Manappuram Finance Limited (531213) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Manappuram Finance Limited Q4 FY '23 Earnings Conference Call, hosted by DAM Capital Advisors Limited. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Sanket Shera from DAM Capital. Thank you, and over to you.

Yes. Good evening to all of you. We have with us the entire management team of Manappuram. To begin with Mr. VP Nandakumar, CEO; Ms. Sumita Jayshankar [indiscernible]; and Mr. Bindu, the CFO. Also, we have with us Ravindra Babu, who is MD of Asirvad Microfinance; and [indiscernible] who heads vehicle and equipment finance. Without further ado, I would hand over -- hand the call over to Mr. Nandakumar for his opening remarks, and then we can follow up with Q&A. Over to you, sir.

Thank you. Good evening ladies and gentlemen, welcome to the conference call for our fourth quarter and full year FY '23 financials. I take great pleasure in presenting our results at a time when India is set to become one of the fastest-growing global economies of the world. So the optimism about India's growth prospects in all [ services ] in the country now universally acknowledged in economic circles to be an island of macroeconomic stability. The interest strong by many countries to trade with us in INR exemplifies our improved Stability. In the last call, I had first the need for a balanced and prudent growth strategy. This financial year, there are strong signs of that strategy being put into practice as we have achieved good growth in both AUM and profitability. I'm happy to share that we have recorded a consolidated net profit of INR 415.3 crores in Q4 with an improvement of 59.1% (sic) 59.2% over the year ago quarter, primarily driven by profitability in gold loans and a turnaround in microfinance business. Full year consolidated profits also grew by 12.91% to INR 1500.2 crores. Gold loan AUM was INR 19,746.2 crores, an improvement of 6.08 percentage over the previous quarter. While stand-alone AUM at INR 24,445.6 crores grew by 9.1% year-on-year, the consolidated AUM has reached INR 35,452.3 crores in Q4 representing an increase of 17.2% over the year ago quarter. I get asked all the time about increasing competition and emergence of new players, not only in the NBFC space, but also in the digital lending space. However, India's underpenetrated financial market gives room from a large number of players to coexist without sacrificing profitability. The company's microfinance subsidiary, Asirvad, has posted an AUM of INR 10,042.9 crores, showing an impressive growth of 43.4% year-on-year and a profit of INR 99.3 crores during Q4, taking full year profit to INR [218.1] crores. This financial year, [In semis] INR 15.3 crores in FY '22. As a sector we full benefits of the ongoing economic recovery, the share of microfinance in the overall profit pie is set to go up in the days to come. Continuing the trend in the previous quarters, we have fostered and perceived growth in the Vehicle Finance business recording 49.4% increase year-on-year and an AUM of INR 2,455.1 crores followed by home loans with an AUM of 1,095.8 crores, registering a 29.6% increase over the corresponding quarter in FY '22. Home loan profitability has grown to INR 19.5 crores this financial year, from INR 7.2 crores in the previous year. The strategy of diversifying into other sectors is gaining pace and this rebalancing is reflected in March '23 quarter results. The share of loan gold verticals in our total assets under management now stands at 44% and is in line with our award objective of achieving 50 -- portfolio mix between gold and the non-gold segment. We will continue to press ahead with this policy of becoming a well-diversified NBFC. Collections from microfinance business is expected to improve further. And this sector correlates well with the economic account. In the Housing Finance business, the focus is on [ lower ticket ] rousing loans. We have decided to enter niche areas like finance and health care professionals and small hospitals with the good potential. For our corporate loan front, we have already disbursed around INR 1,000 crores. For the Vehicle Finance business, we are increasing the penetration in rural and semi-urban locations. That gives us edge and are our own digital lending platforms and automated approval processes. Now we have introduced an app called MaMoney, which brings all the products under one umbrella. MSME and personal loan sectors are other areas where we want to increase our process. I want to add one more thing. In the recent past, you would have seen in the media about the ED rate and all, and I have clarified how is this. It is something belonging to -- something of 12 years old, very old. And whatever requirements are there, everything have been submitted. And RB has been overseeing that over the last 10 years, 11 years. And they have given us a letter saying that we are largely satisfied. But whatever ED has said, the background also is told, the one person who have complained in 2011, he, again, prepared a complaint in his brother's name and asking the ED to investigate. And I got -- without looking into the earlier [ causing ] petition of his allowed that and that is the reason. So whatever has been submitted, they have done it. But I'm happy to share that its operations has been fully stayed through high courts order today. In the upper court, that -- they pronounced the stay order. And we are yet to obtain the return copy of that. We expect that to come by the late evening today. So the operations have been stayed, and we are confident of crossing that order of enforcement directly. So this is what I want to share about that because I feel like some of you may be anxious to hear about that. For a more comprehensive view of our financial performance, I hand over to our CFO, Bindu.

