Whalesbook
JM Financial has initiated coverage on Capri Global Capital Limited, assigning a strong 'Buy' rating and setting a target price of ₹245. The brokerage firm believes the non-bank lender is well-positioned for sustained growth, driven by its diversified retail-focused franchise, robust asset quality, and an expanding non-interest income engine.
Background Details
- Capri Global Capital Limited, established in 2011, operates as a diversified non-banking financial company (NBFC).
- The company has built a 100% secured lending book, with nearly 80% of its assets concentrated in retail segments.
- Its product offerings have expanded over time to include construction finance, secured MSME lending, housing finance, gold loans, and most recently, micro-LAP (Loan Against Property).
- Capri Global also generates fee income through a car loan origination business and obtained an insurance distribution license in 2024.
Key Numbers or Data
- JM Financial has set a target price of ₹245 for Capri Global, valuing the stock at 2.3 times its estimated Price-to-Book value (P/B) for FY28.
- The brokerage forecasts an Asset Under Management (AUM) Compound Annual Growth Rate (CAGR) of approximately 35% between FY25 and FY27.
- Profit After Tax (PAT) CAGR is projected to be around 62% over the same period.
- Average Return on Assets (RoA) and Return on Equity (RoE) are expected to be 3.6% and 15.6%, respectively, over FY26–FY27.
- Gross Stage 3 (GS3) and Net Stage 3 (NS3) asset quality ratios were reported at 1.3% and 0.7% respectively in Q2FY26.
Company Strategy
- Capri Global's core strategy involves maintaining a fully secured lending book, with a strong emphasis on retail market segments.
- Growth is being fueled by expansion in high-yield segments like gold loans and the developing micro-LAP portfolio.
- The company plans to scale up MSME prime loans to help balance its yield profile and mitigate potential margin pressures.
- There is a strategic focus on increasing non-interest income through co-lending, car loan origination, insurance distribution, and upcoming bond syndication.
- Co-lending and direct assignment structures are actively utilized to enhance income generation.
Financial Outlook
- JM Financial expects AUM growth momentum to remain strong, driven by the combined strength of gold loans and MSME credit demand.
- Operating leverage and steady credit costs (around 0.5% post-FY26) are anticipated to support profitability.
- Non-interest income is becoming a crucial contributor to overall profitability, providing stability.
- Asset quality is projected to remain robust, supported by the entirely secured loan book, despite minor temporary increases in GNPA that have shown swift collection improvements.
Valuation and Risks
- At current valuations, Capri Global trades at approximately 1.8 times its FY28 estimated Price-to-Book value, which JM Financial believes offers significant upside potential.
- The target price of ₹245 suggests healthy potential returns for investors.
- Key downside risks identified by analysts include a sharp correction in gold prices, a broad economic slowdown impacting the MSME segment, or rising credit stress across the market.
Impact
- This initiation of coverage with a positive outlook from a reputable brokerage like JM Financial could significantly boost investor interest and potentially drive Capri Global's stock price upward.
- It validates the company's business model and growth strategy, potentially creating positive sentiment for other players in the Indian NBFC sector.
- Impact rating: 7
Difficult Terms Explained
- P/B (Price-to-Book Value): A valuation metric that compares a company's market price per share to its book value per share. It indicates how much investors are willing to pay for each unit of a company's net assets.
- AUM (Assets Under Management): The total market value of investments managed by a financial institution on behalf of its clients.
- CAGR (Compound Annual Growth Rate): The average annual growth rate of an investment over a specified period longer than one year, assuming profits are reinvested.
- PAT (Profit After Tax): The net profit of a company after all expenses, interest, and taxes have been deducted from its total revenue.
- RoA (Return on Assets): A financial ratio that measures how profitably a company is using its assets to generate earnings.
- RoE (Return on Equity): A profitability ratio that shows how much profit a company generates with the money shareholders have invested.
- GS3/NS3 (Gross Stage 3 / Net Stage 3): These refer to asset quality classifications under regulatory norms, indicating non-performing assets (NPAs). GS3 is the gross value of impaired loans, while NS3 is the net value after accounting for provisions.
- GNPA (Gross Non-Performing Asset): The total value of loans that are in default and have not generated income for a specified period.
- Micro-LAP (Micro Loan Against Property): Small-value loans provided against the collateral of a property.
- Co-lending: A model where two lenders share the risk and reward of a loan, often involving a bank and an NBFC, working together on origination and servicing.
- Direct Assignment: A securitization method where a lender directly sells a pool of loans to an investor without using an intermediate Special Purpose Vehicle (SPV).
- Bond Syndication: The process where a group of investment banks collectively underwrite and distribute a new issue of bonds to investors.