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Manappuram Finance

A key monitorable for me was their vehicle loan book which was grown at a rapid pace in FY18 and FY19. CV vehicle portfolio was 1’344 cr. in FY20 (out of total AUM of 25’225 cr.) Management had revealed that 10% (both by value and # of customers) of the book was under moratorium in last concall. This was in stark contrast to industry where other players had very high NPAs in their CV divison (eg: Shriram has 9-10% NPA; Bajaj finance has 50% vehicle book under moratorium as of Q1FY21). Management said that this quality is because they don’t lend to fleet operators, but mostly to individual truck owners. This was the exact management commentary last quarter:

As the management didn’t release NPA figures last quarter, it was very hard to evaluate the book quality. They finally reported NPA of 9.9% in FY21Q1 and 6.7% in FY20Q4 which is more in-line with industry standards. Also, their home loan book is not very clean, i.e. it has 5.1% GNPAs as of FY21Q1. However, management says that their more recent lending quality is much better (1.5% GNPA). The real lending quality will be known in a few quarters.

The saving grace is that gold prices have gone up leading to increase in gold AUM (although gold tonnage has been flat YOY). Company is very well capitalized and has raised lots of liquidity this quarter. Looking forward to reading the management trancript.

Disclosure: Invested (latest position size here)


Q1FY21 -
Gold loan is the only saving grace here and the fact that other business lines are smaller in comparison. They have provided 4-5% of book on the MFI side, and 7% of the book on the vehicle loan side. For COVID. This is when the moratorium is yet to be lifted . The pain they can be seeing in their books seems to be huge. Or maybe, they are front-loading it all.

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Excess provisions in the last two quarters are close to 1400 crores appx.

Back of the envelope calculations fetch me the below numbers


Out of 2000 crores, 1400 crores have already been provided in the last two quarters which makes me believe that provisions are frontended. The management has been very conservative in estimates every time in the past. I expect NPA numbers to stay under control in the next quarter and overall profits to show growth sequentially. Pain still remains in the MFI business, but with rural pickup, collection efficiencies could reach 90% by next quarter. It wouldn’t take much time for the company to move into a growth trajectory, thanks to Gold loan business. Still remains an attractive company in the NBFC space for the foreseeable future.


Stock hits lower circuit today on NSE.

Not that surprising since there has been too much of a run up recently hence expectations seem higher than what the results indicate. Moratorium in non gold portfolio is a big hang up. A lot of uncertainty for the next two quarters.

Looking 10% consolidated growth this year
Expecting good collection in mfi in 2-3 months

Concall transscipt


Cost of capital is finally coming down sharply for Manappuram, from 8.75% a few weeks back to 8.35% today. Ashok Leyland (same rating) had raised debt at 7.65% recently (link)


Incorrect. Pls re-check. These are moratorium nos, not provisioning. @Inimitable_Investor

Provisioning numbers are mentioned in quarterly statements. I had mentioned that clearly


A lot of positives have been discussed about Manappuram, would like to highlight a key negative - MFI collections - in the interview management said MFI collections are around 50% which seem lower compared to other MFI banks(65-70%).
Non gold business can throw -ve surprises and needs to be tracked.
As with other lenders market might wait for some clarity here before jacking up the price.


And add to that they seem to have exploited every opportunity to improve PAT.

Interest rates - Maxed out
Cost - Already fallen to very low levels
Competition - rising
MFI - a challenge in terms of collections. I still think they would come out better due to strong rural economy.
Home and Vehicle - Their borrower profile is subprime so loss potential will remain elevated in the near term.

Only positive I see that valuation remain very low, stable div yield and gold price upside will keep earnings chugging along despite lack of any other earning trigger.


Can you elaborate how they have maxed out interest rates or costs? Their aggregated borrowing is still above 9%, their microfinance subsidiary is still borrowing at >11%. About costs, branch level costs of Muthoot is still way less than Manappuram.How is their vehicle and home portfolio subprime? Their vehicle NPA level is in-line with others (Shriram, Bajaj finance, etc.). Can you elaborate with numbers?


I am talking about Interest rates charged to the customer in the gold loan sector which is upwards of 24%. You have higher competition from banks and other NBFCs which will prevent any ability to grow. This is already showing up in gold loan growth. You can’t charge higher than industry leader Muthoot and keep growing too. All customers have same level of info and when they see deposit interest rates falling so much, there will be resistance to high interest charges.Management can say whatever but there is a limit to rising yield and now they need to go after volumes.