Thank you, sir. Good evening, ladies and gentlemen, and thank you all for joining us today. Our consolidated AUM for Q4 FY '23 was INR 35,452 crores representing 11.2% sequential growth and 17.2% percentage Y-o-Y growth. Our consolidated profit after tax was INR 415 crores for Q4 FY '23, which was up by 5.5% Q-on-Q and up by 59.1% Y-o-Y. All nongold businesses reported an ROA ranging from 2% to 4%. Consolidated profit after tax for the year was INR 1,500 crores, which was up by 12.9% Y-o-Y. ROE on a consolidated basis was 17.5% and ROA was 4.3%. Our GNPA 1.33% versus 1.61% during the previous quarter. Liquidity position, cash-on-cash equivalents on hand on a consolidated basis was INR 3,000 crores and undrawn bank line was INR 2,949 crores as on 31st March 2023. Our CP exposure is NIM in the stand-alone entity, and our ALM is well positioned across all the buckets. Stand-alone borrowing cost has come down by 6 basis points in Q4 after the repo rate hike. Talking about the Gold Loan business, which constitutes 56% of consolidated AUM, where is the remaining 44% includes, Microfinance, Vehicle Finance, Housing and MSME Finance. Stand-alone gold AUM has increased by 5.4% Q-on-Q. Yield at 21%, which is slightly lower than Q3 FY due to increasing the tenor of Gold Loans from 3 months to 6 months now. During the quarter, we were able to add 4.56 lakh new customers. Average ticket is at INR 57,546 and average duration of 71 days. Our Gold Loan average LTV at 60%, which is well below the peer group. Our stand-alone revenue, there is a small reduction on account of the higher liquidity, which we placed in Q3 for repayment of our dollar bond. Our stand-alone PAT was INR 309 crores, down by 2.9% sequentially and up by 16.5% year-on-year. Coming to Microfinance, Asirvad Microfinance, the AUM stands at INR 1,040 crores, including Gold Loan AUM of INR 705 crores up by 16% Q-on-Q and up by 43% Y-o-Y. PAT for the MFI business has increased to INR 99 crores in Q4 versus INR 70 crores in Q3 FY '23. Our collection efficiency from MFI business during the quarter stood at 104%, and disbursements during the quarter was nearly INR 3,000 crores. In Asirvad, the Gold Loan AUM as on 31st March 2023 stands at INR 705 crores. Cumulative ECL provision in Asirvad has increased INR 242 crores, net NPA stands at 1.15%. CRAR 19.6%, ROA 4.05%, ROE of 26.6% in this quarter. In Vehicle Finance, we have reported an AUM of INR 2,445 crores, which is up by 16% Q-on-Q, up by 49% year-on-year. Collection efficiency for the quarter was [indiscernible] from 3.1%. Home loan book AUM INR 1,096 crores, which is up by 9% Q-on-Q and 29% Y-o-Y. This operates as 66 branches and reported a profit of INR 7.3 crores during the quarter and was INR 19.5 crores for the year. Collection efficiency for the quarter was 101% and GNPA at 1.9%. Loan to MSME and others at INR 1,945 crores, collection efficiency at 110% and the GNPA at 1.5% Our own lending AUM stands at INR 875 crores with a disposal amount of INR 420 crores during the quarter. Our asset quality improved. On account of that, our provisions and write-offs of the stand-alone entity stood at INR 4.3 crores compared to INR 9.8 crores in Q3 FY '23. The Board has declared an interim dividend of INR 0.75 for this quarter. Our capital position is strong with a capital adequacy ratio of 31.7%. Our control [indiscernible] stands at INR 9,645 crores at a book value of INR 1.139. Thank you. Now we can go for the Q&A session.

[Operator Instructions]. Our first question comes from the line of Abhijit Tibrewal from Motilal Oswal.

Nandakumar sir, if you could just clarify what you said during your opening remarks and if I heard it right. You have now received a stay order under ED investigation. And what you said is a written order is expected sometime by evening today.

