Muthooth Finance has GNPA of about 6% while manapppuram is 2.3%. Whats the reason?
Manappuram gold tonnage is almost highest level. This qtr they took one time provision of 12cr in gold. Their mfin provision is gradually decreasing, trend was 40cr>30cr>15cr till this qtr. And this trend will continue, will not be surprised if they post 200cr pat next qtr
What is tonnage? And what is relation of levels with npa?
2.3 and 6% are gnpa so provisions should not matter in comparing these right?
NIM overall seems to have improved. Or maybe I’m calculating it incorrectly:
NIM = (Net Interest Income - Interest Expenses)/ Interest Earning Assets
FY17 = 7.67%
FY18 = 8.66%
I’ve taken Interest Expense as Finance Costs, and Interest earning assets as the AUM.
Does Manappuram not declare NIMs? (Like more Housing Finance Companies do)
Manappuram gold loans are of 3 month tenure where as Muthoot’s loan tenure is much higher. The probability of a loan becoming non performing is much lesser when you sell lower tenure products. Now you know why the NPA levels of Manappuram is significantly lower than that of Muthoot.
1 reason as i heard in d concall muthooth does not auction d gold quickly and gives d customer additional time to arrange and repay d loan while manappuram auctions within 6 months
Attended concall y’day
- E & E
poor EXECUTION and rich EXCUSES
- Mischievous behaviour ?
Some time back put out ambiguous filing that Board will meet to consider acquisition. They could be acquired. They would acquire. Ambiguous
Put out filing that y’day Board Meeting would commence at 9.30. Uploaded results at 5.21 pm - after market hours
Last 2-3 quarters - File results ALWAYS after 5.20 pm and concall is scheduled at 5.30 pm
Last 2-3 quarters - Stories planted in media/ research reports by Brokerages. Price runs up 2-3 weeks ahead of results. Post results, price falls off a cliff
- Poor EXECUTION
Top line stagnant while Muthoot has grown leaps and bounds
GNPA in microfinance 2.5%
Home Finance GNPA 4.8% in a 3 year old business is obscene
Vehicle Finance - GNPA 3% - 3 year old book
Underscores POOR credit risk underwriting skills
1.5 years after DEMON still parroting that as an excuse
Housing finance parroting the same excuses last three quarter
Expenses - parroting the same "Security"excuse 2-3 quarters
Underscores poor execution
Vague. More HOPE than SUBSTANCE. WIll grow at 10%. Have been saying 20% (last year), then scaled it down, last three quarters
No concrete evidence of any improvement
- Glaringly obvious that they believe that performance will miraculously right itself
This IMHO is the biggest RED FLAG
I dont know what is wrong
But I know all will be well
Sorry for “picking” on them, If you feel this is too one-sided
Counterview - Rohit Chauhan has put out a good investment thesis for Manappuram. You may google and read that for balance
Agree on timing of results and concall issue. The problem lies with the promoter for not being very clear and assertive in communications. But let’s be clear that he has been consistent with what is he saying on being acquired. I would look at good RoE, high dividend payout ratio and fair growth plans rather than missing communications only. IMO, being in FnO makes it more vulnerable to stock price volatility and rumours.
Sure, the most disappointing aspect is high GNPAs in the new verticals. However, absolute NPAs have fallen in Vehicle finance and Ashirvad sequentially. Only housing remains an outlier and that’s why loan growth is on the lower side. The problem lies in their hurry to deploy cash generated from gold loan biz which has led to NPA creation. Even Bajaj Finance promoter mentioned the impact of Demo on debt repayment by SMEs so the problem is real. Look at Motilal’s Aspire which is in the similar segment have high NPA in housing segment. Looks like they have not built recovery infrastructure given their size.
On growth front, QoQ growth is important till this quarter. Both gold and MFI have grown handsomely and I find no reason to doubt what they are projecting. Since FY15 gold loan AUM has been rising @9-10% and dropped in FY18. I am pretty ok if they keep growing at 10-15%. They are projecting cost to income of 7% of AUM in FY19 which is a big trigger even if it goes below 7.5% . Costs have started falling in Q4 itself so let’s watch.
Their gold loan strategy is clearly more prudent than Muthoot. The current environment in which gold prices are expected to take a knock will hurt Muthoot since they are carrying price risk by not auctioning periodically. And gold loan growth is getting better for Manappuram so Muthoot is not benefitting from being sympathetic to the borrowers. In fact, I loud MFS for promoting healthy repayment culture in the gold loan segment.
