Manappuram Finance Limited (531213) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Manappuram Finance Q3 FY '25 Earnings Conference Call hosted by Motilal Oswal Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhijit Tibrewal from Motilal Oswal Financial Services. Thank you, and over to you, sir.

Yes. Thanks. We have with us today the senior management team of Manappuram Finance to discuss the conference call to discuss our Q3 FY '25 results. I'll briefly introduce the management team. We have with us today Mr. VP Nandakumar, MD and CEO; Dr. Sumitha Nandan, Executive Director; Ms. Bindu A.L., CFO; Mr. Raju Narayanan, Business Head; Mr. B.N. Raveendra Babu, MD, Asirvad Micro Finance; Mr. Rajesh Namboodiripad, CFO, Asirvad Micro Finance; Mr. Kamal Parmar, Head, Vehicle and Equipment Finance; Mr. Suveen P.S, CEO, Manappuram Home Finance; Mr. Robin Karuvely, CFO, Manappuram Home Finance. With that brief introduction, I think I will hand it over to Mr. Nandakumar and the senior management team of Manappuram Finance for their opening remarks, post which we will open up the floor for Q&A. Thank you, and over to you, sir.

So thank you. Good evening, ladies and gentlemen. It is always a pleasure to join with this group to share our company's periodical financial results for the third quarter of FY '25. I wish and -- my heartfelt thanks to all of you. Before presenting, I wish you upcoming Holi festival. Despite global uncertainties and continued strengthening of the dollar, the Indian economy remains strong and resilient. In the words of Finance Minister, it is on [indiscernible] report. It is also noteworthy that the NBFC sector has remained stable despite challenges. NBFCs are also actively diversifying their funding sources, including increased issuance of listed nonconvertible debentures and foreign currency borrowings. This indicates the resilience of the sector and its ability to withstand the macroeconomic headwinds. Quarterly results. It also gives me great satisfaction to mention that 2025 has started on a positive note for our company with RBI lifting the supervisory restrictions on our major subsidiary, Asirvad Microfinance Limited. So the remedial actions undertaken by Asirvad have satisfied the RBI. The company has fully revamped its processes and systems and is fully committed to adhering to regulatory guidelines. I'm pleased to report that the company has posted a profit after tax excluding also -- excluding Asirvad of INR 467 crores. The company's AUM excluding Asirvad has risen to INR 34,204 crores, reflecting 18.7% year-on-year growth and 1.9% quarter-on-quarter increase. For Q3 Asirvad's AUM stood at INR 10,013 crores, which includes gold loan AUM of INR 818 crores and net NPA at 2.48%. Asirvad's profitability has been affected by the collection challenges in the MFI sector due to several factors, including climatic disruptions; dilution of joint liability group, JLG model; weakened model discipline and external influences on microfinance borrowers. Asirvad has underwritten comprehensive remedial undertaken -- comprehensive remedial measures to rationalize the costs and disbursement with strict underwriting. As Asirvad [ suffered ] the loss of INR 188 crores during this quarter, the consolidated profit after tax for the quarter declined to INR 278 crores, which is down by 51.3% quarter-on-quarter and 51.6% year-on-year. It is also pertinent to note that the RBI in circular dated 30th September '24 issued certain directions, including -- regarding gold loan practices. We view the regulatory measures as beneficial for the sector's stability. Through our industry association, we are actively participating in the development of standard practices. We have executed the mandatory review policies and implemented necessary enhancements to our operations. The vehicle finance business has an AUM of INR 5,085 crores recording a 4.9% quarter-on-quarter increase, while our home loan portfolio has increased an AUM -- has an AUM of INR 1,778 crores, reflecting 5.1% quarter-on-quarter increase. The organized gold loan market comprising both banks and NBFCs has experienced significant growth. According to the rating agency CRA, the market is projected to reach INR 15 trillion by March 2027. Companies have also been steadily increasing their online lending presence. And the sustained scale-up will improve their operating leverage and expand their customer base. Thank you all for your continued support and interest. Our focus will be on fortifying our core gold loan business and ensuring continued growth across all the secured lending business as we capitalize on opportunities created by India's economic resilience and positive reforms. We remain dedicated to our mission of empowering customers and stakeholders alike through prudent sustainable growth and innovation. For a more comprehensive review of our financial performance, I now handover the floor to our CFO, Ms. Bindu A.L.

