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)
Regards,
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.
AJ
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
Am Invested
Attended concall y’day
poor EXECUTION and rich EXCUSES
Some time back put out ambiguous filing that Board will meet to consider acquisition. They could be acquired. They would acquire. Ambiguous
INTENTIONAL?
Put out filing that y’day Board Meeting would commence at 9.30. Uploaded results at 5.21 pm - after market hours
INTENTIONAL?
Last 2-3 quarters - File results ALWAYS after 5.20 pm and concall is scheduled at 5.30 pm
INTENTIONAL?
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
MISCHIEF?
YOU DECIDE
Underscores POOR credit risk underwriting skills
4, Excuses
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
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
Q4FY18
Q&A
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:
Manappuram Finance: Company To Consider Issuance Of Private Placement Of Rated, Listed, Secured, Redeemable Ncds
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 -
Indian School Finance -R-September 2017.pdf (224.3 KB)
Indian School Finance- March 2018.pdf (198.4 KB)
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.
The acquired company has 3% RoA and leveraging it 6x will give you 20%+ RoE closer to what Manappuram could earn on consolidated basis. Even HDFC has separate education sector vertical managed by a different team. What do you mean by gold loan being high quality biz? Whatever is good for a customer is great for businesses ultimately. It might be great for investors but not so for borrowers currently. That is one reason gold loans don’t get great valuation. Ask a question to yourself - would you go and mortgage your jewelry in normal circumstances?
I consider gold loans as necessary evil for a society in which there are large numbers of undisciplined or distressed borrowers. The credit system needs to be extra cautious and probably punish them with high interest rates for their lack of financial planning or extra savings. Sustainability of gold biz in very long term is always in doubt.
BTW Quinag acquired another 3% stake today in a block deal to take their stake to 10%.