Manappuram Finance

(Hitesh Patel) #269

Excellent preparation on gold loan cos.

Regarding point 1, you assume the lender takes away a big chunk of money as compared to owner of business. But in case of manappuram and even muthoot, isnt lender and owner of business the same guy i.e the company itself?

Regarding credit profile of borrower as mentioned in point 2, its always risky at the bottom of the pyramid but as compared to MFI, gold provides some sort of cushion in case of defaults. But in a normalised scenario as per the NPA figures provided by the co the default rate is quite within limits.

I think the small size of loans is exactly what gives these companies the edge over banks. I cant imagine a bank officer going all out to market loans with a ticket size of 30-50k. They would always be interested in doing higher ticket size loans of vehicles or personal loans or consumer loans or HF besides corporate loans.

The main competition for them would be from unorganised players and that will always remain.

I like the move by Manappuram management to shorten the loan tenure which can act as a big risk mitigator.

Both companies are quoting above or near to their all time highs and seem to be in the process of climbing the wall of worry after which fireworks can begin.

(Ronak) #270

Hello Hiteshbhai,
Appreciate that you liked my presentation.
On point number 1. I was referring to a borrower making …let’s say rickshaw driver… He borrows money from Manappuram taking a gold loan at 20% rate p.a. and runs a rickshaw. What would be the roe of the rickshaw driver… 30%…on his investment of Rickshaw. Now if he earns 30% and pays 20% to Manappuram…he gets to keep 10%…only…Sooner or later he will realize that banks are a cheaper source n will migrate to them, once his credit profile increases…Hence, Manappuram will have the constantly mine for newer clients…and most of these would be of low credit profile…as like the rickshaw guy, they too will migrate to banks once their credit profile improves…Thus, sizeable growth for Manappuram will happen with higher branches…

(Vikrant Yadav) #271

Hi Ronak - fantastic work with presentation!

Assumption that gold loan is consumed only by poor is slightly misplaced. Rich borrow as much against gold for consumption. Refer the below extract from a article published in Mint few days back. Mr. Nandkumar has also spoke about how Gold loan has become a lifestyle product.


It is the richer households who are more likely to mortgage gold, the data shows. Only 4% of households in the bottom 10% income class ever availed of gold loan as against 13% of households in the top 10%. 14% of households in the top 1% households by income reported ever having taken gold loan.

The poorer income classes take gold loans mostly for medical emergencies or financial crises. As the chart below shows, the proportion of households availing gold loans because of such reasons is much higher among the poorer four deciles (bottom 40% of the income distribution) than among the richer income classes."


Disclosure: Invested from lower levels.

(Yogesh Sane) #272

This is a valid argument but typical Manappurum customer is not financially savvy enough to understand all this math nor he/she is going to open a savings account to park extra income. 30% interest on a 3 month loan does not sound that big. they look for absolute interest rather than % rate. For these kind of customers, gold is their savings account. Banks also does not have enough manpower to go after these guys to convert them into account holders. After all the push by the government towards jan dhan accounts etc, financial literacy has remained low. Many educated people I know haven’t even moved beyond savings accounts and fixed deposits.

I think rich borrow against property. LAP is the equivalent of gold loan for rich. That is now available at 12-15%. Many rich businessman prefer to borrow against their residential house at these rates which are cheaper than bank loans and they can still make money as their returns are higher than 15%.

(Kunal Parikh) #273

One other point to ponder is that the rickshaw driver can also approach microfinance company where there is no need for collateral and the interest rate is very similar.

(vikas kukreja) #274

Manappuram has come out with its silver jubilee, 25th annual report. It’s a treat to read and provides insight into digital initiatives company is taking to tap future growth. Would highly recommend reading their AR.

(Ronak) #276

Excellent point guys… Your thoughts have made my thinking towards the company clearer. Now, lets together work to making a list of key monitorables / issues critical to business ofManappuram. Some issues which crop up to my mind are as under. Pls add up to the list, which will help us gain further clarity on the business.

  1. What is the impact of Peer to Peer (P2P) lending on companies like Manappuram. A friend of my asked me to lookup into Faircent which is an online portal - which allows the lender and borrower to list. It’s like an internet based market for lenders and borrowers to meet. What’s potential threat of such co’s.

