MANAPPURAM — earnings call

The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.

Prepared remarks

“Manappuram Finance Limited

LIMITED · MR. SUVEEN P.S. – CHIEF EXECUTIVE OFFICER –

DR. SUMITHA NANDAN – EXECUTIVE DIRECTOR – MANAPPURAM FINANCE LIMITED MS. BINDU A.L. – CHIEF FINANCIAL OFFICER – MANAPPURAM FINANCE LIMITED MR. RAVEENDRA BABU – MANAGING DIRECTOR, ASIRVAD MICROFINANCE MR. RAJESH NAMBOODIRIPAD – CHIEF FINANCIAL OFFICER – ASIRVAD MICROFINANCE MR. KAMAL PARMAR – HEAD, VEHICLE AND EQUIPMENT FINANCE – MANAPPURAM FINANCE

MR. SUVEEN P.S. – CHIEF EXECUTIVE OFFICER –

MANNAPURAM HOME FINANCE · MR. BASAVARAJ SHETTY – SENIOR VICE PRESIDENT

MR. ROBIN KARUVELY – CHIEF FINANCIAL OFFICER –

MR. BASAVARAJ SHETTY – SENIOR VICE PRESIDENT AND HEAD IR - ASIRVAD MICROFINANCE

Moderator · Conference Operator

MR. SANKET CHHEDA -- DAM CAPITAL Manappuram Finance Limited August 13, 2024

The next question is from the line of Abhijit Tibrewal from Motilal Oswal.

Please go ahead.

Abhijit Tibrewal

The first question is more of a data question.

What was the gold loan disbursements in this quarter?

And what proportion of those gold loan disbursements were top up loans?

V.P. Nandakumar

We don't have the details right now.

So if you want, we can share it later.

Abhijit Tibrewal

Sure, sir.

The second question, again, on gold loans was, sir, in the last question itself, you kind of referred to seasonality, which is typically there.

So from what we understand, typically 4Q, 1Q -- 4Q and 1Q tend to be seasonally stronger quarters because of reasons that you yourself have explained multiple times on these earnings calls.

Now 2Q, 3Q, I mean, just trying to understand, are we kind of heading into slower growth for the next two quarters before it kind of picks up again in 4Q?

V.P. Nandakumar

Yes, we feel like it will be slightly lower than the peak period which is over now.

But still, the growth will be there.

Abhijit Tibrewal

Got it.

Got it.

And then just one last question on micro finance.

So while we touched upon some states where problems are there and we kind of attributed it to a lot of things, Punjab farmer agitation, general elections, rumor about loan waivers, heat waves as well.

So I mean there are MFIs who started acknowledging the problem of customer over leveraging that has happened.

Manappuram Finance Limited August 13, 2024 So what is our view on this problem of customer over leveraging, which could lead to more stress in the coming quarters?

And two related questions on microfinance only.

I mean in terms of the asset quality stress credit cost in micro finance, are we kind of done taking the hit?

Or you think there are a couple of more quarters ahead?

Because in this quarter also, we did an ERP transaction of almost INR200 crores in the microfinance business.

So are we kind of going to be seeing that stress pan out over the next couple of quarters?

Or do you think things will start improving from second quarter itself?

And sir, lastly, if you can share that data on microfinance or you have started sharing about customers.

V.P. Nandakumar

We are in the DRHP stage.

We have constraints in giving you all the numbers other than the published numbers.

So the MFI industry has challenges and I am talking something generally, as we cannot disclose more in our case because of obvious reasons.

So some states, the heat conditions, farm loss, etcetera, was high.

And thereafter, the rumours of loan waiver, also contributed.

Because of the heat wave also I am told the productivity loss happened.

That is the challenge.

And that is what is seen in the industry.

As I said, these factors do not encompass the entire states like Punjab, Rajasthan, Madhya Pradesh, Gujarat, where some parts of the states are doing pretty well.

So these are where these issues have impacted.

And these issues the industry has seen in the past.

And after realizing that the rumours were false and also because of the monsoon coming, people will come and repay because this microfinance is helping them to manage their cash flow to meet some requirements.

History shows that when the problems were there, the challenges were there, their repayments are affected, but still situation gets back to normal.

Then coming to our leverage, SROs guided us to ensure that our leverage is not promoted.

They have said, yes, the maximum income per family to be kept at this thing and maximum lenders to be kept at this.

And do you see that if you take our growth compared to some of the peers where the reports were already published, our growth was a little lower during the last quarter.

Abhijit Tibrewal

Got it, sir.