Disc - Invested
CFO has resigned
(he has been selling his stock options over the last couple years)
Two or three quarters back the CTO/ CIO had resigned
(he sold his stock options prior to that)
Food for thought…
This is a double edged sword. Jubilant trebled after the management resigned. Maybe internal problems, maybe good times ahead?
Manappuram Finance Ltd
Highlights of Q4 FY18 and FY18 Results
- Consolidated revenue from operation 889.8 Cr
- Consolidated PAT 182.18 Cr increase of 5 % QOQ
- Consolidated Net profit 670 Cr lower by 11 % compare to last year
- Standalone Profit stood at Rs 169.5 Cr for Q4 and for the full year was700.7 Cr
- Company Gold holding was 64 ton up by 2.6 % QOQ and 4.8 % YOY
- Total number of gold customers for the year were 22.5 Lakhs
- Gold Loan book stood at 11735 Cr up 3.6 % QOQ and down 5.5 % YOY
- Auction during the quarter were Rs 89 Cr
- Weighted average auction stood at 1835 Cr which was at 65 % of current gold price
- Interest Accrued was only 2.5 % of the total gold loan AUM
- Loan disbursement during the quarter was 20,488 Cr . Online book accounted for 32 % of the total gold loan book compare to 25 % in previous quarter
- Total AUM grew by 7.6 % to 15765 Cr compare to previous quarter and 15.4 % YOY
- Asirvad Micro finance
o Closing AUM stood at 2437 Cr which is 15.4 % up on QOQ and 35.7 % YOY
o Net profit for the quarter was 13.05 Cr compare to with a marginal 0.36 Cr profit in Q3
o Made provision of 16.95 Cr in Q4 . Company provide 24 % more then the minimum amount require by the RBI
o Disbursement were Rs 954 Cr during the Quarter compare to 688.8 Cr previous quarter . 100 % of disbursement are now done in Non-Cash Manner directly into customer bank A/c
o 15.01 Lakh customers , 832 branches , more then 4168 employee , 19 states , 6th largest MFI in the country with a capital adequacy of 15 %
o Parent company had infused 100 Cr in the subsidiary which will take the capital adequacy to over 20 %
- Home loan business
o Total loan book of 374 Cr , up by 9.5 % QOQ , it operate from 35 branches .
o Disbursal stood at 625 Cr up by 25 % QOQ and operate from 73 location
o New business stands at 25 % of the consolidated AUM
o Consolidated finance cost was Rs 268 Cr , average cost of borrowing decrease by 10 basis points to 8.66 % . Average cost was down by 104 basis points YOY
- Employee cost increase marginally by 1.8 % to 162 Cr
- Consolidated headcount stood at 24,886
- Administrative cost decline by 5.6 % decline in 133.24 Cr
- Depreciation was 18.39 Cr for the quarter
- Number of Gold loan branches were 3330
- Provision for the standalone entity was 24.59 Cr which was 0.7 %
- Consolidated net worth stood at 3836 Cr
- Consolidating borrowing stood at 12593 Cr
- Capital adequacy stand at 27 %
- Gold loan growth yoy was 2.6 % qoq growth in gold ton stand at 54 ton
- Micro finance business had bounce back . Expect growth in micro finance and gold
- Non gold portfolio collectively grew by 59 % for the full year led by commercial vehicle growth which was double putting together contribution was more than 25 % in the total AUM
- ROA stood at 4.04 % and ROE at 17.81 %
- What was the company Gross NPA in the housing sector in last quarter and current quarter ?
o Currently its 4.7 % and last quarter it was 3-3.5 %
o Spike in the NPA was low in last quarter and now it slightly growing
- What about collection efficiency of Asirvad ?
o Company is at 99.6 % currently more then par of 1.3 % in the par more then 90 days
- At what scale does company see cost to income after getting at 100-125 Cr income level ?
o It will come down going further , it was high just because of demonetisation last year so company was not able to do disbursal and growth
o Currently it is 6.7 % and it will come down to 5.9 % next year and it is best performing in the Industry
- Will company have a problem from Tamil Nadu elections in disbursement ?
o No company had totally moved toward direct bank credit so there will be no problem from elections and same was experience in Karnataka elections also . Collections are much smaller then Disbursement
o Micro finance in not part of any farmer waiver loan scheme from government . There can be a dip for 1 or 2 months in collections temporary
o Concentration of a particular area has also coming down , it was 80 % some years ago and now it is less then 30 % . Company is managing the portfolio by spreading it
- Why company NPA is still High Housing segment and how does the company see competition in housing segment ?
