Manappuram Finance Ltd Q4 FY2024 Concall Summary

Key Takeaways

• Profit surge, gold-led: Net profit rose 35.7% YoY to INR564 crores, driven by gold loan profitability and a doubling of microfinance profit.
• Diversification hits a milestone: Non-gold AUM reached 49% of the consolidated book, with vehicle finance growing 69% YoY and home loans 38% YoY.
• Cash rule is a net positive: The INR20,000 cash disbursement cap caused no business disruption; online gold loan share rose to 63% as smaller competitors struggled to adapt.
• Asset quality is a tale of two books: Standalone GNPA held below 2%, but consolidated credit cost is weighed down by microfinance stress in a few states and a spike in MSME and digital personal loan NPAs.
• What to watch next quarter: Whether microfinance collection efficiency keeps its week-on-week improvement, the pace of auction surplus reduction to unlock branch expansion, and any update on the Asirvad IPO timeline.

Gold Loan Franchise & the Cash Disbursement Cap

• Growth engine intact: Gold loan AUM grew 8.9% YoY and 3.6% sequentially, adding 4.13 lakh new customers. Average LTV of 58% sits well below the peer group, leaving headroom.
• Online gold loan is the moat: The online book accounts for 57% of total gold loans, rising to 63% after the cash limit took effect. Management attributes the post-implementation growth improvement to smaller NBFCs lacking online infrastructure, while Manappuram already had ~60% of customers transacting online.
• Customer behavior decoupled from gold price: Customers pledge based on cash flow needs, not gold price movements. When prices rise, they bring lesser quantity of gold. Only ~10% of customers avail the full one-year tenure, and only ~5-6% temporarily take higher LTV on renewal.
• Ticket size stagnation is structural: Non-online gold loan ticket sizes are not expected to grow materially because customers borrow based on repayment confidence within a max 100-day tenure. A gradual annual increase of ~INR10,000-INR15,000 is normal.
• Doorstep service launched: For customers unable to visit a branch, the company now performs KYC and onboarding at the customer's location, with disbursals done online.

Nandakumar: "We don't see any business impact because of that because, most of the customers have their bank accounts now, Jan-Dhan account or other accounts. And 80% of the customers who are regular, we have intimated them that for availing the loan, they should bring bank account details and they are complying with that."

Diversification: Non-Gold Businesses

• Vehicle finance leads growth: AUM of INR4,111 crores, up 69% YoY. GNPA at 2.9% with collection efficiency at 100% in certain regions; 77% collected through NACH. Management expects to maintain GNPA below 3% going forward.
• Home loans scaling steadily: AUM of INR1,510 crores, up 37.8% YoY, operating from 65 branches and contributing INR7.1 crores in profit. Management sees significant potential in affordable housing.
• Non-gold distribution model is capital-light: Only ~20% of gold loan branches currently distribute non-gold products. Employee expenses have stayed flat despite non-gold growth because gold loan headcount has been rationalized as more activity shifts online.
• Secured lending is the capital allocation anchor: Policy is designed in favor of secured lending. Unsecured lending, which for Manappuram means microfinance, is capped at around 10% of total capital allocation.

Microfinance: Asirvad's Promise & Pain

• Profit engine accelerating: Asirvad Microfinance AUM grew 18% YoY and profit grew 105% from the previous financial year. Its share of the overall profit pie is expected to rise further.
• Asset quality stress is localized: Problems are concentrated in Punjab and Rajasthan. Collection machinery has been reinforced, and PAR is slightly elevated, impacting profitability. Management sees week-on-week improvement in collection efficiency.
• Credit cost is the swing factor: The majority of consolidated credit cost comes from microfinance. Standalone credit cost was only INR28 crore. Once microfinance collections improve, consolidated credit cost is expected to come down to around 1.5%.
• IPO in preparation: Asirvad filed its DRHP on October 5, 2023. Management stated the IPO will enable the subsidiary to carry out its operations independently, with decisions on institutional investors to be taken at the appropriate time.

Nandakumar: "So, the capital allocation strategy policy is designed in favour of secured lending. So for us, the only unsecured lending is microfinance. So for unsecured lending, our total capital allocation plan is around 10%."

Asset Quality: The Pockets of Friction

• Other income drop explained: Bad debt recovered is included in other income. Depending on write-off timing, immediate quarters can see higher collection amounts, making the line volatile.

Margins, Funding & Capital Management

• Borrowing cost rose 16 bps QoQ: After the risk weight increase, every rollover sees a higher cost. A Dollar Bond was executed for diversification and a better liability profile, albeit at a slightly higher cost.
• Gold loan NIM outlook: A marginal decline in gold loan NIM is expected, but management argues it will be compensated by better growth. The 20% ROE objective is unaffected.
• Auction surplus nearly wiped out: Reduced from INR48 crores accrued over 15 years to ~INR14 crores, through measures including deploying different agencies for repayment. The surplus is being reduced by ~INR2 crores every quarter. RBI has been informed, and management hopes this will unlock permission to open more branches.
• Capital utilization question deflected: An analyst asked how the ~INR1,600-1,700 crore annual earnings at the parent level would be deployed to improve ROE from 15-16% toward 20%. Management pointed to non-gold secured lending expansion and improving dividends quarter-on-quarter, but did not address buybacks or a specific ROE bridge.

Nandakumar: "It has been brought down now to around INR14 crores from INR48 crores and we have informed RBI about that and we hope that we'll get permission to open more branches with this."

Guidance & Commitments

Key Metrics