Yes. Okay. About the case also, I will tell you, this has been clarified before also. The 12-year old case, about Manappuram Agro Farm, which was my proprietary concerned, and that has some public deposits. And one local person complained that the deposits are taken in the premises in of one of our finance, et cetera. And RB, we have asked what is in fencing, et cetera, it has been done. And I offered myself to repay everything in 2012. And the amount was put into an extra account along with interest. And the [result] hopefully repaid along with interest, except INR 900,000, where the customers are untraceable. So total amount put in used for that was INR 159 crores. Yes. And the balance outstanding is only INR 9 lakhs. And these are regularly supervised by RB. And it's a part of their [investigation] process. They issued a letter also. Yes, they have largely satisfied with our action. This is the [indiscernible]. And [indiscernible] complain -- he prepared a complaint to high court saying that all the previous inquiries and the investigation he not satisfied. Now ED would investigate, et cetera. So high court has said that let ED also investigate filing an FIR with a police. And police already referred to this case and the court also has closed it. So that is all. The ED then asked for details, et cetera, which has been provided. And yes, to surprise [indiscernible] in the office last week. And this order was issued, whatever is some freezing of some of my personal assets, which includes a part of my shares in Manappuram Finance. This is order. So we consulted our lawyers in ruling supreme court lawyers. They said, yes, this is absolutely [indiscernible] with some ulterior motive. So they said, we can easily cross it. So as first process to begin with, we prefer our visiting in like honorable Court of Kerala, then on the basis of that, today was the first sitting. In the sitting, honorable judge has pronounced a stay order in the operation of executive order from ED. And our councils are very sure about, very hopeful about cautioning that in the -- next two to three hearings after hearing the other side. This is now stay order. So this is the situation. So as such, its the operational state, and they will release all the freezing orders. They have to defreeze it. That's the situation. And the [indiscernible] only. So the order will be available in the late evening, maybe around 8:00.

Got it, sir. Congratulations on that. Sir, another thing I wanted to understand is on the Gold Loan business, this quarter, we have reported a sequential decline of...

Abhijit, Sorry to interrupt you there.

Yes, is the line better now?

No, no, your line is better. It's the management line that has been disconnected. Ladies and gentlemen, we have the management team connected. Abhijit, you can proceed with your question.

Yes. Sir, the next question that I had was on the Gold Loan business. This quarter, we have reported about a 140 basis point sequential decline in your net lease in Gold Loans. We have given out a reason this is because of the conversion of Gold Loans from 3 months to 6 months. So if you can just help us understand how the conversion or increase in tenure of Gold Loans from 3 to 6 months led to a decline in the yield of Gold Loans maybe? And sir, I mean, for the last many quarters, now we are seeing a continued trade-off between the Gold Loan growth and spreads or margins mainly the gold lending business. So just wanted to understand that even though we say that the competitive intensity from banks have had the margin been easing out, we are not quite seeing that happening in terms of the trade-off between the gold loan growth and the spreads. So is there a sweet spot wherein you can operate at slightly lower Gold Loan yields settle for maybe slightly lower margins and ROAs in the Gold Loan business? Will that help you get to a situation where you can demonstrate both stable spreads in margins and good Gold Loan growth as well?

So. Your first question was from the tenure from 3 months to 6 months. How is it affecting the yield. So if it is 3 months, immediately after 3 months of the date of plans, it becomes overdue and the overdue charges are available. Now the overdue charges are available only after 6 months. That has led to some decline in the yield. So we are planning to operate at a yield of around 22% less. So our yield now is a growing -- because we're slightly increased that. And with the new changes in the product structure, et cetera, we hope it will settle at around 22.5%. This is going to be -- see, we don't believe that reducing the yield by 1% or 2% will improve our business. What we expect this year is around 10% growth in Gold Loan AUM. So we are growing at that pace now, 10% AUM growth for the FY '24. So we will be able to settle around that.

Our next question comes from the line of Shreepal Doshi with Equirus Securities.

I wanted to ask you a question pertaining to the Microfinance business. So on that front, like we are already having an average of more than 6x. And I think the capital adequacy is also below 20%. So what is -- so are we looking to infuse capital? Or is there any thought on that front? Because given the kind of growth we are having in this segment, so what is the thought process on this front?