And sir, just one last question for Bindu ma'am.

But before that, sir, earlier during the call, you kind of guided for 15% gold loan growth this year and the same number for growth in customer acquisitions as well?

V.P. Nandakumar

Yes, somewhere around 15-plus percentage growth this year.

Abhijit Tibrewal

Okay.

And sir, Bindu ma'am, now looking at where we are and the expectations that rate cuts might also start happening in the near future.

How should we look at your borrowing costs going ahead?

Bindu A. L

Borrowing cost, at this stage, it is continuing at a similar level only.

So, I think we are also expecting rate reduction, let us see, I think in September.

Moderator · Conference Operator

The next question is from the line of Gaurav from Capital Farming.

Please go ahead.

Gaurav

I just have a question on Asirvad Microfinance.

It has been observed that the provisioning for bad assets has been increasing consistently, right?

And similarly, it has been observed with the Manappuram Finance Limited August 13, 2024 other microfinance listed entities as well.

There has been a significant increase in the spread assets across the category.

So what's your opinion as management on how far it can go?

Is it the peak of the provisioning?

Or there is still some room, which we can see in the coming quarters that this provision can increase from there onwards?

V.P. Nandakumar

Again I repeat because of the DRHP, we cannot disclose beyond whatever is disclosed.

But I'll tell you a few things, where Asirvad is better managed.

We have an exposure of 10% of the total AUM.

And then non-district, we have an exposure of more than 1% of AUM.

The second thing, the gold loan also is coming to around 10% of the portfolio where you cannot expect, because that's why the regulation also has facilitated the non-gold lending that has been enhanced from 15% to 25%.

So, we have 520 branches as disclosed earlier.

And that's doing pretty well, along with the gold loan segment.

We hope because of the de- risking like this, the company will be able to perform better compared to the peers.

It is spread across the country in terms of geographical concentration.

Second, gold loan will definitely support.

Asirvad is unique as well as risk management is concerned.

Gaurav

Yes.

And my second question is on the other segments other than the gold loan, like we are into the affordable housing finance, commercial vehicle finance.

Now we are also talking about lending to the MSME, which I think in the last couple of annual reports also we have been mentioning, right?

But lending to these segments require different skill set in terms of the underwriting team, recovery team, right, and the entire infrastructure.

So how Manappuram management is bringing in the expertise on the board right from the ground level to the mid- and senior management level?

How you are ramping up those teams so that what you are talking in the annual reports as well as the quarterly goals is actually getting implemented on the ground also.

So your views on that, please?

V.P. Nandakumar

Whether it is micro finance, or MSME, these are especially people who are exclusive for that from top to bottom.

Their underwriting requirement, these are all Secured loan, if you take the MSME, the average ticket size is around INR5 lakhs, INR6 lakhs.

So these are used by small businesses -- is around 7% only.

That means 92%, 93% is collected by nearly presenting the NASH or check.

The balance 7% we are collecting.

So around 5%, we have unsecured lending to MSMEs.

These are all small ticket lending up to INR3 lakhs, INR4 lakhs.

Now we have reduced that further.

And we gradually we will reach 97%, 98%.

So we have a team for each of these.

Our business model is slightly different.

These businesses are colocated along with the gold loan business, even though done by separate teams.

So when there is so much of footfall by simply presenting some banners, etcetera.

And we are acquiring a majority of our customers direct from them or through them in their communities, etcetera, etcetera.

This is a larger channelizing of customers.

So that's why these customers have been with us for some time in gold loan.

Now these are being done by a separate team who are really skilled in this regard.

Gaurav

Last question, if you allow me to ask.

With respect to -- if it is not violating any guideline of Asirvad Microfinance listing.

But there was some news that you have appointed a new CEO for Manappuram Finance Limited August 13, 2024 Asirvad Microfinance.

And within a very short span of time, I think, CEO resigned.

So isn't the IPO still getting delayed just because we do not have a CEO in place or is it something else?

V.P. Nandakumar

See, we have the MD in place.

Yes.

Just to support him, we appointed a CEO, who is a Mumbai based person.

He has his family connections in Kerala.

He thought of coming over here just to support his aging parents.

Then he has health problems.

His family is in Mumbai, they have challenges.

So this plan didn't work out as the family challenges were there.

That's the reason why he thought of going back to Mumbai.

The company has MD, who is also the CEO.

Gaurav

Okay.

Okay.

But not having a regular CEO is not the reason of not going with the IPO listing.

Because I think SEBI has given an approval, but there has been a significant delay in getting the company listed, right?