  1. Impact of Govt’s Mudraa Loan scheme on Gold loan Co’s.

  2. With the increasing share of Other Businesses in overall portfolio - should not the NIM’s reduce - as Housing loan and Vehicle Finance are lower yielding business. Hence ROE’s would be lower. Also note, Microfinance would be yield accretive (or atleast not dilutive)

  3. Loan waivers by govt have been instrumental in many farmers willfully defaulting on the loans. We are again approaching elections in the next 2 years - How has the company geared to avoid repetition of such defaults

Would appreciate your thoughts on all these issues

(Ronak) #277


I just made an addendum to my report on Gold Finance Co. with latest available stats. Am uploading the same herewith. On the key monitorables, I have done some more research and my comments on the same
A. Govt’s Gold Monetisation scheme - It has not been very successful as govt has hardly put any efforts to popularize these schemes. 6.4 tons mobilized so far

  1. Onerous process of melting the jewelry, verifying the purity, obtaining the certificate from registered hallmark valuer and converting it into Gold Coins – not everyone would be willing to do that (certainly not the bottom of the pyramid customer – due to sentimental value). Moreover so because once you deposit the Gold - it is locked in for a period of 3 Years - hence these schemes are useful for those having excess gold. Hence not relevant for the bottom of the pyramid customer
  1. Very low int rates of 2% to 2.5%. These too were taxable, until recent budget which exempted the interest from taxation.

So net net - Gold monetisation will not have too much impact on Gold Loan Companies

Addendum to Gold Finance Co’s.pdf (226.7 KB)

(Yogesh Sane) #278

Reading the latest annual report for FY 2016-17 makes me wonder if the turnaround story of Manappurum has prematurely ended and business model shaken in FY 2016-17.

Demonatisation has dealt a severe blow to manappurum’s customer base. While rest of the economy has recovered, as per the AR, working capital cycle of Manappurum’s customers have not got back to normal. That means we are looking at few more quarters of no or negative growth and asset quality issues.

Another interesting thought that came to my mind is about sustainability of gold loan business model. MFIs offer similar interest rates without collateral. Using gold as a collateral actually limits the amount that can be lent. To me it looks like Manappurum got into MFI business because it saw MFIs taking away its customers. Now if a customer loses it’s collateral in an auction, manappurum can lend money to the same customer as a MFI loan (they say they only do JLG loans but I am skeptical).

There is a lot of talk about adopting technology and using less cash. All that is good and that’s the way forward. But that also means now the customer has to get in touch with banks (either branch or ATMs). Banks can try to convert these customers into account holders or even gold loan customers. Banks will not go out and poach customers from Manappurum but they will be happy to make gold loans if a customer walks in.

Overall I think the manappurum has turned around and from now on this is an EPS story.

(us121) #279

Yes, it is a SAFE EPS Story with Really Good Management.

(Ronak) #280

Hi Yogesh,

I completely agree with your view point. Increased contact of Bank and customers is inevitable, going forward. Also, since banks are likely to be more vigilant in granting loans, the credit worthy customers are more likely to avail loans from these banks - Customer gets better int rates & banks get better creditworthy borrower - Win-win for both.
Hence, Manappuram is more likely going to have a low creditworthy customers.
The question we need to ask is - whether it is operationally feasible for Banks to enter the gold loan business given the (a) Avg ticket size being 30K to 40K (b) Having locker facilities at the branches for storing gold & additional security © Loan valuation officers to check the gold purity etc…
Specialized gold loan companies have always survived competition for these reasons - which appear to be valid.
I guess time will tell.

(sanketkulkarni1987) #281

I think this product can be a very good offering which can be marketed to the middle class segment of India. Getting safety lockers is quite painful and cumbersome (as experienced personally). From what i have understood from this information mentioned in the annual report (correct me if i am wrong) is that a customer can store gold in Manappuram branch and he gets a loan whenever he wants. Its not compulsory to take the loan, but if you want it can be available easily. So a customer is getting both a depository service (dont know if they charge you for just keeping the gold and not taking the loan) and loan is easily available using an app …How many people depositing gold end up taking a loan is a question mark for me right now… But if it is really convinient as what the company is projecting then I think there will be quite a few takers for this …

Thoughts and alternate opinions are welcome…

(Yogesh Sane) #282

Not many. Those that are financially savvy will not borrow at 25% regularly.