o There is stress going on in the market and lot of competent increase as there were 64 players few years back but now 94 players and another 14 licenses are gone for approval with NHB . But issues will sort out in coming future all the assets are on the book and provisions are made more then required . Standard of asset provision is also more .
o In last quarter company ambition was not to grow but to find a resolution because there was some stagnation in the portfolio . Now with the new team in place , disbursal had started
o GNPA in another one will come down to another 2 %
- From total 60 % borrowings of bank what percentage will come from PSU banks and what is the incremental cost of borrowing ?
o Around 60 % of overall borrowing come from PSU banks . Incremental borrowing cost will be 8.8 %
- What is the reason behind not good growth in Income from operation in spite of closing good AUM ?
o Company is in stabilizing stage and competence scenario is increasing and micro finance will be turning around in FY19 expecting substantial contribution in bottom line and company is going to add housing finance fast so it will add to top line
- Does company is in position to increase debt level at current yield ?
o Whatever the yield will be It can be pass on
- What was the auction number for the quarter and last quarter ?
o 89 Cr and last quarter it was 84 Cr
- What capital will be require for growth in housing finance going forward ?
o Housing finance is already capitalised by 100 Cr so it will not require capital
o In Asirvad company had put capital of 150 Cr so there will be need of extra capital in end of FY19.
- What was the profits in the housing finance segment in FY18 ?
o It ended up to 8 Cr
- What is the reason behind significant increase in gold loan disbursement from last 2 quarters in spite of not much increase in AUM growth ?
o Because of challenges of Demonetisation in Q1 and Q2 there was low disbursement then in Q3 it get normalised and then again business churn up so that is the reason for Gold loan disbursement and it is coming in AUM also
- Why was the operating revenue side was very weak in the last year and how it will get correct in FY19 ?
o Average revenue had grown by 4 % and on operating expense side as company is working on technology so the security cost will come down and overall administrative expense to come down in FY19
- Any guidance on Credit loan business and tax rate ?
o The NPA will be coming down and the tax rate will remain the same
- What is the actual addressable market of Gold loan for the company compare to unorganised sector ?
o Unorganised sector is still very large . Client will shift because of higher technology , Online Gold option , higher security . Unorganised sector must be around 2-3 times of organised sector
- What contribute to significant jump in other loans ?
o These are some loans that company had give to other NBFC where company is making yield of around 14 % . These all are rated corporates that have IFA market . Company had lend it because company capital adequacy was higher
- After infusing 100 Cr in Asirvad what is the company total stake ?
o It is now 95 %
- What is the company plan with Asirvad going forward ?
o No merger will be there . Company can go for a IPO for further capital requirement going forward
- What will be the company further strategy for borrowing mix ?
o Company have a large customer base so company can go for a NCD and as of now company is not known about where interest rates are headed . Company is very much comfortable on the ALM. Company have further sanctions in place
o Borrowing cost should be below 9 % going forward
- What will be the operating expense going forward ?
o Company believe it can be 7 % going forward
- What was the average yield during the quarter ?
o Gold loan yield is around 24 %
o Commercial vehicle is around 18-19 %
o Asirvad is around 22 %
- What percentage of borrowing will be reprised in FY18 ?
o Around 1000 Cr of NCD will be coming up which are around cost of 11 % because these are all old NCD and also have bank loan which are short term
- In vehicle finance which sector is company focusing on ?
o Mainly on Commercial vehicle
90 % of that is huge commercial vehicle
o Also started two-wheeler loan which is a very good cross sale opportunity and currently it is in few states not in PAN India
- What is the Consolidated number in GNPA and NPA ?
o GNPA on Gold Loan is 0.6 % , commercial vehicle is 2.7 % , Housing finance is 4.8 % , Asirvad at 2.3 %
- What is the average tenure of micro loans and gold loans ?
o Gold loan average tenure is two months , in micro finance it is around 18-24 months
- When the tenure reduces how does it impact on asset quality ?
o Gold loan asset quality goes up as margin of safety increases
o In micro loan the shorter the tenure is good but it depend on customer income and competitive scenario
- What is the period of company gold options ?
o It happen all the time , it is not centralised so different regions have it
- How does company see Housing finance sector in coming period ?
o Housing for all scheme under prime minister has boosted a lot of competition . Affordable housing is very much happy segment and there are many players looking at it
o Now government had requote the PMAY Gram and PMAY Urban also and March 19 the deadline is given for the gram part .
o Lot of good players will come in organised market supply side will increase because of meaning full lending opportunity and demand will also increase
o Company is focusing on territories and big cities also in entire Tier-2 and Tier-3 segment. This is a 4-5 year play . Company had set up very good online platform for Housing loan which is going under phase which will deliver top line growth and have control on the delinquency
- How much was the total amount of Gold auction in FY18 and FY17 . What is the normal recovery rate in terms of amount that can be recovered ?