V.P. Nandakumar

It is not because of that.

There were other issues like the General election.

Then the outcome of the election just after that, there were some uncertainty.

So then everything has come back.

Then we have started the road show.

So this is how it is moving.

Moderator · Conference Operator

The next question is from the line of Bunty Chawla from IDBI.

Bunty Chawla

First one on clarity.

Sorry, I missed that.

Gold loan group guidance, have you revised to 15% for the year -- for full year FY '25?

V.P. Nandakumar

Yes.

So from the current, we expect the gold will grow, beyond...

Bunty Chawla

Okay.

So for overall consolidated AUM growth guidance will be now?

V.P. Nandakumar

15%.

The others will grow in a similar way, other non-gold like vehicles affordable housing, etcetera -- during the first quarter...

Bindu A. L

Okay.

Okay.

And a few data points.

One auction during this quarter and as well as it seems to be higher write-offs we have taken in the MFI portfolio.

So can you share both the data, auctions and write-offs in MFI?

V.P. Nandakumar

MFI, whatever it is, cannot be disclosed.

Gold loan auction amount INR12 crores.

Bunty Chawla

And one more, what we have observed during this quarter, non-gold portfolio, vehicle financing, MSME and standalone, there has been an increase in the gross NPA levels.

Though I agree it's a seasonality, but if we compare on a Y-o-Y basis, there has been a huge rise in NPA.

For example, MSME and personal loan, there has been almost doubling of the gross NPA numbers.

Vehicle financing also on a Y-o-Y basis increased by 70, 80 bps. So any specific reason behind that?

And how one should see next three quarters for these NPAs?

V.P. Nandakumar

The climatic conditions like heat wave affected the productivity of the people, the loss of working days has affected across all the sectors, particularly in the lower end of the pyramid.

It doesn’t mean that they will not pay; just that there is delay in some payments.

So as I mentioned, in MSME etcetera, we have around 5%, 6% unsecured loans.

Manappuram Finance Limited August 13, 2024

Bunty Chawla

So, can we say there should be a decline in NPA from Q2 onwards as these factors have been out of the picture now?

V.P. Nandakumar

Yes, yes, yes.

Gradually, gradually.

There will be some delay because the regular instalments plus old instalment need to paid.

So these are all genuine customers who have been paying promptly.

The situation has changed -- they will come back slowly.

Bunty Chawla

And lastly, on the cost of borrowing, if we see it on a consolidated basis remains stable.

But on a stand-alone basis, there has been an increase in the cost of borrowings.

So how one should see the cost of borrowing?

Can we say that this 9% should move to 9.3% for stand-alone as well?

And ultimately, what will be the margin impact then for us?

Bindu A. L

See the cost of run depends on the source of borrowing.

During the quarter, we have done -- the maturity is 3.3 years.

And that money, we -- as a diversification process and the also helping us to grow the business.

So that is the reason it came at a slightly higher cost.

So that is the main reason for the increase in cost of borrowing during the quarter.

So we are now expecting it to go to 9.3% on the stand-alone level, and we are hearing about possible rate cuts should help us, but we are not seeing much change.

It is currently running at a similar level.

Bunty Chawla

Okay.

So we can say that margins at least should remain stable now?

Bindu A. L

Yes.

Moderator · Conference Operator

The next question is from the line of Mohit Jain from Tara Capital Partners.

Please go ahead.

Mohit Jain

I just wanted to know if you are looking at the different segments in which we are operating, the overall NPA has increased in all the segments apart from the MFI.

Is it purely because of the fact that we have written off the portfolio?

V.P. Nandakumar

Yes.

MFI, I cannot give you more details then saying that there were some challenges in some places, but we are spread across the country, North states have 10% -- more than 10% of AUM.

No, district 1% of AUM.

So this way we are spread across.

But the other sector because of the heat waves and so many other conditions like farmer loan waiver, false messages such as farmer loan waiver -- general election, etcetera, has affected a loss in this.

About rather MSME etcetera, it is because of the delay on account of the same reason.

As I told you, yes, it is going to come down only because -- earlier, we have around 5% of unsecured portfolio in MSME. that is being reduced...

Mohit Jain

Is it principally like, obviously not asking for the figures, but principally, had we not written the portfolios in MFI?

The NPA would have been slightly higher than what we have reported?

V.P. Nandakumar

MFI, whatever is there, it is shown.

It is already there.

It is write-off.

Moderator · Conference Operator

The next question is from the line of Darshil Jhaveri from Crown Capital.

Please go ahead.