(RohitMehta2017) #283

I think we should look at the technology side more holistically.If you just visit the App Store and see the latest ratings and comments, you would have a broad idea about how is the technology story unfolding. If you go through multiple comments, user are facing lots of issues with the application - one being server always busy. App depends on customer stickiness, and post that a financial application where customer would log in once a while needs to have a better feedback. All said and done, there are multiple questions like - How many customers are using the application? Is there any change due to the same if noticed?

(Rajesh_R) #284

Gold and MFI loans serve completely different purpose.

  1. GL is for discretionary/one-off spending like family events, Start of the year school supplies/fees, festivals and any other emergency requirement. Gold is poor people’s credit card.
  2. MFI loans are given to women borrowers for income generating purpose only.
  3. One cannot get a MFI loan right away like GL. The process to find/join a JLG, go through training etc takes many weeks.

(Vikrant Yadav) #285


The cost to source MFI loans is extremely high. MFIs keep the tenor of the loan from 12 months to 24 months to justify the expenses incurred and generate sufficient returns.

Gold loans are for relatively shorter tenor with an option for rollover. The marginal cost to source gold loan is low if the financing company has existing branch network.

MFI loans are for income generating activity; gold loans may have multiple end uses including lifestyle / discretionary expenses.


(Rajesh) #286

Sustainability of Gold loan business
I talked to a banker. He told that he would give loan against gold within two hours. I asked if he would give Rs 10000 ? He immediately clarified that bank would never lend this much little amount as cost incurred would be more. As per him bank will not entertain any gold loan below Rs 50000. It is the stage where NBFCs start to find there niche areas in spite of lot of banks. So the business model is intact, sustainable.


Some early signs that all is not lost for MFI biz. Rating agency CARE seems to give it a thumbs up.

My key takeaways from the AR FY17.

  • Competitive landscape will be benign going forward.

“BANKS COULD NOT CAPTURE AND HOLD MUCH OF THE GROUND VACATED BY THE GOLD LOAN NBFCS.” Similar to new NBFC entrants, new private sector banks that entered the gold loans segment also reduced their focus on the segment during FY13-15. During this phase, the relative inexperience of the new entrants to operate in the gold loans segment was exposed. The larger entrants such as HDFC Bank and ICICI Bank also experienced a reduction in their gold loan portfolio during this period. However, during the first two quarters of 2017, these two banks have shown signs of renewed interest in Gold Loan segment. Their continued focus and sustainability in this sector can be gauged only in the times to come.

  • Growth Outlook - The gold loans market is expected to regain ground even as the growth rate is expected to be lower than that experienced during the period of rapid expansion (FY07-12). The Gold Loan market is expected to grow between 13-15% over the next three years from FY17-20 and reach a market size of ` 2,100-2,250 bn by FY20.

Over the next 2 years, Specialised Gold Loan NBFCs are well positioned to grow and reclaim their lost customer base from banks and the unorganised sector. The overall regulatory environment is currently neutral for Specialised Gold Loan NBFCs and expected to continue to be stable. Further, competition from banks can be expected to be subdued as public sector banks grapple with a weak credit demand and stress in their asset quality. Going forward, the market share of gold loan NBFCs is expected to increase steadily for the next two years.

(Deepen Thakkar) #288

But for a lending institution with some collateral than nothing to recover the amount . MFI and gold loan both cater to almost similar profile customer but gold loan cos have a security while MFIs don’t have it .


Well, I will add few points on MFI vs. gold loan origination. We think ordinary folks are irrational to apply for gold loans when they could get an MFI loan. Largely there are two types of borrowers in the gold loan segment. One, who is in absolute distress and need immediate liquidity. And second who has a very lucrative biz opportunity but no credit history or bad one to approach other financial institutions. e.g. one good second hand CV is up for sale in the neighborhood or somebody wants to buy a cow/buffalo calf. Our maid took gold loan to buy second hand furniture for a quick flip as she had a ready client. If the loan is for starting a biz, it gets refinanced by MFI / NBFCs later. So high cost loans are for very short duration say 3 months while they continue to generate 20-25% ROI for the full year.