So Microfinance business definitely needs capital. On the one side, we will infuse capital that may be around INR 500 crores and also offer a subordinate debt to -- for an equal amount to our subsidiary. And also parallelly what we try is to raise capital from outside from -- through IPO or maybe one or two, so privately, it is. This is already the -- we have talked to some merchant bankers already. And for proceeding, all are awaiting for the Q4 results, FY '23 results. Now as that is ready, we'll start scouting for capital from outside also. And from the parallel side, as I already said, we may infuse somewhere around INR 500 crores, which should be within the covenants with some of the lenders. Then we had to also will support subsides.

Got it. Sir, I wanted to understand what is the disbursement that we have done in the MFI piece, like under Asirvad in FY '23 overall and in 4Q FY '23?

Yes. FY -- what is...

We have may INR 7,000 crores for the full year.

INR 8,300 crores.

INR 8,300 crores.

Okay. And this quarter? Okay, we'll get it. That's okay. Got it. And sir, what has been the write-off in this business in FY '23?

INR 113 crores.

INR 113 crores.

Okay. INR 113 crores. That is for the whole year FY '23, right?

Yes, yes.

Okay. Got it, sir. One just last question pertaining to the Gold Loan business. What percentage of our book is about 2 lakh ticket size in the Gold Loan business?

[ Raju? ].

That is about INR 200,000 -- it is 35%.

Okay. About [indiscernible] is 35%. Okay. Got it. And what is the highest ticket size that we have ever done in Gold Loan? If you could give some sense?

Like INR 50 lakhs, INR 1 crore also will be there, but that will be very minimal in number.

Which will be maximum at [indiscernible] customer.

Yes. Maybe....

So up to INR 1 crores.

Our next question comes from the line of [indiscernible] Xi [indiscernible] from [indiscernible].

Am I audible?

Yes.

Just want to ask on the Gold Loan side. So you said that we expect to operate about 22%. So do we expect next quarter our Gold Loan yield will bounce back to around the level? And what's the month of April Gold Loan yield?

Yes. So currently, it is around 21% for the quarter, but steadily, it is going up. So we expect to achieve by the end of Q1. So average may be slightly lower, but we will be able to achieve at the end of the quarter.

So you're saying so monthly basis is going up. So by end of first quarter, you will come back to 22%. Is that what you're saying? Just kind of...

Yes. So by the end of Q1, we will be able to reach 22% yield for our Gold Loan business. So as we started from 21%, it will be -- the average for the quarter will be 21.5%, but we will be reporting 22% yield at the end of the quarter.

Okay. [ Gold ] costs, we used to share what's the monthly yield. So do you mind sharing what the monthly yield for April for Gold Loan?

Yes, it is steadily improving.

Okay. Got it. And then the change of duration from 3 months to 6 months. Is there a changing strategy? Or it's just a time mix? More customers tend to take 6 months this quarter -- or how did it work?

See, we thought we will increase the tenure to 3 months to 6 months because a lot of surplus in auction is accruing. So we felt like, judging the gold value for the last couple of years, the risk in increasing the tenure through 6 months, is not a price risk for us. Because -- and also, I want to tell you all other lenders are offering for 1 year with the same LTV. In the same LTV, they are offering a tenure of 1 year.

Okay. Is our entire portfolio now on 6 months or...

Yes. Because all the [indiscernible] will move to that because all new plugs will be in the new tenure.

Our next question comes from the line of Kushan Parikh with Morgan Stanley.

I have three questions on the liability side. Just wanted to understand through the past week since the ED investigation began. What is the feedback that we have from banks and fixed income market participants regarding this ED action? And have we been able to raise any fresh funding? And is it on similar terms as before? And just lastly, I just wanted to understand if -- I mean if this affects your loan growth expectations going forward, I mean, due to the -- if there are any funding interruptions?

So I want to tell you that this is not something -- this -- whatever led to this is not something new. This is known to all the stakeholders for the past 10 years. And they all know everything has been repaid out of 10 years business, some very old story. So one person was creating this problem, the same person only over the last 12 years. So this is nothing new as far as our stakeholders are concerned. And now we obtained a stay. And as [someone has said] everything is not something which can create any problem. We are very sure, our counsels are very sure about [ closing ] this case in the high court in the coming weeks. So this case is posted for next week, our counsel will argue, and we have a very strong ground and a similar case -- through his wife, it was filed through his wife. That was already caught by the high court. So it's not an issue. Already the police has [indiscernible] case and the [indiscernible]. So it's fortunately is only a matter of time including we got the stay, and that will be safe with our stakeholders. And with that, we don't expect our liability if challenged on account of that. And some of the banks have renewed that one is HDFC bank. Now I'm leaving to the CFO.