Thank you, sir. Good evening, ladies and gentlemen. Thank you for joining us for the discussion on our financial results for the last quarter and 9 months ended December 2024. Our consolidated AUM was INR 44,217 crores, down by 3.3% sequentially and 9.5% Y-o-Y. The decline, as explained by sir, is on account of the challenges in our subsidiary, Asirvad Microfinance. If we exclude the Asirvad portfolio, the growth is 1.9% sequentially and 18.7% Y-o-Y growth, that also with the help of the growth in the gold loan portfolio. Profitability, INR 278 crores for the quarter, which was down by 51%. But if we exclude the Asirvad losses, the Q-o-Q decline is only 2.4%. ROE, 8.9% and ROA was 2.2% and our leverage is currently 2.9x. Our standalone NPA, 2.46% versus 2.42% during the previous quarter. Cash and cash equivalents INR 4,592 crores and undrawn bank line was INR 2,524 crores. CP exposure, 1% in the standalone entity and our subsidiaries do not have CP exposure. Standalone borrowing cost has gone up by 6 basis points during the quarter. We have raised fresh term loss during the quarter and the liquidity position is comfortable. Gold loan business, the proportion improved to 55.4% of consolidated AUM compared to 53.3%, an improvement of 2% compared to the earlier quarter. Consolidated gold loan AUM, INR 24,504 crore, 0.6% Q-on-Q, but the standalone entity could achieve a 1.9% Q-o-Q growth and 18.8% Y-o-Y growth. We were able to add 3.3 lakh new customers, and the outstanding number of customers stood at 24.66 lakhs, LTV at 60%, online book 79% of the total book. And the standalone PAT was INR 453 crores, which is slightly down sequentially and up by 5.8% Y-o-Y. The decline was on account of a higher provision arising from one of the corporate borrowers and a lower DA income compared to the earlier quarter. Coming to microfinance business, AUM at INR 10,013 crore including gold loan of INR 818 crores, down by 17.6% Q-o-Q and 13.4% Y-o-Y. Loss INR 188 crores, versus profit of INR 75 crores, CRAR at 23%. Vehicle finance AUM of INR 5,085 crores, which is up by 4.9% Q-o-Q and 41.4% Y-o-Y growth and the GNPA increased to 5.2%. The vehicle finance AUM comprises of commercial vehicle which is 48% and passenger vehicle is 31% and 2-wheeler 15% and farm equipment of 6%. Home loan business INR 1,778 crores, AUM as on 31st December, which is up by 5.1% Q-o-Q and 25.7% Y-o-Y growth. Number of branches 89 and they reported a profit of INR 7 crores during the quarter. [ AGLT ] at 3.86 and the home loan AUM comprises of home loan 71 and LAP of 29%. Loan to MSME and allied activities at INR 3,001 crores with a disbursement of INR 356 crores. On lending AUM at INR 653 crores, the disbursement only INR 5 crores during the quarter. Capital position is strong with a CRAR of 29.88% and the company's net worth INR 12,776 crores. The book value as on 31st December INR 150.94. Thank you. Now we can go for the Q&A session.

[Operator Instructions] We have the first question from the line of Shreya Shivani from CLSA.

I have two questions. First is on the growth front, on the gold loan business. So while I understand that the Asirvad bit of gold loan business may have seen some challenges, on our standalone book, our gold loan has slightly slowed this quarter versus the last couple of quarters. How much of it does it have to do with competition coming back into this space because some of the peers have reported, whether in banks or NBFCs, have reported much stronger numbers? And what is our outlook on the standalone gold book for the coming quarter or for FY '26 as well? That's my first question. Sir, on the second question, I wanted to understand what has been the provision coverage on Stage 3? I know you have taken about 400 crores of technical write-off, but if you can help us with provision coverage on Stage 3, that would be useful.

