Manappuram Finance Ltd Q1 FY2024 Concall Summary

Key Takeaways

• Net profit surged 77% YoY to ₹498 crore, powered by a gold loan yield recovery and a sharp turnaround in the microfinance subsidiary Asirvad, which swung from a loss to a ₹111 crore profit.
• Gold loan AUM held steady at ₹20,603 crore while the consolidated book grew 20.6% YoY to ₹37,086 crore; non-gold verticals now contribute 44% of AUM, progressing toward the 50:50 diversification target.
• Gold loan yield recovered to 21.6% from last quarter's 21% blip, and management aims to hold yields in a 21-22% range even as standalone borrowing costs tick up 18 bps with another ~20 bps increase expected this quarter.
• Microfinance delivered the quarter's sharpest swing: Asirvad AUM grew 44.6% YoY to ₹10,141 crore and turned profitable, though QoQ AUM was flat because management conserved liquidity against a feared squeeze that never materialized.
• What to watch next quarter: Whether the promised 10-12% gold loan growth from new customer acquisition actually materializes, the pace of borrowing cost increases across standalone and Asirvad, and any resolution on the ED case and the RBI branch expansion approval.

Gold Loan: The Core Engine

• Yield recovery complete: Net yields improved to 21.6% from 21% last quarter, recovering from the temporary blip caused when gold loan tenures shifted from three to six months. Management expects to maintain a 21-22% yield range going forward.
• Growth bet is on new customers, not gold price: Management targets 10-12% annual gold loan growth driven entirely by new customer acquisition, adding 4.46 lakh new-to-Manappuram customers this quarter at a daily run-rate of 5,000-5,300. An analyst pushed back, noting this has never happened in 10-12 years; management countered that conditions are improving and the strategy no longer relies on gold price rallies.
• Churn defines the book: The average gold loan life is only 90-100 days, so maintaining a ₹20,000 crore book requires roughly three times that amount in disbursements: ₹39,000 crore this quarter across 50.49 lakh accounts. About 25% of loans close in the first month, another 20% in the second, and 40% by the third, a pattern unchanged even when tenure was extended to six months.
• Online gold loan gaining share: OGL proportion moved from 46% to 55% over the last year, with ticket sizes up 12% YoY versus 4% at the overall level. Management credits tie-ups with Google Pay, Paytm, and app features for the shift.
• Auctions contained: Only ₹14 crore in auctions this quarter, reflecting disciplined loan-to-value management.
• RBI show cause notice on auction surplus: The surplus has been reduced from ~₹53 crore to ~₹37 crore, and management is following up with customers to encash outstanding checks. Progress is being reported to the RBI, and this surplus is also the stated reason branch expansion approval for Manappuram Finance remains pending since the 2020-21 application.

Nandakumar: "So, we plan to grow at around 10% to 12% annually by increasing the customer base. It is not just rallying around the gold price."

Microfinance: The Turnaround Story

• Asirvad swung from loss to ₹111 crore profit YoY, with AUM reaching ₹10,141 crore, up 44.6% over the year-ago quarter. The turnaround is a major driver of the consolidated profit surge.
• Flat QoQ AUM was deliberate: Management reserved liquidity for 1.5 months anticipating a funding squeeze that did not happen, which slowed disbursals. They expect to make up the shortfall in coming quarters and maintain a 25-30% annual growth trajectory for Asirvad.
• Write-offs elevated credit cost this quarter: ₹57 crore in write-offs came entirely from the MFI book, driving higher Stage-2 to Stage-3 movement on the P&L. Management expects reduced credit cost in coming quarters and maintains overall credit cost guidance of 2-2.5% of average AUM.
• Funding cost reset underway: Asirvad's borrowing cost drove the 70 bps consolidated QoQ increase; a few bank term loans reset during the quarter, with two-year money now around 10%. Incremental cost for Asirvad is expected in the 9.75-10% range, though management notes MFI loans are PSL-eligible and banks are competing for them, so further increases may be limited.
• Capital raise under exploration: Management is evaluating options to raise growth capital for Asirvad from outside investors but will not sell its stake. No structure has been finalized.

Non-Gold Diversification

• Vehicle finance grew fastest: AUM of ₹2,805 crore, up 59.8% YoY, the highest growth rate across all verticals.
• Home loans gaining scale: AUM reached ₹1,203 crore, a 37.5% YoY increase.
• Diversification on track: Non-gold verticals now represent 44% of consolidated AUM, in line with the stated objective of a 50:50 portfolio mix. Management expects to sustain 35-40% annual growth in the non-gold book.
• MSME and personal loans flagged as focus areas for increasing presence, though no specific targets were given.
• Non-gold GNPA moved up marginally QoQ: Management attributes this partly to the March quarter typically seeing extra collection effort and expects 10-20 bps of fluctuation; efforts are underway to bring it down.

Borrowing Costs & Margin Dynamics

• Standalone cost of borrowing rose 18 bps QoQ, with another ~20 bps increase expected this quarter as bank rate resets continue even without a repo hike. Management expects standalone cost of funds to settle in the 850-875 bps range.
• Consolidated cost increase was sharper at 70 bps QoQ, largely driven by Asirvad's resets. Incremental borrowing for Asirvad is in the 9.75-10% range.
• Pass-through ability varies by segment: For small-ticket gold loans (~₹50,000), microfinance, used-car vehicle finance, and MSME (average ticket ~₹60,000), management believes passing on 20-30 bps of cost increases is manageable.
• OPEX elevated on credit cost: Operating expenses ran slightly higher as a percentage of AUM due to the MFI credit cost impact; management expects this ratio to decline going forward.
• NII growth expected in line with loan book growth: After some initial ambiguity on the call, management settled on this guidance.

Regulatory & Legal Overhang

• ED case nearing resolution: The predicate FIR has been quashed by police, and the case has been referred. A full stay has been obtained, and management expects the quashing to be completed within a fortnight. Bank funding has already improved considerably as a result.
• RBI branch expansion approval still pending: Manappuram Finance applied in 2020-21 but has not received approval. The stated obstacle is the auction surplus, which has been reduced from ₹52 crore to ₹36 crore, with the RBI being kept informed of progress.
• OCEN not seen as a near-term threat: Management believes the open credit enablement network will not disrupt their business for 5-10 years, arguing they serve the bottom of the pyramid and will benefit from the infrastructure.

Nandakumar: "Regarding ED case, the predicate crime is gone. FIR is quashed by the police. Police have referred the case. So, automatically the ED investigation will go. It has gone, and we got a full stay also. In the meantime, the quashing efforts are going on. We hope that the quashing will happen in another fortnight."

Guidance & Commitments

Key Metrics