Bank, Union Bank of India, and Yes Bank for originating car loans. During FY 2023, the Company originated and disbursed through partner banks 51,384 car loan proposals, implying an average ticket size of 1.1 Million. As of March 2023, the vertical had 1,199 employees and presence across 450 locations in 29 States and UTs compared to 550 employees and presence across 213 locations in 19 States and UTs in FY 2022. The strong growth in car loan distribution vertical is expected to continue in FY 2024.

4. Human resources

W e recognise the paramount importance of our workforce in our goal towards sustainable growth. In this regard, we diligently endeavour to attract, retain, cultivate and acknowledge talent within our organisation. Our primary objective is to establish a secure, supportive, cooperative and salubrious work setting, which fosters both personal and professional development for our employees.

Our people-centric team prioritises career advancement, ensuring that our work environment remains open, flexible and dynamic. We facilitate the enhancement of knowledge and skillsets through regular training and development initiatives for employees across all levels of the organisation. By implementing various motivational programmes and providing timely, appropriate rewards and recognitions, we maintain high levels of employee motivation and satisfaction.

Furthermore, we undertake numerous programmes and initiatives to instil a robust sense of business ethics and social responsibility within our workforce. Our ongoing efforts to synchronise employee objectives with the Companys overarching goals foster a productive work culture. In this manner, we integrate our employees into the broader vision of generating positive social impact, further solidifying our commitment to sustainable growth.

5. Information technology

Acknowledging the critical nature of technology in the dynamic work environment, we have embraced technological advancements to revolutionise the way NBFCs work. Technology has enabled paperless, real-time processing and execution, enabling us to offer a superior customer experience, better efficiency and reduced turnaround time. Our in-house tech platforms allow us to enhance profitability without compromising on safety. During the year under review, we continued to leverage data science to enhance our business capabilities.

Our technological advancement has allowed us to provide a rich customer experience, making loan processing easier at all stages. Though a majority of our processes have become cloud-based, there have been no security lapses led by our robust risk-monitoring and risk-management framework. Cloud-based data provides easy access to information irrespective of location, improving business flexibility. Apart from business and service enablers, digital sourcing, and data and analytics-driven decision-making were made simpler with technological advancement.

Our IT systems are a superior blend of specialised applications sourced from niche professional vendors. Applications such as Credit Risk Classification (CRC) scorecards and bureau scrubs are part of our analytics- driven underwriting, while tools for enabling digitised workflow include mobility applications and verification and screening tools. Through our self-service portal, which allows us to centralise MIS and data mart capabilities, we implemented integrated payment solutions. Machine learning and our automated reconciliation tool form crucial features of our debt collection engine.

We aspire to become a tech-first company, where all our critical business systems with in-house technology have enabled us to create a high-productivity tech-product office in Gurgaon. Our one-stop consumer app provides solutions to various customer issues, thus enhancing customer experience.

6. Risk management

W e have devised a robust risk management framework and risk mitigation plan defined at the business unit level. These enable us in early identification, proper assessment of impact, and development of appropriate and adequate mitigation measures. A periodic review of portfolio parameters and their respective trends helps keep a check on asset quality. The Risk Management Committee of the Board periodically provides a detailed view of the incremental asset portfolio, which helps to identify, assess and mitigate risks. Our Board has approved an Asset Liability Management (ALM) Policy to assess the risk arising out of the liquidity gap and interest rate sensitivity. The Asset Liability Management Committee (ALCO) is entrusted with controlling the ALM policy.

We also have in place a robust credit model and assessment process to ensure the creditworthiness of our customers. An in-depth analysis of borrowers financials and business enables us to assess the impact of the crisis. We have strengthened portfolio concentration on risk monitoring. Structured approaches are devised to address specific risks related to geography and industry. We are committed to creating a robust risk-management culture to address any challenges through the following:

Prompt technology adoption: During the pandemic, we rapidly digitalised our processes, which has made our organisation more agile.

Data-driven decisions: We use data analytics for better and rapid decision-making while ensuring that the business is safeguarded against risks. It also improves communication with stakeholders, increases cross-team collaboration and makes the entity more agile. The most recent portfolio performance trends are highlighted by the data analytics team for effective management.

Focused portfolio monitoring: We closely monitor the cheque bounce ratio, total delinquency, roll forwards and collection efficiency to understand early warning signs and raise red _ags in the initial stages. We are thus able to quickly tweak our business strategy to adapt to the changing macro and microenvironment.

To ensure that the business is protected against risks and ready to charter new frontiers of growth, we have undertaken the following initiatives:

• New borrower selection is based on a robust credit policy, which has been aligned as per the evaluation of the creditworthiness of highly impacted profiles and industries

• The credit assessment process is supported by mandatory visits and an elaborative credit assessment method

• Regular employee skill development programmes are undertaken, such as branch and regional training, online classrooms, etc.