So the gold loan, that used to be little slow, that quarter used to be little slow because for festivals et cetera, et cetera, we expect the gold loan to grow at a rate of 15% to 20% and that is the expectation for the future. Earlier, we were telling about 10% to 12%. And now we believe that 15% to 20% is possible because more and more customers are coming in and we see some increase in the ticket size et cetera, et cetera, going forward. So this is our -- we see opportunity for gold loan growth. Quarter-to-quarter, there may be some difference. Yes, regarding the second part, Bindu can answer.

Yes. Because the provision -- on the Asirvad provision coverage, Stage 3 will be...

59%.

59%.

And, ma'am, what was it last quarter, the Stage 3?

55%.

Yes.

Okay. So we've taken about 4% increase over there. And what about the standard asset provision? How much have that missed on asset value?

Standard assets provision, Stage 2 will be having?

Like, 14%.

14%. And Stage 1 will have 1.2%.

And how much was the 14% and 1.2% last quarter?

Similar.

That is -- yes, similar.

The next question is from the line of Shweta from Elara.

Sir, I have couple of questions. If I look at gold tonnage, both sequentially and year-on-year, it has declined. So clearly, that is outcome of also gold price increase and festival season in the quarter gone by. But, then what gives you confidence going forward to resume growth at 15% to 20%? Because both the branches as well as customer, have sort of -- are lurching. So the productivity gains are going to be lower in the interim period at least, right? That's the first question. And just the allied question to that, so what is the RBI communication now in terms of opening of gold branches? Sir, I'm not talking about MFI led gold or MFI branches, the standalone gold branches. That's the question. And second, so -- just coming back to the bit of first participant question, so you have been technical write off the INR 400-odd crores, right, this particular quarter. So just a data keeping question, what was this number previous quarter and a year ago -- corresponding quarter year ago?

Regarding tonnage growth or decline, it all depends on the gold price. When the higher number amount is available with a lower quantity, people will bring only lower quantity. They borrow for -- meeting their requirement and not because there is gold value is high, LTV is high. They don't borrow like this. One thing which you should appreciate is, gold loans without any compulsion, even without sending any SMS or anything, around within 3, 4 months, almost 70%, 80% of the loans are getting redeemed. So when somebody pledges their gold, they have some clear anticipation of their cash -- forthcoming cash flow only on the basis of that they borrow. So you will see when the gold price goes down also, you can see growth. At that point of time, you can see the growth, tonnage growth higher. So this is simply because of the function of the LTV, gold value. And regarding RBI permission of opening the branches, yes, today, we had a meeting. I am in Mumbai because we had a meeting with our RBI Governor, larger NBFC were invited. And I had the opportunity to raise this question to the Governor. And also I carried in the forum and outside also during lunch time, I had discussed with him and deputy governor. Governor also wonder why only for gold loan companies, this restriction is. He said, "I don't see any reason." He asked the deputy governors to examine. And if there is no genuine reason, remove that branch opening restriction only for gold loan company. And after that, I had some opportunity to discuss with the senior officials and they were positive and they asked us to resubmit application. This is where it is. This is in the open discussion we had when the meeting was invited by the RBI Governor to understand the challenges of the company. We explained to him, I explained to him how this can help in reading away customers from luxurious lenders, et cetera, which was appreciated. I hope we'll get permission for opening branches without much delay. And the other part, Bindu can answer.

Yes. For Q2, last -- this Q2 it was 40 and previous Q3 it was nil. We did not do any write-up in the previous -- Q3.

And sir, corresponding quarter last year?

Yes, that was nil. That was nil.

Okay. And, as well in Q2, Q2 FY '25?

40.

40.

Okay. So coming back -- sorry, I'm just harping on the same thing. So coming back to the first question, the first point which you made, so it's understandable that, in a price rise scenario, tonnage would look lower and like you rightly pointed out, we have been communicating with RBI for acquiring the branch opening approvals, which is very positive. But in the interim period, as we move ahead, say, in Q4 and Q1, what brings the confidence to put up a 15%, 20% growth?

See the annual growth in some quarters because of the demand from the target audience grows because, for example, sowing season, or school/college admissions, et cetera, et cetera, then harvest season, et cetera, et cetera, it goes down, et cetera, et cetera. But, we believe that 15% to 20% is possible. And this year also, we expect to get around 15%. So that's the expectation. It is all dependent on the demand only, not because of the gold price as it is mistakenly the impression of the markets.

