Manappuram Finance Ltd Q2 FY2024 Concall Summary

Key Takeaways

• Profit up 37% YoY on gold discipline and MFI: Net profit reached INR 561 crores, driven by maintained pricing in gold loans and a growing microfinance book, even as the company absorbed a competitive environment.
• Non-gold AUM hits 47%, nearing the 50-50 target: Diversification is accelerating, with vehicle finance surging 66.7% YoY and the Asirvad MFI DRHP filed, signaling a structural shift in the loan mix.
• Gold loan yield held at 22.1% by choice, not by market: Management is deliberately capping growth to 8-10% to defend a 22%+ yield floor, betting that rising funding costs will force competitors to follow.
• Asirvad IPO prep is restricting disclosure: The DRHP filing has put key MFI metrics like credit cost, collection efficiency, and stage-two assets off-limits, creating a temporary information gap for investors.
• What to watch next quarter: Whether the RBI lifts the branch expansion freeze after the auction surplus reduction plan plays out, and if the 22% yield discipline holds as banks retreat from small-ticket gold loans.

Gold Loan Strategy & Competitive Dynamics

• Yield discipline is the core bet: Management is holding the portfolio yield at ~22.1%, within its historical 22-22.5% band, and expects 8-10% annual growth from its target audience of small-ticket, short-duration borrowers. The explicit trade-off is sacrificing volume to avoid competing at unaffordable rates.
• Bank competition is receding: As bank credit growth accelerates and credit-deposit ratios tighten, their appetite for small-ticket gold loans is diminishing, a trend management believes is already underway and will ease pricing pressure.
• Delinquencies are a customer-accommodation choice, not a stress signal: Higher gold loan delinquencies reflect the company occasionally granting more time to borrowers upon request, not an inability to recover. The company retains the option to auction gold before an NPA event.
• Auction surplus reduction is the key to branch expansion: The RBI is watching for a couple of quarters to see if the company can bring the auction surplus down by INR 2-3 crores per quarter. Management believes it has demonstrated this ability and hopes for a favorable decision on branch permissions soon.

VP Nandakumar: "We believe that as an NBFC, it will be always good to have that discipline of maintaining around 22%. And we maintain that, we expect growth of around 8% to 10% even with this... We don't want to compete in the market and bring down the interest rates at a level which is not much affordable."

Diversification & Non-Gold Verticals

• The 50-50 portfolio mix is within reach: Non-gold verticals now constitute 47% of total AUM, up significantly, and management is confident of hitting the stated 50-50 objective. The strategy is gaining pace across vehicle finance, MSME, and personal loans.
• Vehicle finance is the standout performer: The book grew 66.7% YoY, fueled by deeper penetration into rural and semi-urban markets, digital lending platforms, and automated approvals.
• MSME and vehicle finance assignment opened a new liquidity line: A ~INR 700 crore assignment transaction to banks served dual purposes: meeting PSL requirements and diversifying funding sources.
• Employee cost reduction is a quiet efficiency lever: Lower employee expenses came from productivity gains and, to some extent, reduced incentives, while admin costs rose from added communication lines and a focus on asset quality.

Asirvad Microfinance & the DRHP Blackout

• Growth is self-funded for now: Asirvad’s 24% current-year growth is supported entirely by quarterly profit plough-backs exceeding INR 100 crores. The DRHP fundraising is for future growth capital, not near-term needs.
• Key metrics are undisclosed due to the IPO process: Management declined to provide credit cost expectations, collection efficiency, stage-two asset quality, or any numbers beyond the public domain, citing regulatory constraints after the October 5 DRHP filing.
• Asset quality is improving, per a directional statement: While specific numbers were withheld, management stated that quality in the normal book has improved, and the Q2 provisioning increase to INR 91 crores was driven by standard asset provisions on AUM growth and ARC provisioning, not fresh stress.
• Cross-selling is building a fee income stream: Asirvad sells household products to MFI borrowers at below-MRP prices, earning a commission from suppliers, and also grants loans for these purchases with a quantum of INR 350 crores. Q2 fee income was elevated due to pent-up demand from a slow Q1 and is not a reliable run-rate, though the income stream will continue.
• Asirvad is entering gold loans in new geographies: With RBI permission, Asirvad can allocate up to 25% of its balance sheet to secured loans, and gold loans are the preferred instrument. It will operate in areas where Manappuram does not have a presence.

Funding, Liquidity & Regulatory

• The ED issue is fully resolved: A final order has been received, and the matter was resolved within three to four months. Lenders understood it was a temporary court issue, and pricing has already seen some reduction at the quarter's end.
• Cost of funds is expected to remain stable: Management sees no significant increase on the horizon, providing a supportive backdrop for margin maintenance.
• Direct assignment income is trending higher: H1 FY24 DA income upfronting reached INR 82 crores, compared to INR 64.55 crores in H1 last year, reflecting active use of this channel.

Bindu A.L: "Completely resolved, we got the final order and even the lenders were aware this is a temporary issue, only because it is the court matter, it will take some time, so in our case, we were able to resolve everything in three months, four months' time and we are getting enough liquidity. In the pricing also, we have seen some reduction at the end of the quarter."

Guidance & Commitments

Key Metrics