Darshil Jhaveri

A lot of my questions have already been answered.

So I just had like one question, like on a broad basis, like I think we're seeing good loan growth and maybe stable cost of borrowing.

So what kind of like ROA will we target like for the full year, sir?

V.P. Nandakumar

So we are at ROA of 4.5%.

So we are bringing down the opex premium gradually because of the growth in AUM.

It could come down.

In the next one year, we hope that it will go down further, so that there will be an improvement in ROA.

We are targeting 5% ROA.

It takes a few quarters to reach that level.

Darshil Jhaveri

So it's a 5% ROA by end of the year, right?

V.P. Nandakumar

It could take another one year -- four, five quarters.

Darshil Jhaveri

Okay.

Okay.

Fair enough, sir.

And at this point -- yes, yes.

Fair enough, sir.

And sir, just wanted to know like at least I think on the consol level, there has been an increase in provisioning.

So I just wanted to like pick your brain like so you're saying the GNPA will decrease, but then -- are you seeing structure?

This might be more sticky than you might be more provisioning or something like how would you see the credit cost going forward?

V.P. Nandakumar

The stand-alone book, it will gradually come down because as I mentioned, because of the climatic situations and other situations, whatever has been told after the bans, losses, etcetera, etcetera.

So we believe that it has picked up with and it should come down eventually.

Moderator · Conference Operator

The next question is from the line of Shubhranshu Mishra from PhillipCapital.

Shubhranshu Mishra

The first question is on the auctions that we have done in gold loan, what is the quantum of that?

And what is the gold price per gram that we had in the quarter?

And when we look at the AUM split, what percentage of AUM is less than INR1 lakh, INR1 lakh to INR3 lakh and more than INR3 lakhs in first quarter?

And when we look at the growth, sir, you mentioned that this really has come from one of the competitors going on so not competing.

So what is the organic growth that we have had in this particular quarter from our own sources?

And if we have the split of South versus non-South, sir?

V.P. Nandakumar

See these micro details would be sent to you.

But I can tell you one thing.

This competition, one of the competitors among larger players have been banned for some time.

They may come back.

But as I told earlier also, when they come back, they will come with whatever guidelines have been issued by the regulator.

Then we all will have level playing field.

So when somebody does something beyond that, we are losing level playing field.

Even when they come back, we welcome that.

We will all have the same level playing field.

We don't have much to worry.

But this is mainly due to the demand from our target audience is slowly showing improvement.

It is slowly getting back to the pre-COVID level now gradually.

That is actually driving growth..

The other details, Mr. Mishra, we will share with you.

Manappuram Finance Limited August 13, 2024

Shubhranshu Mishra

Sir, if you can give me the auctions and the AUM split on the call, I'll come back for the rest, sir?

Bindu A. L

INR12 crores auction.

Moderator · Conference Operator

As there are no further questions, I would now like to hand the conference over to the management for the closing comments.

V.P. Nandakumar

So thank you so much for the active participation in our investor call.

And anybody want that details about whatever can be disclosed, meaning Asirvad probably has limitation, other places, whatever can be disclosed, please feel free to ask, we are happy to share.

Thank you.

Bindu A. L

Thank you.

Moderator · Conference Operator

On behalf of Dam Capital Advisors Limited, that concludes this conference.

Thank you for joining us and you may now disconnect your lines.

Questions and answers

Moderator · Conference Operator

Thank you very much.

We will now begin the question-and-answer session.

The first question is from the line of Adarsh from Enam Holdings.

Please go ahead, sir.

Adarsh

Congrats on the good numbers.

I have two questions.

The first is on the gold book.

After a very long time in the last few quarters, we are seeing some decent customer additions.

So just wanted to understand, what have you done for this trend to change the customer growth after many years.

So that and have you benefited from the ban on a competitor?

And the second question is, many MFIs have reported their first quarter numbers, things seem quite tough for the sector now.

Our Asirvad numbers seem okay.

So I just wanted to understand what are you seeing on the ground on the MFI business?

V.P. Nandakumar

Okay.

Adarsh, about gold loan, what has happened is that demand from our target audience went down.

And after that, it started coming, that's why the number of customers also has increased.

So we have not done anything different from whatever we have been doing.

But the demand has gone up.

Our average ticket size remains around INR70,000 to INR75,000.

From that class of customers, the demand started coming in.

The ban on competition, I don't think the effect is significant.

Because even if it is there, it is getting distributed to so many players.

And many of these are going to banks.

Basically, the customer requirement has gone up.

The demand for working capital, etcetera has gone up.