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

Sir, firstly, you spoke about RBI directions on gold loan practices. And then you said that we've also responded, and we have done some enhancements in process, yes, in operations. Can you elaborate on any specific changes that we would have implemented on the ground from, say, December or January?

See, this was a discussion point by the major companies in the gold loan sector today with the RBI Governor and deputy governor. So, they promised...

Sir, this is a question on the 30 September circular. Can I answer, sir, that?

Yes, yes.

Okay. So on the 30th September circular, two important points. One is the LTV monitoring and the other thing on rolling over of the pledges, the re-pledges, et cetera. So on the LTV monitoring, at specific LTV ratios, we are sending SMS, letters, et cetera, and there will be an accelerated auction. That is one change we have implemented. And during the tenure of gold loan, the rollovers with partial servicing of interest that is also we have introduced. And beyond the maturity, re-pedges only with the full repayment of interest. So these are the changes we have implemented. Then MBOs, we are capturing in the -- more clearly acknowledged by the borrower. These are the 3 or 4 points applicable to NBFCs, which we have implemented.

For the top of that, I want to add a few more things. So some of the practical challenges in the proposal has been discussed with the Governor and the team today. He said, "We are consulting with you. Then on the basis of this understanding, the practical challenges and the -- or customers' face, et cetera, et cetera, we will come out with a draft guideline. Then we can have another round of discussion." It appeared that the Governor is very positive. The RBI set up today is very positive. And we expect positive outcomes.

Got that. And in the stand-alone company, the other OpEx has increased Q-on-Q. Any particular reason why the nonemployee expenses have gone up by 7%, 8%?

It is -- we had some unsecured loans which we have stopped in the past like digital personal loan, which we have stopped already and some MSME lending, which we have already stopped. So that is -- that's buying up, and we have completely moved to secured lending in the stand-alone entity. About the numbers, Bindu, can share.

Yes. So the OpEx has gone up around INR 7 crores, INR 8 crores because of the employee costs, and the other one in the admin expenditure, it is on account of the increased IT costs, the cloud usage, et cetera. There is some over usage and we paid some extra amount. And lot of automation is also happening. So our change request that expense has also gone up. That is the...

Sure. Just one follow-up. Bindu ma'am, you spoke about a couple of changes that you implemented in the process for gold loans with regards to LTV monitoring and rollover of loans. Presuming that it would have got implemented from December or January, incrementally in January and February, are we seeing any impact -- negative impact on growth because of that? Or are we seeing the AUM growing? So maybe in terms of customer volumes because I think the customer base had declined in Q3 that can be attributable to pledges being released. But in January, February, post the implementation of the new discipline, are we seeing that customer base is further going out?

So like for any changes, there will be resistance. So in the first few days, we have seen some impact. Now customers also adjusted to that. And I think the quarter, we expect like similar to last year quarter.

The next question is from the line of Kushan Parikh from Morgan Stanley.

My question was on Asirvad Microfinance. So given that we have restarted disbursements after the RBI clearance, this would be at a lower interest rate as well as we had alluded to previously. So wanted to get your take on what will be the refresh strategy for the subsidiary in terms of the growth that we will be pushing for as well as from a margins and ROA perspective for this entity. That's one question. My second question is a data keeping question, if you could give us the auction number for the quarter for gold loan?

So, see, the microfinance industry was reporting a reasonable profit even when there was a cap on the net interest margin. It was 10%. It was later removed et cetera, et cetera. What has happened is, with the removal, almost all the companies hiked the price. And thinking that some additional -- can be taken in the pricing, some 2%, 3% or 4% et cetera, et cetera. So accordingly, every company has hiked the interest rate. And -- but actually that has led to the indiscriminate lending from all the lenders, so -- multiple -- which were earlier -- the number of lenders were restricted that has gone up. Latter situation, so because of the regulatory changes. Now all the companies understand that and it will gradually come. But this transition is definitely little painful because [indiscernible] with these changes, the loans are repaid by using another loan, et cetera, that source has come down. But now the discipline will come and things will go back to the post liberalization environment. And even with that cost of everything contained, et cetera, I hope the microfinance industry will go to that level where even Asirvad was reporting around nearly 5% ROA. So with that discipline more and more encouragement will be there for group meetings, et cetera, et cetera. So this transition phase for every microfinance company will be little difficult. So I feel like 2, 3 quarters things will come back.