Who borrows home loan @15% and vehicle loan @ 18%? They have no other lender to go to and they are Manappuram customers. It doesn’t mean higher losses. It means higher cyclical earnings and NPA in the interim. Good macro will ensure good PAT but higher losses too in the downturn. It is a reason HDFC doesn’t target them.

Costs can be reduced only upto a limit in a commoditised industry. You can’t go below critical level of staff, security and real estate. Costs at absolute level won’t go down and cost to income ratio can only be improved by higher volume. But the volume growth has been quite disappointing.


It will take time for other NBFCs to increase presence in places where Manappuram has its presence. Remember, USP of Gold loan companies is their quick processing of gold loans. Not every bank has Gold appraiser readily available. I belong to one of the top metros in the country. When a family friend approached a nearby nationalized bank that offered Gold loans at 9.8% interest, they said appraiser would visit the branch only on appointment and that too only once a week. But when she returned in a couple of days, they blatently said appraiser was stuck in a different part of the city. These are some practical issues that people face. Also, there are 4-5 local gold loan companies(with <10-15 branches in total) within 2km radius of my place. These places are still getting business inspite of nationalized banks and other NBFCs. If this is the situation in a metro, think about rural areas. This gives me confidence that companies like Manappuram still has enough headroom to grow in spite of all the challenges.

I concur with your views about subpar home loans, which the company is actively rectifying, and MFI collections as major risks. But I am confident that company has enough headroom to grow for the next few years. Also, valuations are still very attractive. Hope the company learns a lesson or two in MFI space during this downturn and can implement better processes in the future to avert similar disasters in the next cycle.

Disclosure: Invested and Biased


Lets leave aside narratives. Here are the major questions we need answers as investors:

  • Is Muthoot better at gold financing than manappuram?
    Muthoot always had higher productivity than Manappuram. However, since FY14 (which was the last bust), here are the growth numbers in different variables
    AUM: Manappuram (12.99%) vs Muthoot (11.15%)
    Tonnage: Manappuram (8.01%) vs Muthoot (6.89%)
    Branch network: Manappuram (1.16%) vs Muthoot (1.13%)
    Productivity growth: Manappuram (11.69%) vs Muthoot (9.92%)

Its quite clear that incrementally Manappuram has done slightly better. However, there is not much to pick between the two. Manappuram is in no way inferior in its growth trajectory. Muthoot is a more productive player whereas Manappuram is increasing its productivity at a higher level than Muthoot.

  • Will banks and other NBFCs eat their lunch?
    SBI started its gold loan business under the agri portfolio (so are probably rural focused). They have grown from almost nothing AUM in FY17 to 2179 cr. in FY20. Bajaj finance has grown their AUM from 37 cr. in FY15 to 853 cr. in FY19. Their FY20 numbers are not reported in their annual report. So clearly, new players are coming in and taking market share. At the same time, Muthoot and Manappuram have grown their gold AUMs at by 14.42 and 15.11% respectively over the last three years. This growth has mainly come from branch level higher disbursement and not through additional branches. This growth looks sustainable (remember when they grew their books at 50% rates in FY10 and almost went belly up?). I prefer lower but more sustainable growth.

In the next post, I will compare the vehicle loan business with other established players to try and understand fears on the vehicle loan portfolio. As a request, please respond with data points rather than narratives so that we all get something useful out of this exercise. The gold loan data is below.

AUM (in cr.) FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Growth since FY14
Muthoot finance 1’420.10 2’179.00 3’300.10 7’341.70 15’728.10 24’417.30 26’000.04 21’617.90 23’349.90 24’335.50 27’219.90 28’848.40 33’585.30 40’772.40 11.15%
Manappuram finance 7’489.50 11’532.70 9’945.80 8’155.20 9’269.30 10’080.60 11’124.53 11’734.98 12’961.52 16’967.18 12.99%
Bajaj finance 37.39 146.78 543.96 655.01 853.37
SBI 900.00 2’179.00
Tonnage FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Muthoot finance 23.00 30.00 39.00 65.00 112.00 137.00 134.00 118.00 131.00 142.00 149.00 155.00 169.00 176.00 6.89%
Manappuram finance 22.50 53.00 65.60 51.40 45.60 53.10 59.60 61.10 64.00 67.50 72.40 8.01%
Branches FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Muthoot finance 551.00 707.00 985.00 1’605.00 2’733.00 3’678.00 4’082.00 4’270.00 4’245.00 4’275.00 4’307.00 4’325.00 4’480.00 4’567.00 1.13%
Manappuram finance 436.00 645.00 1’005.00 2’064.00 2’908.00 3’295.00 3’293.00 3’293.00 3’293.00 3’293.00 3’330.00 3’372.00 3’529.00 1.16%
Gold loan per branch (cr.)
Muthoot finance 2.58 3.08 3.35 4.57 5.75 6.64 6.37 5.06 5.50 5.69 6.32 6.67 7.50 8.93 9.92%
Manappuram finance 3.63 3.97 3.02 2.48 2.81 3.06 3.38 3.52 3.84 4.81 11.69%

