Results
https://www.bseindia.com/xml-data/corpfiling/AttachLive/df326ff1-5f9e-4ba5-a7ed-d1caf7280f7d.pdf
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Mannapuram Q420
April 1st to now: disbursals : very high 17,000 cr…as 70% online…and collections…almost all interest in gold loans…hence accrual not much difference. (BULLET repayments)
our opex is lowest in industry …at 5%…we can go down 1% lower (of assets I guess)
Loan guarantee for 75 k cr for NBFCs and MFI’s will help
most of our braches are open
AUM up 29% yoy; 4% qoq ; gold loan AUM grew 4% qoq…and 30 or 13%% yoy on ?
60% LTV…vs RBI limit of 75%. existing buyers have room to boroow more ;
Bounce rate of EMI has been 40-45% in last couple of cycles…; pre covid bounce rate gone up to 80-90%; collection ins vehicle portfolio is 45%
avg loan per customer : 50-55k for gold
Online gold loan 50% of portfolio gone…up 10-12%…collections…improves…ppl love it.
70% of our portfolio will be online by end of the year
we have brought down security cost; technology enabled storage…subsidary 200 engineers…
Ashirwad home finance : 40% yoy and 9% qoq AUM growth
district wise cap of 1% of AUM…now reduced to 0.5% of AUM
we expect short term pain in Micro finance portfolio post morotroium
9.4% incremental funding cost on liability side
brought down dependence on ST sources. don’t except funding challenges…comfortably on ALM
Security costs have come down
we are going to be cautious on non gold portfolio
ROA consol : 5.7% ; ROE : 28% for fy 20
gold loan : 67% of AUM (aum increase 30% yoy and 4% qoq)…79 tons…tons increase 7 tons…down 1.5 qoq) …68
26 lac customers;
most of our customers haven’t taken moratorium
51,000 cr gold loan disburabls ? vs 48,000 cr qoq
online gold loans 48%
Aashirwad home finance : 25% ROE; one of lowest cost providers of MFI in India AA minus by crisil. Q4 : 60 cr; 100% provision on loans above 90 days
CAR : 23%
Book value : 68 rs
we got roll over in CP. 1800 cr 2 months CPs ;
positive response in 100 cr TLTRO
we may get new lines also…first 2 months slow as audits…we are expecting new sanctions
Aashirwvad : only AA- rated MFI in India ; we are good for next 2 months/ quarters ?
CV portfolio : we expect short term pain. 40% customers took moratorium…30% of them came back and paid EMI
Morortoium gold loan biz : very low…less than 5% customers. only 100 customers have taken.
After lockdown first reaction to redeem the gold. volume will be same. Gold loan is for fast hassle free quick loan
90% of branches are optational
loan growth guidance we should continue with ; fy 21 : 10% growth in gold loan we should achieve. this year overall growth could be 10%. we have lost 1-1.5 months ;
we expect no growth in non gold segment. we will focus on collections. will be reduction in portfolio.
Gold loan growth : 10-18% usual plan…
1/3rd of the year is lost. balance of the year can grow 10%
Gold loans are bullet payments….out of 2.6 mn customers…only 100 have asked.
o loan tenure of gold loan is 3 months
In aashirvad we took 1% of loans as covid provision
in standalone we took 15 cr….this is for vehicle finance
FOR GOLD finance NPA will not go up drastically…small spike…in 1-2 qtrs will get platueued. given gold price has gone up…borrowers LTV Is down…so don’t have to give as much interest
fy 20 :
we were disbursing 700 cr every day even during lockdown ; 50% of gold loans is online. volumes were high
Vehicle portoflio : Our customers mainly retail…businesses are local, intra state, intra city; 10% of customers opted for morotoroium; 60-70% of collections thru online…own app…couple of months pain…; out of 1500 cr porfoltio 300 cr is 2 wheleers
in MFI portfolio : our NET NPA is zero….fully provided above 90 day NPA. we write off everything above 90 days…so didn’t take any provisioning…we have taken advances
our branch AUM avg is 4.5 cr…we can go to 15 cr without adding opex
we give free storage to customers
we have 24 hour gold loan anywhere. we don’t do wide publicity. we plan to use digital mode
IN lock down out of billing we could collect 45%…due to digital in APRIL.
o in May we should get 60%
in NON GOLD : None of the cos have disbursed in last 2 months…entire industry is watching in June…what will be collections/repayments…in MFI…0.5-0.75% concentration district level
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Got few queries from my friends circle regarding Bajaj Fin entering gold loan segment and its impact on Manappuram since they know that I am betting on Manappuram. Thought of sharing my thought process for my own benefit and knowledge sharing. Views are welcome.