o Get almost 90 % of the amount in the auction . Total was 4.5 ton in FY18 similar to FY17 . In FY 17 amount was 929 Cr and FY18 it was 900 Cr
- What will be the net interest margin in FY19 ?
o It is regulated and it is 10 % company cannot go beyond it
- What impact can be seen if gold prices fallen sharply ?
o Previous when it happen then also company was success to deliver good returns . Gold will not go down in one spike it will go gradually so on daily basis company is correcting it on LTV basis . Company is not expecting much downfall in gold prices
o There could be shrinkage on the yield when the loans are pre return so that is the challenge
- Does auction cover both interest and principal ?
o Company collect more then 90 % and company LTV is more then 70 % .
- What kind of product is company new Gold loan product that if offer at 9.9 % ?
o It is an online gold loan product . This is for loan above 50 lakh which are few in number
V.P. Nanadakumar’s commentary on Q4 FY18 and FY19 guidance:
CFO Kapil Krishan’s commentary on the results as well as the reason for his resignation:
Q4 FY18 Conference Call transcript:
Directors Immediate Relative bought 27000 shares on 28th May.
Manappuram Finance: Company To Consider Issuance Of Private Placement Of Rated, Listed, Secured, Redeemable Ncds
Acquisition of ISFC for 212 Cr
From my initial reading - the company has a real high quality talent pool and is on an aggressive growth path. Manappuram will be definitely be able help IFSC reduce the finance cost and help them expand to other geographies - Valuation of about 4 times books seems to be reasonable considering they are growing at a brisk pace(>60% annually).
Looks to be a complete win win.
What to know more about the latest acquisition? See the credit rating reports of ISFC below -
Disclosure: Invested in Manappuram
I wouldnt reach that conclusion so fast. In my opinion, prima facie it looks like an act of diworsification for the sake of it.
Gold loan is a very attractive and low risk business. First because these are small loans given to a large number of retail borrowers. Hence the risk is well diversified across a large number of borrowers. Second even in the case of default, there is a collateral which can be “easily” sold and the loan recovered. The major risk in gold loan business is of a sudden and precipitous drop in the price of gold.
I dont know much about the business of lending to affordable schools. And i bet Manappuram doesnt have much expertise in this area either. Plus this is a business which has low profitability and higher risk than the gold loan business. Profitability - Gold loan ROAs are of the order of 4% as against 2% in this business. Risk - The loan amounts in this area are much higher. A few defaults can make a dent in the profitability of the entire business. That seems to be happening. From the report - “ISFC’s asset quality indicators deteriorated during FY2017 with 90+ DPD of 1.45% as on March 31, 2017 as compared to 0.93% as on March 31, 2016. The deterioration was mainly on account of slippage of a few big ticket accounts and the impact of demonetisation on collections.”
Manappuram had a business which was antifragile. They have turned the business into a fragile business through this acquisition. Because in the lending space, one thing which we can be sure of is that mistakes will invariably happen. In the gold loan, mistakes don’t cost the company much. But they will in this new space.
Positive thing about the schools is that they have a stable and annuity source of revenues. Hence my fears may turn out to be unfounded. But when I invested in Manappuram i was looking for exposure to gold loan. Hence I would look to shift to Muthoot.
I didn’t understand how is this additional line of biz is diworsification? The primary biz is lending and lending for a defined purpose can not be called an unrelated biz. The writing on the is that gold loan growth has stagnated across industry and will require additional line of lending to grow their balance sheet. Listen to Rashesh Shah why NBFCs need to be adequately diverified for their long term sustainability.
Coming to this acquisition which is very small compared to overall size of opportunity and even Manappuram’s AUM. I would look at this as an excellent opportunity rather than a problem child. Expenditure on education will grow and should support higher leverage going forward.
While I agree that this is a good opportunity for Manappuram to deploy their capital to scale up the business. And this can provide the much needed growth since the gold loan business has been stagnating.
But my point is that the acquisition will dilute the quality of the business from a perspective of risk as well as returns (in the long term). Every investor should judge for themselves whether they are willing to pay that price for growth.
I am not because i believe that gold loan business is much more attractive and I value quality and low risk over growth. The growth in this business has been disappointing for the past few years. In this lean period, my preference is for the management to be patient and continue to work on the core business instead of getting distracted with other lower quality businesses. When the growth comes back as it will in my opinion, the wait will be worth it.