And the auction number, INR [ 124 crores ] is the auction amount during this quarter.

Sir, if you could just guide on the growth for the MFI business as well going forward?

So what we plan to have is to -- contains the growth and gradually we plan to increase our secured landing business from overall book -- consolidated book, gold and other non-gold secured business. So in a phased manner, we plan to bring it down to within 15% now -- or even it may go down gradually. So other businesses, we will prioritize, we have the opportunity. And we hope we can open branches also. There will be greater emphasis in growing gold.

The next question is from the line of Love Sharma from JPMorgan.

Just a couple of questions from me. I think more as a follow-up on the previous question first on Asirvad. If you could highlight what is the growth you are looking at on AUM side for Asirvad in the next 1 or 2 years? And any sense of how the asset quality is likely to be -- likely to evolve over the next few quarters as well within Asirvad? And another question related to Asirvad again would be given some of the commentary around the covenant breaches there. Could you just highlight what is the discussions with lenders as of now? And any sense in terms of fresh lending or borrowing rates, which have gone up for you within Asirvad, especially?

So in Asirvad, we have tightened the underwriting process. We have capped the maximum number of lenders that is we have reduced the loan size also -- cycles also at a -- longer period from one cycle to the next cycle, the increase also is reduced. So this way, we have tightened the processes. We are taking -- we are giving loan only to our good customers now with good track record all these years, et cetera, et cetera, through branches which are seem safer, et cetera. So this way we expect the growth of Asirvad, the MFI will come down to around 10% to 12% annually. I don't expect that to be more. And we expect the collection efficiency to go up to around 99% because of the tighter underwriting. And we will bring down the employee costs and other costs by -- We clearly planned cost reduction plan, which is being worked out, the employee productivity to be improved. Then the branch size -- also branch number also, we have to be evaluate [indiscernible] We are working on that strategy. And we are -- as I said, in the next 2, 3 years, we expect a growth of 10% to 12% of our MFI with a collection efficiency of 99%.

And could you just comment on the covenant side for the Asirvad? Any impact on borrowing cost or fresh lending, which was...

Rajesh?

So right now, we had some disbursements against which we could not give the -- I mean, the assets. So we are on discussions with them. Because of this current situation of the -- I mean, which we had this season impact as well as the overall microfinance sector issues. So banks are -- we are in discussion with the banks, and we are very hopeful that we will get some solution for those.

And do you mean that that's essentially more about higher borrowing costs, which banks could lead to the their -- could lead to for Asirvad or any other impact you see?

Not much.

Not much, not much.

The next question is from the line of Shreepal Doshi from Equirus.

Sir, my question was on something that Bindu ma'am alluded to her answer to one of the participants, wherein she highlighted that there has been some process policy changes in line with the RBI circular. So ma'am, just like -- so did you -- like I just couldn't understand that do you mean to say that we will be maintaining 75% LTV throughout the loan tenure or we'll be closely monitoring it for each of the customers in the gold segment? And also, you highlighted something on the auto renewals of the loan. So if you could just explain both these aspects again, please?

Okay. So on the LTV monitoring, we are strictly ensuring that at the time of disbursement, this is within 75% as permitted. And then the interest accrual will also be added, and we will monitor the LTV position. And if it is a small variation maybe up to 5%, we will not act on those cases. Above 5%, we will start sending SMS. Then we will do at 85% letter, 90% auction notice, et cetera. Like that, there will be a continuous monitoring and activities, which will ensure a better discipline from the borrowers. And on the -- yes, that is one point on the LTV monitoring. And second, on the rollover of loans during the tenure within the permissible LTV, borrowers may need additional working capital, so they used to avail the loan. So during the tenure, now it should be with the cash flow coming in. So the 50% interest should be serviced during the tenure if they rollover the loan. After maturity, they should service 100% of the interest, so these are the few changes we made.

Got it, got it. And just one more point here, so sir, as you highlighted, you met the Governor recently. So was there any discussion on these regulatory framework front, sir, wherein they are highlighting these aspects to be covered in the processes and policies incrementally?