Yes. So we have enough undrawn lines. And post the event also, we were able to get disbursements from a few banks. In other cases, they may be updating the credit committee. So once we get the stay order, we will share with all the lenders. As MD sir told, this is an old issue. It is -- this information is available in all our public documents, including the prospectus, et cetera. So this does not create much issue for the liquidity profile.

And just on the terms of the funding, I mean, have they changed? Or I mean, they remain similar to what was before the event?

It is similar only.

Okay. And just if you could -- sort of guide us on your loan growth plans as well. I mean, do they change in any way going forward? Or we are still looking to around 20% overall consolidated loan growth?

So the business plan will continue as per the plan. We are not seeing any liquidity constraints at this point of time which will reduce the growth. Funding is not a constraint at this point of time.

Our next question comes from the line of Piran Engineer from CLSA.

I had one clarification. So all of the loans on the book today are 6 months?

Yes.

Okay. Okay. And second thing, just in your notes to accounts, you mentioned about this RBI inspection, show cause notice that you all got. So can you just elaborate on that, please?

This is relating to financial year 2021. During the inspection, RBI pointed out the extension of tenure, which we were following for last so many years. That inspector interpreted this as all over of loan. And you remember, there was a spike in NPA in FY '22 because of this RBI response. And we provided all the details, and we are discussing with RBI on this issue. And we are awaiting the feedback from them.

We had a personal hearing also. So we are expecting a positive response from them because. We have a Q&A reply, which -- we I hope this will convince them the backdrop.

So Bindu, if you can just clarify, like you were extending the loan, what exactly about extension -- like why we extending the loan?

Okay. So in the past, our scheme structure was initial tenor of loan will be 3 months. And if the customer is servicing the full interest, he will get an extension for another 3 months. So this was the scheme structure as we can test to the cash flow of the customer, and he has to service the full interest after the completion of 3 months. That is how we were doing from like 2014 onwards, we were doing like that only. But in FY '21 inspection, that is interpreted as a rollover of loan. And we -- whether we have assessed the cash flow of the customer, is there any concession. These were the queries which we are answering. That is as planned.

And your competitors also have such schemes? Or you have [indiscernible]?

Our competitors -- I think everywhere does 1 year scheme. In our case, only was 3 months from 2014 onwards.

Okay. But they used to not extend, is my question.

That we don't know.

Okay. Okay. Fair enough. And just lastly in terms of this book, which is less than 12% yield, which you've given on Slide 18. Does that go to 0 any time? Or is this sort of a steady state?

No. It will be -- the 12% scheme will be maintained.

Maybe it may not get to 13%, it might get to 8% to 10% level because the scheme already exist earlier also.

The blended yield -- we have structured in a way that the blended yield would be 22.5% towards the third quarter of this year, it is consistently increasing. This quarter end, we expect that to settle around 22%.

Okay. And banks are still offering the 8%, 9% gold loan even now? Like NBFCs have stopped. Are banks still doing that?

We don't see that sort of aggression now -- because those were the days where they were getting liability growth, but not getting adequate asset side growth. Now they are getting asset side growth more and liability growth less. So their aggression in small loans have come down, particularly gold loans have come down. We don't see much advertisement, et cetera.

Our next question comes from the line of Nischint Chawathe from Kotak Securities Limited.

You mentioned that around 35% of your loans are about INR 2 lakhs. What was the issue for FY '22, which is your [indiscernible].

So FY '22 last year, it was 45%. About -- not 45% , it's around the 28%.

Sorry sir, 28% became 35%. So actually, the number of -- the proportion of loan book about INR 2 lakh actually went up this year, isn't it?

Yes.

Because I thought you had articulated to the strategy where you're kind of going down the ticket sizes.

But mostly, that is INR 1 lakh to INR 2 lakh arranged. INR 1 lakh to INR 2 lakh. This is about INR 2 lakh only.

And so between INR 1 lakh to INR 2 lakh, how would the proportion has changed?

It's 22% -- 24%.

Okay. And I mean, how much would that have been changed, I mean, how much maybe in like a year?

It has changed to 18%.

Okay. 18%, very good sir. And actually, I know you've discussed this, but I didn't quite understand the reason for the decrease in sequential. Maybe if you can just clarify that a little bit more in detail.