Manappuram Finance Ltd Q3 FY2024 Concall Summary

Key Takeaways

• Profit surge, gold-led: Net profit jumped 46% YoY, driven by gold loan profitability and a recovering microfinance book, while fee income from insurance broking more than doubled sequentially.
• Borrowing costs are climbing: A 19 bps sequential rise in cost of funds, triggered by RBI’s risk-weight circular, prompted management to pass through 50 bps in gold loan yield hikes over two quarters to protect spreads.
• Gold loan NPA is a timing issue, not a credit loss: Delayed auctions pushed up NPA, but high gold prices mean no credit cost is expected; management commits to reducing it by fiscal year-end.
• Asirvad IPO is in SEBI’s hands: The microfinance subsidiary filed its DRHP in October, answered all regulatory queries, and awaits a positive response, though the quiet period limits disclosure.
• What to watch next quarter: Whether the promised 8–10% gold loan growth materializes in the seasonally strong Q4, the pace of MFI collection improvement in stressed states, and the actual cost-of-funds increase as more borrowings roll over.

Gold Loan Engine: Growth, Pricing & Competitive Moat

• Growth target intact but modest: Management aims for 8–10% gold loan growth this fiscal year, leaning on the seasonally strong fourth quarter to close the gap.
• Yield pass-through in motion: Gold loan yields rose 48–50 bps in each of the last two quarters, a deliberate move to offset rising borrowing costs and protect net interest margin.
• Tonnage down, AUM steady: Gold tonnage fell because higher gold prices mean lower weight secures the same loan value; the reverse would happen if prices correct.
• Customer churn masks steady additions: The company adds ~5,000–5,500 new customers daily (406,000 this quarter), but the net base is flat because a similar number close accounts.
• Competitive intensity easing: Management sees bank competition receding, and notes over two-thirds of the gold loan market remains with unincorporated lenders, leaving a large addressable pool.
• Branch expansion bottlenecked: A high auction surplus (now reduced to ₹23 crores from ₹48 crores) had restricted new branch applications; management has applied for 300 new branches and hopes for regulatory permission soon.

Nandakumar: “Because of our technology, online gold loan and doorstep gold loan, we are able to extend the services to the satisfaction of our customers, where they will not lose the day.”

Borrowing Cost & Margin Management

• RBI circular drove the spike: The 25% risk-weight increase on bank lending to NBFCs caused an immediate 19 bps sequential rise in cost of borrowing, as lenders initially demanded up to 50 bps more on rollovers.
• Further increase expected: With ~60% of the book rolling over or resetting, management guides for an additional 10–20 bps increase next quarter; CP market pricing has not yet eased.
• Liability profile shifting: After redeeming a ₹2,000 crore dollar bond, the company is tilting toward term loans (banks prefer them over working capital) and ECBs, with nil CP exposure.
• HFC funding stable: The housing finance subsidiary’s cost of borrowing is expected to stay flat because it draws funding from NHB, insulating it from bank-rate pressure.
• Pass-through philosophy: Management is explicit that if borrowing costs rise, gold loan yields will follow to protect net interest margin, and it believes short-term increases will not dent demand because customers prioritize speed and convenience.

Nandakumar: “if the borrowing cost increases, that may be passed on to maintain the net interest margin, we wish to protect that.”

Asset Quality: Divergent Stories Across Books

Bindu: “Gold loan NPA is a temporary issue only. We have given extended time to these borrowers and we will be able to reduce before 31st March.”

Microfinance & Asirvad: The Quiet Period Constraint

• Profit contribution set to rise: Management expects microfinance’s share of the overall profit pie to increase in the coming period, even as credit costs remain elevated in stressed states.
• IPO process advancing: Asirvad Microfinance filed its DRHP on October 5, 2023; all SEBI queries have been answered and the company awaits a positive response, with bankers indicating no major delay.
• Disclosure blackout: Management declined to provide stage-two asset quality data, ground-level collection details, or any numbers beyond published results, citing the IPO quiet period.
• Pricing model unchanged: Despite peers reducing microfinance rates, management sees no need to change its parameter-based pricing model, though it did not address competitive pressure directly.
• Collection efforts ongoing: In problem states, the company is shifting to weekly collection mode and employing more local people, but admits improvement has not yet materialized.

Non-Gold Diversification & Fee Income

• Consolidated non-gold share may cross 50%: Subsidiaries raising external capital will push the consolidated non-gold mix higher, though standalone gold loan will stay above 50% for longer.
• Insurance broking windfall: Fee-based profit jumped to ₹28 crores this quarter from ₹15 crores last quarter, driven by liberalized fees and commission dispensation by the regulator; management sees excellent growth prospects.
• Standalone non-gold verticals mixed: Vehicle finance and MSME are improving, while digital personal lending slowed on ticket price; provision coverage ratio policy remains unchanged.

Guidance & Commitments

Key Metrics