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    Manappuram Fin.

    MANAPPURAMMixed
    Financial Services·5 Nov 2024
    Management Summary

    Manappuram Finance delivered a steady quarter led by its core gold loan business and strong growth in vehicle finance, despite significant regulatory headwinds. The primary concern is the RBI's ban on disbursements at its microfinance subsidiary, Asirvad, which management expects to resolve within 3-4 months. While asset quality in the MFI segment is under pressure due to climatic and geographic factors, the company maintained its consolidated credit cost guidance of 2%.

    Highlights

    8

    • Consolidated Assets Under Management (AUM) reached ₹45,716 crores, growing 17.4% YoY and 1.7% QoQ.

    • Consolidated Net Profit stood at ₹572.1 crores, an increase of 2% YoY and 2.8% QoQ.

    • Gold loan AUM grew 17.1% YoY to ₹24,365 crores, maintaining a 53% share of consolidated AUM.

    • Asirvad Microfinance reported a PAT of ₹75 crores, down 25% sequentially due to higher credit costs and collection challenges.

    • RBI directed subsidiary Asirvad Microfinance to cease disbursements effective October 22, 2024, citing pricing and assessment deficiencies.

    • Vehicle Finance AUM grew 54% YoY to ₹4,848 crores; Home Loan AUM grew 29.6% YoY to ₹1,692 crores.

    • Return on Equity (RoE) was 18.6% and Return on Assets (RoA) was 4.4% on a consolidated basis.

    • Average Gold Loan LTV stood at 58%, down from 62% in the previous quarter due to rising gold prices.

    Concerns

    2

    • RBI Regulatory Action on Asirvad

    • MFI Asset Quality Deterioration

    What Changed3

    vs Q3 FY25

    Tone shiftNeutral → MixedGuidance items4 → 5 (+1)Risks discussed3 → 4 (+1)

    Key financials

    Single quarter

    06 metrics
    1. 01Consolidated AUM₹45,716 Cr+17.4%YoY
    2. 02Consolidated PAT₹572.1 Cr+2%YoY
    3. 03RoA4.4%
    4. 04RoE18.6%
    5. 05Standalone GNPA2.4%

    Segment breakdown

    • Gold Loans₹24,365 Cr56.6%
    • Asirvad Microfinance₹12,149 Cr28.2%
    • Vehicle Finance₹4,848 Cr11.3%
    • Home Loans₹1,692 Cr3.9%
    Donut· Share of AUM

    Guidance & targets

    5
    CategoryTargetPriority
    Revenue
    Gold Loan AUM Growth
    10-18%
    		Medium
    Revenue
    Consolidated AUM Growth
    15-18%
    		Medium
    Profitability
    Consolidated Credit Cost
    2%
    		High
    Other
    MFI Disbursement Ban Resolution
    3-4 months
    		Medium
    Margin
    MFI Interest Rate
    One of the lowest in industry
    		High

    Risks & concerns

    6
    RiskSeverity

    RBI Regulatory Action on Asirvad

    Disbursement ban since Oct 22, 2024, due to pricing and income assessment deficiencies. — Both acknowledged

    high

    MFI Asset Quality Deterioration

    Climate-related disruptions, heatwaves, and floods in states like Kerala and Gujarat impacting collections. — Both acknowledged

    high

    NIM Compression in MFI

    Proactive decision to reduce MFI interest rates to comply with RBI expectations will likely hit margins. — Analyst acknowledged

    medium

    Covenant Breaches

    GNPA-related covenant breaches on NCDs (<₹50cr) and ongoing discussions with banks for term loans. — Analyst downplayed

    medium

    Areas of Evasion(2)

    • Specific quantification of bank loan covenant breaches
    • Exact new interest rate for MFI (only stated 'one of the lowest')

    Q&A highlights

    3

    “See, I have already mentioned about that in my opening remarks, one was the pricing policy. The second was assessment of income and debt of microfinance borrowers. Third, the purity difference of gold at the time of disbursement and auction.”

    Clarifies the specific regulatory deficiencies that led to the disbursement halt at the company's largest subsidiary.

    asked by Nischint Chawathe, Kotak Institutional Equities

    2 min read5 chapters

    Detailed Narrative

    01

    Regulatory Headwinds at Asirvad Microfinance

    The quarter was overshadowed by the RBI's directive for Asirvad Microfinance to stop disbursements from October 22, 2024. The regulator cited deficiencies in pricing policies, income assessment, and purity differences in gold at disbursement. Management has submitted a compliance plan and expects the ban to be lifted in 3-4 months, but has proactively decided to reduce interest rates from the current 24% to be among the lowest in the industry.

    02

    Gold Loan Business Remains the Anchor

    Gold loan AUM grew 17.1% YoY to ₹24,365 crores, contributing 53% of consolidated AUM. While tonnage remained flat YoY, AUM growth was supported by rising gold prices, which brought the average LTV down to 58% from 62%. The company added 4.03 lakh new customers during the quarter, bringing the total base to 26.55 lakhs, with 74% of the book now managed online.

    03

    Asset Quality Stress in Microfinance

    Asirvad's profitability was hit by higher credit costs, with PAT falling to ₹75 crores from ₹100 crores in Q1. Net NPA stood at 1.99%, and the company added 5,000 loan officers specifically to bolster collection efforts. Management attributed the stress to climate-related disruptions (heatwaves, floods) and high borrower leverage in states like Gujarat, Maharashtra, and Kerala.

    04

    Strong Momentum in Non-Gold Segments

    Vehicle Finance emerged as a high-growth driver with AUM increasing 54% YoY to ₹4,848 crores. Home Finance also showed robust growth, up 29.6% YoY to ₹1,692 crores with a profit of ₹6 crores. MSME and allied activities reached an AUM of ₹2,963 crores, reflecting the company's successful diversification away from pure gold and MFI lending.

    05

    Liquidity and Capital Adequacy

    The company maintains a strong capital position with a consolidated CRAR of 29.22% and a net worth of ₹12,529 crores. Asirvad's Tier 1 capital stands at ₹2,250 crores (17% of risk-weighted assets). Despite the disbursement ban, management stated that lenders have not shown discomfort, and the company has sufficient liquidity to meet all repayment obligations.

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