Manappuram Finance Ltd Q4 FY2022 Concall Summary

Key Takeaways

• Gold loan AUM held flat despite a price war: Standalone gold AUM dipped only 1.4% QoQ as management chose to defend a 21% yield floor rather than chase volume, sacrificing near-term growth for portfolio profitability.
• Accounting, not credit, drove the NPA spike: A policy change to stop netting post-balance-sheet collections against NPAs inflated GNPA optically; management calls these "technical NPAs" fully secured by gold and expects no credit cost.
• Microfinance is the group's open wound: Asirvad posted a loss, AUM shrank, and NPLs rose 70 bps under new IRAC norms, though collections have recovered to 100% and a yield reset to 24% is now live.
• The price-war bet is that rivals will blink first: Management raised rates, lost some footfall, and is now waiting for competitors to follow; it believes the war is temporary and that demand from the bottom of the pyramid will revive within a quarter.
• What to watch next quarter: Whether the promised June demand pickup materialises, whether any large competitor actually matches the 21% yield, and whether Asirvad's restructured book stabilises or throws up more slippages.

The Gold Loan Price War: Strategy Over Volume

• Yield floor set at 21%: Management decided to settle disbursal yields around 21%, judging that level as reasonable for the industry and necessary to target a 20% ROE in the gold loan business.
• Volume sacrificed deliberately: Inquiries and footfalls declined after the rate increase; management estimates it could have grown around 55% during the quarter had it kept rates at competitive levels.
• Competitor alignment claimed, not proven: Management says some players have agreed to toe the line on 21% and that another large company has signalled it will follow, but no names or timelines were given.
• The structural moat argument: Daily-wage borrowers needing short-tenure loans will not spend two days at a bank and lose Rs. 1,500–2,000 in wages, so NBFCs retain an edge over banks for small-ticket, quick-turnaround gold loans.
• AUM growth target set at a modest 10%: For FY23, management expects gold loan growth of at least 10%, conditional on not dropping below the 21% yield.

V.P. Nandakumar: "I am targeting an ROE of around 20% in this business. So, rather than indulging in the price war, I thought I should settle at around 21%."

Demand: Waiting for the Bottom of the Pyramid

• Small-ticket demand remains weak: Loans below Rs. 1 lakh have shrunk as a share of the book because the bottom-of-the-pyramid recovery is uneven; spending on festivals and marriages has fallen sharply.
• Ticket size mix has shifted up: Loans above Rs. 2 lakh moved from 19% pre-COVID to 34% now, reflecting the absence of small borrowers rather than a strategic pivot.
• Recovery expected in one quarter: Management expects small-ticket demand to revive as the rural economy normalises, with June seeing some improvement as schools reopen and the monsoon sowing season begins.
• April was flat, May showed marginal growth: The seasonal pickup is only just beginning, and the real test of demand elasticity at the new 21% yield lies in the coming months.
• Yield upside baked into the recovery thesis: Standalone yield realised last quarter was around 18.6%; management expects it to rise by 150–200 bps as the mix shifts back toward higher-yielding small-ticket loans.

V.P. Nandakumar: "So, this I believe that our rate cuts like this is temporary. They may not last for long."

Microfinance: Loss-Making but Repricing

• Asirvad posted a Rs. 7 crore loss as the residual impact of the pandemic third wave and restructured-book slippages weighed on performance; AUM contracted 1.2% QoQ.
• NPLs rose 70 bps on IRAC alignment: The new norm prevents upgrading an account to standard unless full collection is received, and Asirvad had never previously considered post-balance-sheet collections, so the increase is a one-time alignment, not fresh stress.
• Collections have recovered fully: The last four months have seen 100% collection including overdue amounts; the challenge is confined to the old restructured portfolio, an industry-wide problem.
• Yield reset to 24% is now live: After the regulator removed the interest-rate cap, Asirvad priced new loans at 24%, factoring in a ~3% credit cost based on a five-year average that includes demonetisation and the pandemic.
• Secured book being built as a hedge: Asirvad has started adding gold loans under the new MFI regulations, with Rs. 300 crore already on the book and 300 new gold-loan branches opened in its locations.
• Growth target of ~20% for FY23: Management expects to refocus on growth once the economic recovery firms up, with monthly disbursements running at Rs. 500 crore and net monthly growth of around Rs. 150 crore.

V.P. Nandakumar: "For the MFI customers, more than the interstate, the service is most important. The proximity to the customer is the most important. So, if we have the people, service them, for a small ticket of such size, the customers won't go elsewhere."

Asset Quality: Optical Damage, Limited Credit Cost

• Standalone GNPA rose because of an accounting change: The company stopped considering collections received after the balance-sheet date as a reduction from NPAs, even though it is technically permitted to consider up to one month of such collections.
• Gold-backed NPAs are "technical," not real: Management stressed that the underlying gold security means these NPAs will be realised in the next quarter and will not lead to any credit cost; the spike is a timing issue that will not repeat.
• Home loan GNPA halved: The housing finance subsidiary brought its GNPA down from 12.3% to 5.9% during the quarter.
• No moratorium exposure left: No restructured customer is under moratorium as of now, and the only moratorium offered was in July.

V.P. Nandakumar: "These are not real NPAs. These are all technical NPAs, where gold is there as security. So, these are realized during the next quarter. So, this is -- so this will not lead to any credit cost."

Diversification: Non-Gold, Non-MFI Businesses

• Commercial vehicle book grew 8% QoQ to Rs. 1,643 crore, benefiting from the broader economic recovery.
• MSME and allied business surged 29% sequentially to Rs. 919 crore.
• Housing finance grew 3.5% QoQ to Rs. 845 crore, with asset quality improving sharply.
• Consolidated AUM growth target of 15% for FY23: Non-MFI, non-gold disbursals are running at Rs. 250–300 crore and are expected to pick up further.
• Online gold loans have stalled: OGL growth has slowed because offices have reopened and customers prefer in-person transactions now that transportation is back to pre-COVID levels.

Cost, Funding & Capital

• Cost-to-AUM improved to 6.48% from 7.07% QoQ, reflecting a strong focus on cost management and a rationalisation of advertising spend after an aggressive Q3.
• Standalone borrowing cost fell 32 bps QoQ to 7.15%, though management flagged that indicative rates have since risen 40 bps and expects further tightening.
• Consolidated ROE declined primarily because of ROA compression and the microfinance subsidiary not contributing profit; management expects a recovery toward 20% as MFI turns around and gold loan yields improve.
• Capital adequacy is comfortable: Asirvad's own capital adequacy is around 20%, leaving room for tier-2 capital, and the parent has a very high ratio for emergency infusion if needed.
• Branch expansion awaiting RBI approval: An application to open around 300 more branches has been submitted but not yet considered because the company is classified as a gold loan company; approvals are expected toward Q2.

Guidance & Commitments

Key Metrics