Manappuram Finance Limited — Q2 FY25 earnings call

Call held 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

  • 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

  • RBI Regulatory Action on Asirvad

  • MFI Asset Quality Deterioration

Key financials

  1. Consolidated AUM ₹45,716 Cr +17.4%YoY
  2. Consolidated PAT ₹572.1 Cr +2%YoY
  3. RoA 4.4%
  4. RoE 18.6%
  5. Standalone GNPA 2.4%
  6. Consolidated Net Worth ₹12,529 Cr

What they filed

Q1 FY27: revenue up 45.9%, net profit up 40.8% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,748 1,799 1,739 1,743 1,820 +4%1,918 +7%2,158 +24%2,543 +46%
Net profit475 453 414 392 376 −21%381 −16%376 −9%552 +41%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of AUM
₹43,054 Cr Total
  • Gold Loans ₹24,365 Cr 56.6%
  • Asirvad Microfinance ₹12,149 Cr 28.2%
  • Vehicle Finance ₹4,848 Cr 11.3%
  • Home Loans ₹1,692 Cr 3.9%

Guidance & targets

Revenue

  • Gold Loan AUM Growth Revenue · FY25 · Medium confidence 10-18%
    So we have already given the guidance of 10% to 18% growth in gold loan and we are hopeful of achieving that.

    — V P Nandakumar, MD & CEO

  • Consolidated AUM Growth Revenue · FY25 · Medium confidence 15-18%
    Yes. We are targeting around 15% 18% growth. So 15%-18% growth with more focus on the growth of secured loan portfolio, including gold loan.

    — V P Nandakumar, MD & CEO

Profitability

  • Consolidated Credit Cost Profitability · FY25 · High confidence 2%

    From 2% today

    We have not changed it. So, we will see the progress in collection because whatever climatic conditions, etc., the team is confident of improving that. So, as such, we have not changed the estimates.

    — A. L. Bindu, CFO

Other

  • MFI Disbursement Ban Resolution Other · next 3-4 months · Medium confidence 3-4 months
    See, usually, they take some time. You can say minimum they take 3 to 4 months. And that is our expectation also and we are fully geared up.

    — V P Nandakumar, MD & CEO

Margin

  • MFI Interest Rate Margin · Post-ban lifting · High confidence One of the lowest in industry

    Previously 24% → One of the lowest in industry

    While our interest rate was comparable, we have proactively decided to reduce the interest rate for the microfinance, which would be one of the lowest in the industry.

    — V P Nandakumar, MD & CEO

Risks & concerns

  • RBI Regulatory Action on Asirvad

    high

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

    Both acknowledged

  • MFI Asset Quality Deterioration

    high

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

    Both acknowledged

  • NIM Compression in MFI

    medium

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

    Analyst acknowledged

  • Covenant Breaches

    medium

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

    Analyst downplayed

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

2 direct
RBI Disbursement Ban at Asirvad Direct
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

Covenant Breaches and Lender Discomfort Partial
Covenant breach, there is only one covenant breach on NCD, which is a very small amount. So that is only GNPA... For NCD, it is very small amount only. I think it's less than INR50 crores.

Reveals that the MFI stress has triggered minor covenant breaches, though management downplays the systemic risk.

Asked by Luv Sharma, JPMorgan

Gold Loan Tonnage vs. Price Growth Direct
Not worried about tonnage growth... When the gold price has gone up, the average LTV has come down to 58%. So, if the price goes, he takes the advantage by bringing smaller quantity.

Explains why AUM growth is currently driven by gold price appreciation rather than volume (tonnage), which is flat YoY.

Asked by Rishikesh, RoboCapital

2 min read 5 chapters

Detailed narrative

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.

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.

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.

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.

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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