I am not sure what are you trying to prove. Leave aside gold price inflation for a moment. As per your table, gold tonnage growth since Fy14 is only 1.1% better than Muthoot that too when your competitor is 3X your size. It is no achievement by any means. It simply says that they opened more branches and they got more customers due to the fact the borrowers saw new guy in the town to do some business. Their branch nos. are catching up with Muthoot but biz/branch is nowhere close.

I have stopped doing these detailed excel work few years back and I am not regretting it. Let me tell you that you are looking backwards. You could add two rows for comparison - Yield on gold loans for Muthoot and Manappuram. I had done some mental calc sometime back. You would find that Manappuram is compensating lower branch productivity with high yield on almost all loans incl. gold. I mean how many single CV owners make returns such that they could pay back 20% loan to Manappuram? My only contention was that this strategy has its limits and they need to improve gold loan volume from existing branches as a source of growth.


One additional data point, while we all discussed about Bajaj finance and SBI, I realised that its IIFL which has grown their gold loan books at the fastest clip within large NBFCs and banks (data shown below).

No! The branch growth network has simply not grown (CAGR of 1.16% from FY14). Growth has come from increase in disbursement from the branches (similar to same sales growth).

If you look at actual data, you will find that Muthoot also charges 20%+ on their gold loans (shown below; taken from their latest presentation)

Manappuram’s strategy has been to de-risk their gold loan book by getting into other lending businesses so that the cyclicality of earnings comes down. Every bank/NBFC does it; some fail some succeed.


Thanks, you are actually supporting my point that other NBFCs which generally charge lower interest rates are growing much faster than two market biggies although on a small base. Now coming out of excel to the ground reality - urban areas are facing very stiff competition for both these players. Manappuram is opening branches in relatively virgin areas leading to lower branch cost but also lower volumes. They compensate this by charging higher rates or targetting subprime borrowers. This works till there is a new guy in the town. SFB banks and other NBFCs are keen to target all these customers. I can tell you that interest rates do matter to even an illetrate borrower which starts showing up when there is a competition. You can’t capture these in the excel sheet. One has to be naive to believe that Manappuram can keep outgrowing others in a commoditzed biz by charging higher rates and stiffer repayment terms. Online gold loan is one innovation Manappuram did which attracted savvy borrowers but this is being copied by others too.

Let me add that I am not outright bearish here but have doubts on the strategy and I am still playing second innings here.

Disc- our extended family had MFI biz which we exited during 2013 so I keep getting inputs on rural lending from them. I own both both gold nbfc but keep evaluating.

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This is incorrect, there are many NBFCs and banks which have failed to gain gold market share (eg: Shriram Union, HDFC bank) despite having a smaller base (look at the figure which I provided). Additionally, gold loan is a short tenure loan with a lot of churn, so maintaining high growth rates is hard. If pricing of loans had anything to do with it, HDFC should have grown at very high rates (they offer it sub-15% level). However, their gold loan growth rates over last 3 years is 8.91% vs 15% for Manappuram. IIFL grew because they focused on this part of their portfolio, also their average yield on gold loans is 19.4% (which is only slightly lower than Muthoot and Manappuram).

In essence, everyone is charging high rates probably because the loan tenure is low and the absolute interest amounts are low. About your other points, I respect data more than intuition. I don’t have any feeling of how people think and what will happen in the future, all I can do is look at the past and try to make a reasonable guess of the level of persistence. And I am open to changing my mind if I get contrary feedback from data. Enough of my mumbo jumbo!


Banks have greater regulation with regard to Gold Loans compared to NBFCs. To auction or dispose off the Gold they need to comply with lot more rules. Normal NBFCs and Banks having appraisers etc is also very difficult. That is the moat with Manappuram/Muthoot. Further, even the like of Federal Bank are operating through Rupeek for Gold Loan disbursement.