Who are customers for gold loan?
- Non Salaried
- Agri / Rural
- Small vendors / business
When gold loan is opted?
- Medical Exp
- Educational Exp (Term fees, Sem Fees or Joining Fees)
- Agri inv needs (Fertilisers, machinery rent)
- Personal exp (Festivals, Ceremonies (Mrg, Death, etc))
- Short term needs. For eg, a lot would take jewel loan when housing load approval is delayed to avoid halting work, they typically pay back when the loan is sanctioned. Similarly farmers would take gold loan, when the agri loan is delayed.
- Anything else
Nature of Gold load customers
- My dad worked in PSU bank in tier II town, when I visit his branch (which I do so often during college days) I sit aside gold appraiser whose counter was in the backside of bank. I am recollecting my memories below to give a picture about the typical nature of gold loan customers. General questions I heard from the are
- How much I get for this jewel?
- How much I have to pay every month?
- How long will it take to get it back when I have money?
- Rarely you would hear a question about interest rate? Most times the appraiser wouldn’t tell the interest rate and simply communicate the interest they have to pay per month.
- Several customers would rotate their loans. Every X months they pay the money, take back the jewel, and keep it back the next day.
- The appraiser generally visit the bank 3 days a week and would be quite irregular as he is not in the payroll of bank. You can see frustrated customers when they get to know that they can mortgage it only on the next day. Sometimes they would get disappointed when they get to know that appraiser is un-available and they can’t take back the jewel on that day. Once a customer fought in the branch saying that she has to attend a marriage in next two days and she needs the jewel badly.
Would Bajaj impact Manappuram?
Did HDBFS impacted Bajaj Finance significantly in consumer durable lending? Also, in the case of gold loan,
- Manappuram and Muthoot are still struggling to grab bigger market share from un-organised players though their interest rate is lesser and gold security is higher than the later
- Banks are still lagging behind goal load NBFCs though their interest rate is lesser and gold security is higher than the later
Alike above, it is going to be very difficult for Bajaj to sweep the gold loan segment. There will impact on Manappuram but I don’t think it would be significant but only time can answer this. In any consumer facing industry, when a new strong player enters, (1) segment could grow faster than before and (2) existing players could lose market share. Impact on existing player depends on how (1) and (2) plays out.
Disc: Manappuram constitutes ~20% of my portfolio holding at an average price of ~90
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Few more pointers from what I observe in my family/friends who pawn gold
- People take gold loans to pay off other loans which they might also do now because of delay or cuts in salary.
- I’m not sure how BFL is going to proceed on digital lending. In the recent quarterly comments, Manappuram had substantial lending through its digital channel. This is a big plus
- BFL may get business from its customers in select places, but it is gonna be very difficult to get new customers during this time of distress.
- I don’t know about appraisal quality and the speed at which loans are disbursed from BFL. Both of these are crucial when it comes to gold loans.
Would be great if any of the members could share their scuttlebutt to BFL and their gold loans process! TIA
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As per my understanding moats Manappuram has over here are
- Trust: Key factor when it comes to lending against gold, it’ll take a substantial period of time for Bajaj to build that trust or on the contrary it can be that the trust comes along with the name Bajaj (the probability is not high)
- Security and storage costs are high: Manappuram has been constantly reducing them
From concall on 14th May, 2020 - Customer Loyalty: The amount of interest is not significant , the avg ticket size for Manappuram’s gold loan is 38500 and the tenure is 2 months(as per concall on 14/05/2020) , even if you consider 25% interest its around 1,600 and 15% as per Bajaj Fin would be around 1,000 so there’s not much difference in amount in small ticket size. You’d not mortgage your family jewel to a new lender for an amount upto 2,000-3,000
- Physically moving from one locker to another is highly unlikely too
We shall also wait for what management has to say about rival entering the business
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@yash_goenka
Exactly, in most cases, the interest cost is lesser than the processing fee of PL or HL. Hardly very few customers would consider interest rate when they select a new credit card and the same applies to gold loan. Credibility, branch network (nearby availablity), and speed is more considered than interest in this segment.
