New Micro LAP And Rooftop Solar Loans Will Expand Future Market Presence

Key Takeaways

• Expansion in underserved markets and product diversification, including co-lending and gold loans, provides significant revenue growth opportunities.
  
• Investment in digital technology and strategic branch expansion will enhance efficiency, reduce costs, and boost profitability.
  
• Reliance on high-growth gold loans and co-lending poses risk if gold prices, bank strategies, or interest rates fluctuate, impacting margins and profits.

Catalysts

A non-banking financial company, provides financial services in India.

• The introduction of new products, such as Micro LAP and rooftop solar loans, along with expansion efforts in underserved markets, present opportunities for Capri Global Capital to increase its revenue in the MSME and housing loan segments.
  
• The company's significant growth in co-lending, with increased partnerships and acceptance ratios, is expected to contribute to higher revenue and profit margins due to reduced liability costs and enhanced ROE.
  
• The focus on expanding the Gold Loan segment, with a network of 776 branches and a 196% increase in AUM, indicates potential for substantial revenue growth moving forward.
  
• Continued investment in technology, such as leveraging digital-first approaches and advanced data science for risk profiling, is expected to improve overall efficiency and net margins by reducing operating costs and credit risk.
  
• With strategic branch expansion focusing on high-yield products like Micro LAP and Micro Housing Finance, Capri Global is poised to improve its earnings and cost-income ratio, boosting both profitability and operational efficiency.

Capri Global Capital Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Capri Global Capital's revenue will grow by 33.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 23.3% today to 31.0% in 3 years time.
• Analysts expect earnings to reach ₹12.0 billion (and earnings per share of ₹14.12) by about February 2028, up from ₹3.8 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 27.6x on those 2028 earnings, down from 34.8x today. This future PE is greater than the current PE for the IN Consumer Finance industry at 18.8x.
• Analysts expect the number of shares outstanding to grow by 0.29% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 16.68%, as per the Simply Wall St company report.

Capri Global Capital Future Earnings Per Share Growth

Risks

• The company's reliance on high growth in the gold loan segment, which has a high asset-to-loan value ratio (LTV), could be risky if gold prices fluctuate, potentially impacting asset quality and earnings.
  
• The slower growth in the MSME loan book compared to other segments could limit revenue diversification and may affect overall revenue growth if not addressed.
  
• With the majority of borrowings on a floating rate basis, the company's financials could be vulnerable to interest rate fluctuations, impacting margins and net income.
  
• The strategy to expand through branch openings involves upfront costs, which may pressure the cost-income ratio temporarily, affecting net margins until economies of scale are achieved.
  
• Dependence on co-lending partnerships for significant growth exposes the company to risks related to potential changes in bank strategies or regulatory landscapes, potentially affecting revenue and profit margins.

Valuation

• The analysts have a consensus price target of ₹250.0 for Capri Global Capital based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹38.6 billion, earnings will come to ₹12.0 billion, and it would be trading on a PE ratio of 27.6x, assuming you use a discount rate of 16.7%.
  
• Given the current share price of ₹161.7, the analyst price target of ₹250.0 is 35.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.