● Around 3.9 lakh new customers were added during the quarter.
● Due to disruptions in cash supply during demonetization, the momentum of AUM growth was sluggish and it also disrupted the working capital requirements of the unorganized sector. The management has guided for ~10% growth in gold AUM.
● Gold holdings for 4QFY17 fell to 61.1 tonnes versus 65.1 tonnes YoY. A large part of the contraction is on account of higher auctions during the quarter (Rs 789 cr or 3.8 tonnes) due to postponed auctions from 3QFY17 due to demonetization. The monsoon is expected to drive growth in H1FY18 and the decline in tonnage is expected to recover.
● GNPA stood at 2% of the gold loans. GNPA eased 30 bps to 2.2%, as auctions due in 3QFY17 were completed in 4QFY17.
● NIM expanded 197 bps YoY and 101 bps QoQ to 17.1%. The expansion in NIM can be largely attributed to higher net yield.
● Online disbursements of gold loans stood at 11.9%, while disbursements via cheque stood at 60%. Around
15% of disbursements were below ticket size of Rs 20,000. The company aims to achieve 100% cashless disbursements in the MFI business eventually. Cashless disbursements will result in cost savings.
● There was a 30% increase in administration costs driven by demonetisation expenses and hiring of
additional security personnel. Drought conditions in South also affected the business adversely.
● Average cost of borrowing continues to fall and there is room for it to fall further. It is 9.7% at the moment. The borrowing mix will continue in the same trend and there is no sharing of resources among subsidiaries.
● Asirvad MFI reported a loss of Rs 7.4 cr in 4QFY17. AUM grew 80% YoY and 9% QoQ. Accounted for 13% of the overall loan book. Provisions stood at Rs 39.6 cr, CAR stood at 21%. Disbursements are back to pre-demonetization levels and the MFI business has expanded to 17 states now. 55% of AUM growth came from the newer geographies. GNPA in the MFI book has increased 450 bps to 4.7%. Company has not used the RBI dispensation on non-performing assets and voluntarily shifted to 90-day asset quality recognition during the earlier quarters.
● The MFI business has no significant exposure in the states of UP (4%) and Maharashtra (0.1%).
Business was mainly affected in Karnataka, especially the metropolitan region of Bangalore. The
company is looking to cut exposure to metro cities and focus on the smaller cities. The MFI business has tremendous potential in the East and North Eastern states, where they are looking to expand operations. They are not moving aggressively in UP, Haryana, and Karnataka.
● Vehicle finance segment will continue to grow at a healthy pace of 20% QoQ. The vehicle
finance business was relatively unaffected by demonetization. The company had not taken
RBI dispensation for this vertical.
● Housing loans to get a push in affordable housing segment, with an AUM target of Rs 3000 cr by the year 2020. (Currently, housing loans stands at Rs 300 cr) i.e 10 times from the current loan book in 4 years.
● The management is ready for equity infusion in the MFI business if needed. The management is
comfortable with the current CAR and has raised subordinate debt.
● AUM growth guidance for the entire business is ~20%-25% in the next 3-5 years. They have targeted the non-gold segments to account for 25% of AUM by FY18 and expect them to touch 50% eventually.
In my opinion, Manappuram management has steered the company out of the demonetization mess largely unscathed. However, increase in loan delinquency post demonetization needs to be managed well. Stable gold prices and derisking strategy have helped them in their cause. Now, with the worst-case scenario behind (hopefully), MFL is targeting healthy growth going forward not just in gold loans but in other segments as well. I am very hopeful on its housing and vehicle loan book prospects. This diversification has not just helped them better utilize excess capital on BS, but has also enabled them to not be viewed as a single product company open to regulatory risks. Good Tier I capital (22%) will ensure unhindered growth without the need to raise capital for foreseeable future (1.5-2 years).