About Asirvad, we are in the IPO and DRHP stage, but in the sector, yes, what you have said this right.

There are some challenges in collections because of farmer agitation in Punjab, general election, etc. And connected with that, there were some rumors spread about non-waivers.

More than these two, because of the climatic conditions such as heat waves, that has led to some of the establishments to close for so many hours of our business, that has lead to the decrease in collection.

As you know, the sector also has some cyclical challenges.

Moderator · Conference Operator

Ladies and gentlemen, please hold while we reconnect the management line.

Bindu A. L

Sir, you got the answer?

Adarsh

Yes, ma'am.

Just a follow-up, sir.

On our customer growth, what is your expectation now?

Do you expect that, unlike the last three to five years when we didn't have customer growth, we would get back to having some 5%, 7% customer growth?

Manappuram Finance Limited August 13, 2024

V.P. Nandakumar

It is slowly growing.

So before COVID, we were growing at around 10%, 15%.

Demonetization had some impact.

Then after that, we have come back.

So I have been maintaining that this year, we may grow 12%-15%.

Judging from the current trend, we hope we may grow around 15% this year.

There will be growth in the number of customers also.

Moderator · Conference Operator

The next question is from the line of Piran Engineer from CLSA.

Please go ahead Sir.

Piran Engineer

Congrats on the quarter.

A few questions.

Firstly, this INR20 crores exceptional item.

Why have we added it to our profits instead of deducting?

I didn't get that logic in the stand-alone financials?

Bindu A. L

This fraud is on account of unauthorized access by our subsidiary employee.

And as it is an outsourced vendor, we are in the process of recovering from the subsidiary as it is committed by the subsidiary.

So, the loss is already factored in our financials over the years.

And now this is coming as an income to the quarter financials.

Piran Engineer

This is like some insurance income?

V.P. Nandakumar

Consolidated, there is no difference.

Piran Engineer

So in the consol numbers, this INR20 crores is part of the opex?

Bindu A. L

So this INR20 crores, in consol, this will be a group adjustment because in a subsidiary, this is booked as an expense, claims payable.

And in the main entity, it is booked as a receivable.

So in group adjustment and in the consol, only the tax impact.

Because in Manappuram Finance the tax liability is there, but in the subsidiary, there's no tax.

So in consol,no tax impact.

In Standalone, it will be of INR4 crores..

Piran Engineer

Sorry, Bindu, I'm confused.

The employee has done a fraud of INR20 crores, but there is no impact on the financials?

Bindu A. L

Yes.

Because this person has done the adjustment from the interest income and it is already factored in the financials over these years.

V.P. Nandakumar

With regard to collection challenges, places like Punjab, Gujarat, Rajasthan, Madhya Pradesh, these are the main states.

While saying so, I wish to add one more thing.

In these places also, there are branches which are showing good collection.

So all the branches in these states are not affected.

Some places where heat wave conditions were more, or farmer agitation was more, there were issues.

And spread of false news like farm loan waiver, loan waiver etc also had its impact.

Now having seen that the rest of loan waiver and good monsoon etc, hopefully, as we have witnessed in the past, these may slowly come back.

Piran Engineer

Okay.

And what is our portfolio in these states, sir?

V.P. Nandakumar

Whatever is disclosed in to the public domain only can be discussed because of our constraints of DRHP.

Manappuram Finance Limited August 13, 2024

Bindu A. L

Sir, these are not our main concentration.

But the states where we face these issues are not where we have big presence.

Piran Engineer

Okay.

Okay.

Fair enough.

And lastly, on slide 18, you mentioned that you've taken some cost rationalization measures for the gold loan business.

So can you just elaborate on that, please?

Bindu A. L

It is for cost rationalization.

What we were discussing as the gold loan brand set up or those costs are fixed.

Additional business will help us to reduce the opex.

Moderator · Conference Operator

The next question is from the line of Rajiv Mehta from Yes Securities.

Please go ahead.

Rajiv Mehta

Congrats on good numbers.

I've got a few questions on the gold loan business.

So we are talking about demand having increased for gold loans.

But when I look at the customer acquisition number or volume, it is 4.2 lakh customer acquired in Q1. And it it is pretty similar to Q4. Q4 was 4.1 lakh customers that we had acquired.

So it doesn't show up in volume.

And the math behind the gold customers growing by 4% Q-on-Q.

Because when we had a similar addition in the previous quarter, the customer base did not grow as much.

So was it that auctions were zero?

Or was it that releases of the gold pledged were much, much less in the quarter?

Bindu A. L

So the life...