• Data digitisation supports the decision-making process with the help of data dashboards and trends

6.1. Risks and their mitigation measures

Risks	Mitigation measures
Credit Risk	We have meticulously structured lending policies for each business sector. Our rigorous credit appraisal includes customer interactions, field investigations, credit bureau checks, in-house technical and legal verification, appropriate loan-to-value ratios, and term insurance cover. This, combined with detailed reference checks and business sustainability assessments, helps us minimize the default probability. All loans are secured by mortgages with an exclusive first charge on collateral properties. Additionally, our Fraud Control Unit aids in potential fraud detection and forensic document analysis.
Due to a range of issues including serious liquidity problems, bankruptcy, economic decline, fraud, or other factors, customers might fail to fulfil their financial commitments. This could result in an increase in our Non-Performing Assets (NPAs), which in turn could negatively affect our financial situation, particularly in the areas of asset quality and capital sufficiency.
Operational Risk	Our advanced operational control system includes an expert team managing our internal control infrastructure, which aligns with our underwriting and collection processes. Additionally, our responsive customer portal ensures efficient consumer engagement through prompt responses.
Operational risks may result from inadequate controls on internal processes, people, and systems. External factors also pose threat to business operations.
Liquidity Risk	Our expert treasury team handles liquidity management, daily fund tracking, and allocation. They provide quarterly reports to Asset Liability Management Committee (ALCO) members, forecasting liquidity scenarios for the next six months. Our long-term funds, sourced from banks and financial institutions, have a repayment tenure of 5-10 years. With a high CRAR of 37%, were well-positioned to secure funds for growth.
A negative event could result in a lack of liquid assets, limited financial market access, or a significant rise in our capital costs, all of which may present risks to the Company.
Portfolio Concentration Risk	We have a diversified portfolio with multi-sector exposure, broad geographic reach, diverse customer profiles, and smaller loan sizes. Our loan portfolio mainly includes MSME, Construction Finance, Home Loans, and Indirect Retail Lending. Our wide customer base and extensive distribution network minimises impacts on our portfolio. Additionally, we carefully evaluate risks before selecting new expansion locations.
The concentration of credit in a particular segment of borrowers, sector, products or geography leads to increased dependency on the performance of that segment and may result in losses impacting the quality of the asset-book and financial reputation in the market.
Strategic and Business Risk	Our strategy, business, and risk teams carefully track macroeconomic, industry, and competitive trends, facilitating timely and informed strategic decisions. To mitigate business uncertainties, we brainstorm, devise, and implement strategies fitting our needs and capabilities. Our Boards expertise greatly enhances strategic planning and decision-making. To stand out in competition, we create customized lending solutions centred on our customer needs.
Adverse shifts in the macroeconomic or business landscape could negatively affect our decisions and profitability if not properly addressed. Increased competition, higher funding costs leading to tighter spreads, and decreased demand in specific customer segments also present potential risks.
Interest rate risk	Our Asset Liability Management Committee (ALCO) monitors and evaluates interest rate changes quarterly. It sets the base lending rate, or Long-Term Rate of Return (LTRR), based on various factors. The majority of our portfolio comprises floating interest rates. Our interest risk strategy is both extensive and adaptable to fluctuating market conditions.
As the Company is in the lending business, it is exposed to interest rate risk arising due to a plausible mismatch between the maturity of the assets and the liabilities. The interest rates are sensitive to several factors including RBIs monetary policies, domestic and global economic factors, geopolitical situations, inflation etc.
Regulatory and Compliance Risk	We have a dedicated compliance department led by a senior executive to stay abreast of regulatory changes and ensure prompt and effective implementation and adherence to all relevant rules and regulations. We rigorously adhere to Capital Adequacy Norms, Fair Practice Code, Asset Classification, KYC/PMLA Guidelines, Provisioning Norms, Corporate Governance framework, and timely reporting with RBI/SEBI/Stock Exchanges/ Ministry of Corporate Affairs, etc. Our extensive internal audit and control framework helps us monitor and maintain comprehensive compliance.
As a systematically significant non-deposit taking NBFC (NBFC-NDSI), we fall under the regulatory oversight of the RBI, and as a listed company, we must adhere to regulations set by the Securities & Exchange Board of India (SEBI). We are subject to numerous rules by various regulatory bodies. Failure to comply or misinterpretation could result in insufficient compliance. We must also be ready to adapt to changes in existing laws or the introduction of new ones.
Information Technology Systems Risk	We use robust information security systems to safeguard sensitive customer data and ward off cyber threats. This includes advanced technology, governance measures, backup procedures, restricted application access, and regular system upgrades to the latest security standards. We maintain a remote Disaster Recovery Site as part of our Business Continuity Plan and regularly update and reinforce security policies for critical applications.
To support our business processes, communication, customer details and loan records, we deploy information technology systems, including Enterprise Resource Planning (ERP), loan management applications, data repository and mobile solutions. Redundancy in technology used or lack of proper technological support may pose risk to business growth.

7. Environmental, Social and (ESG) initiatives

At Capri Global, we are committed to incorporating ESG initiatives into our business practices. We understand that ESG factors are crucial to our long-term success and sustainable growth, and we aim to create a positive impact on society and the environment.

Read more on our contribution to ESG on page 34-35.

8. Internal controls

Our strong internal control system enables the safeguarding of assets and the highest level of productivity at all levels. We have set up an internal control framework in line with the size and industry in which we operate. The internal control system, comprising policies, procedures and well-defined risk and control matrices is automated. We comply with the highest level of credit underwriting parameters, and requisite laws and regulations led by a robust internal control framework that enhances the process of financial reporting and transaction reporting. The Audit Committee conducts regular internal audits to ensure compliance with the best practices. The internal auditors periodically test the efficacy of our internal control systems. Our statutory auditors are responsible for testing and ensuring strict control over financial reporting.

9. Cautionary statement

The statements made in this report describe the Companys objectives and projections that may be forward-looking statements within the meaning of applicable laws and regulations. The actual result might differ materially from those expressed or implied depending on the economic conditions, government policies and other incidental factors which are beyond the control of the Company. The Company is not under any obligation to publicly amend, modify or revise any forward-looking statements on the basis of any subsequent developments, information or events.