From 20-25% AUM growth guidance till last interview in July, they have now guided for 10-15% AUM growth for this fiscal. That is some cut! Good thing is that he collections are back to 100%. But demand is yet to pick up…still demonetization woes haunting the lower brass?
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I do not think this is one off event. Though they said they will try to find ways to reduce, does not look like they have a clue on “How”. They may not able able to do on an absolute basis anytime sooner (without compromising on coverage by time and location). However, they might be able to do on % of revenue basis if they are able to show AUM growth
Hi Hitesh,
What do you think of the result and the way forward?
Regards
AJ
Disc: Added today; substantial allocation in pf.
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I think things for rural India started coming back in Apr - May. Some of the MFIs have also de grown in q1.
Also 10-15%, is for gold loan (?), other products will grow faster
Not sure what he meant … is this just for gold loans or for overall portfolio?
“He expects 10-15 percent growth in AUM going ahead. Gold loan business is free from credit risk, he further mentioned.”
Likely to be gold loans. Since a quarter of de growth is there and recovery has started in q2, so 10-15% for the year.
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In Muthoot Vs Manappuram comparision, sometimes NPA takes a back seat.
Avg. GNPA of Manappuram is around 1% with 90 DPD. Avg. GNPA of Muthoot is above 2% with 120 DPD. Muthoot GNPA will go up even higher once they move to 90 DPD in Q4FY18.
My point is, Let’s not look at Gold AUM growth in isolation. See it along with other parameters including NPA.
My take on Q1 result:
I am invested and following Manappuram for a while now and the Q1 growth slowdown seems to be a short-term blip. Some decent amount of gold was auctioned during Q4FY17 and getting that quantity back into books is going to take some time.
Some people might ask why this is not a problem for Muthoot? Answer is, they do 1 year loan (vs 3 months for Manappuram) and accounts are not so frequently up for renewal like Manappuram. This is why their NPA is high.
For a 20%+ ROE, 2%+ dividend yield company run by great management, I see lots of valuation comfort with stock trading at 2 times trailing book and under 10 times earnings.
Disc: I am long Manappuram and it is one of my top 5 holdings. Views could be biased please do your own due diligence.
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My take from concall -
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Growth - the management is slightly rattled by continued weakness in MFI and refrained from giving any portfolio level AUM growth target for this year. They maintain that long term trend of 10-15% growth in gold loan AUM will continue but this year is difficult to predict. I find this sensible since their past guidance was not met so better to keep your mouth shut till you gain confidence. Gold loan AUM declined due to sizable auctions of 500cr+. CV and Home loan will grow faster till the portfolio attains some decent size.
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MFI - Their approach towards NPA in very good. They made extra 33cr provision vs. RBI requirement in this quarter and some of this (~10-15%) could come back too… Growth will be calibrated and selective in few states.
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Operating costs - Security costs have gone up as they hired security guards at all locations and with guns at some places . Should remain elevated till they find a better solution.
One must see that operating leverage in their gold loan biz is substantial now. PAT growth in standalone biz is decent despite low AUM growth and high security charges. Declining cost of funds will help them cross the difficult times. Clearly, overall demand for credit is low except may be home finance/MSME segments where its presence is limited. One can not fault them for slow growth when their backyard is troublesome. They have cleaned the book and maintaining it in healthy condition for expected growth.
Disc - Invested
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Manappuram results have been a disappointment on the MFI front. While they say that they have provided 33 crores excess than what is stipulated by RBI we need to watch for next few quarters how the asset quality of the MFI business pans out. They mention about write back of 15-20% of provisions also needs to be observed.
Gold loan and other businesses seem to be doing okay.
With the correction post the results, stock is at around 2 times book which seems interesting in view of valuation of other lending businesses in the market. I think with the overhang of MFI asset quality, the stock may remain under pressure or range bound in the shorter term.
disc: invested.
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Muthoot, in similar business, has shown excellent growth in this quarter. Macro environment is same for both.
Edelweiss maintain buy rating with TP of 118 https://www.edelweiss.in/ewwebimages/WebFiles/Research/9152bcc1-da43-4062-a480-0f6ad41f07ac.pdf
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In muthut, growth comes with relatively poor business model , risk assessment framework and credit quality .in long run, everything becomes visible.in short run , we can just give reasons . I think some of forum members have highlighted the issues in detail ,so, won’t repeat .Ultimately it’s all about having conviction without developing any kind of biases . Time to go back to do numbers , talk on ground and form or revalidate unbiased analysis. Disc : invested in manappuram
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So much has been written on comparing Manappuram and Muthoot. Since both companies originated from Kerala and the public perception about both cos are different. Manappuram management in the past has put their personal wealth at stake when the company was having financial crisis. I doubt Muthoot would do that. I have put my money on Manappuram!!
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Exactly, I have a feeling that some of the riskier gold loan borrowers are gravitating towards Muthoot and that has led to slightly higher AUM growth vs. MFS. It is said that lax norms attract risk like bees in the lending business. Muthoot provides much longer credit period exposing itself to gold price movements compared to MFS. From a client’s perspective I would certainly be sad if my gold ornaments got auctioned just after 6 months in case of MFS. I will certainly go to Muthoot which might give me longer rope for repayments.
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Basic question
I have seen that many unorganized players (small jewellery shops mostly) in Bangalore, Hyderabad and Chennai are offering loan against gold at interest rate of (12%-16%) whereas manappuram is 18%-24%. So why would anyone go to manappuram to get loan instead of these small shops?
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How secure is it with the small jeweller? If he closes shop or relocates or denies getting the jewel? Why do we use Nestle products for kids instead of no name brands. There is always a premium for brands and organized sector. How much is the debate.
My 2 cent on it is that lending is commoditized business, right now every Tom Dick wants to be in the retail lending,
These small time jewelers are best avoided. Heard many stories how folks in the bottom of the pyramid are cheated. These shops employ a simple chemical solution to siphon gold by dipping for less than 30sec. Don’t think they can ever become alternative to Manappuram and Muthoot on a larger scale.
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Why should a good business house make an excess provision of 33 Crs. It is
not a small sum.
RBI provides a guideline or set of rules . How conservative or how aggressive one is against that is personal call. There were companies who have not yet shifted from 120 day to 90 day thing and there are companies who have done it proactively . Ultimately , the nature and quality of management has to be judged on multiple historic foot prints he or she has left when situation demanded a unique action . This does not mean that there may not be surprise . But as per my understanding most of NPA has been factored in if really they r back to 100 percent collection from December .though some more surprised could be on component where only 50 percent of NPAs has been recognized as per RBI rule,however, this additional 33k provides cushion there. Key question is political system has proven again credit beuro kept aside , unsecured lending is a big risk . So if MFI share keeps increasing , how to factor this long term risk which can play out again n again into valuation. Is 2 price to book sufficient to capture 15 percent of AUM risk which will be unsecured in next 2-3 years. Assuming they will reach 75:25 good vs others n MFI will be 60 percent of the 25 percent . Growth numbers going forward is second part to look into valuation
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