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Jotted down some points from Manappuram’s Annual Reports during GFC.
Revenue for the company grew 6x from 80 crores to ~480 crores in two years (FY08-FY10), but that is at a much lower base (company grew 4x in previous two years to that - FY06-FY08) and run by a much younger Respected Vallapuzha Padmanabhan Nandakumar.
AR FY08:
- The spurt in the gold prices further brightened the profitable operations of your Company.
- The recent spurt in the price of gold has provided impetus to our plan which we plan to christen and launch as “Mission Rs2.K Crore-9”.
- Another noteworthy development was the infusion of equity into the Company by two internationally renowned private equity players viz; Hudson Equity Holdings, Sequoia Capital India Growth Investments I.
AR FY09:
- In the recessionary conditions the Gold prices shot up due to Haven effect and the oil prices witnessed both extremes between USD 147 and USD 30 per barrel.
- The spurt in the gold prices on the haven effect will provide the necessary fillip to our plan.
- Another noteworthy development was the infusion of equity into the Company by four internationally renowned private equity players viz; Hudson Equity Holdings, Sequoia Capital, AA Development Capital India and GHIOF Mauritius.
AR FY10:
- The year 2009-10 was marked by recovery and revival. After plunging into the steepest economic contraction since the Great Depression, the global economy witnessed significant improvement. Contrary to expectations of a prolonged turmoil, the turnaround was much quicker than what was expected.
- The stability of gold prices provided an additional impetus to the profitable operations of the Company.
- The Company was largely immune to problems of recovery and NPAs as most of its lending is in the gold loans segment. This encouraged commercial banks to liberally extend financial assistance to the Company thereby taking care of its working capital requirements.
Discl: I’m not invested in Manappuram, but invested in Muthoot Finance and this post is not a recommendation to buy / sell Manappuram or Muthoot. Just noting down points on how Gold Financing Companies behaved during GFC. Please consult your Investment Advisor before buying / selling these companies.
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Fellow Boarders,
I am doing some deep dive in gold finance companies. I am not able to understand even with the sound fundamental business (secured lending, gold prices going up, high growth in past), both muthoot and manappuram haven’t traded at high valuations at any point historically (median P/E is 11-12x).
If this is the case then the stock price multiple will not rerate and only follow the earnings growth which makes these businesses not an attractive investments versus other businesses.
Requesting People who are tracking gold finance businesses for a long time
(@saeyons @maheshkumar @sivaramtvl…) to throw light on possible reasons behind this and what has changed now for rerating.
Disclosure: Invested
1 Like
Few of the reasons for lower PE multiples are
- Slower growth rate in comparison with housing loan and consumer durable loan segments.
- Risk of gold price falling down
- Risk of banks emerging as go-to lenders for gold loans
- Risk of any Govt/RBI intervention or policy change to cap gold loan interest rate (or) to cap loan-to-value %.
What has changed now?
- Other segments are facing NPA risk and gold loan companies seems to be better placed comparatively.
- Rising gold price helps to achieve faster growth in terms of absolute loan disbursement numbers (GOLD AUM growth would be still less)
- Speculation that people will mortgage more gold post lock down.
Will it get higher rating?
- Since financials are out of favour of market PE rating seems to be a less likely scenario at the moment.
- But market perception could change. Few months back, retail banker were favoured by market and now the tide seems to turning towards corporate bankers again. Same thing could happen here depending on how things (Gold loan NPA, Growth rate, gold rate) moves in the coming months.
Risk-Reward
- The current valuation are very attractive, so if gold loan companies survive this crisis and even get the pre-covid PE multiples, it will be a good reward for passive investors.
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Thanks for the reply!!
The risks that you mentioned:
1/ Slower growth: Manappuram is growing at a very high pace in last 2 years (thanks to non gold business)
2/ Have seen a chart somewhere where it was mentioned that Gold is the only consistent returns generating asset in last 30-40 years. Even if gold price falls then also the LTV ans short loan tenure will help in managing it
3/ Gold lending is such an old business and still banks are not able to capture the market from the two players because of stringent background check
4/ Govt capping the interest charged can be one of the risk. Is govt allowed to do that? Have they done it before?
Gold financing is going through some of the very strong fundamental years and still manappuram was trading at 15x pre covid which was baffling to me…
Hopefully market realize the beauty of this business
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// Govt capping the interest charged can be one of the risk. Is govt allowed to do that? Have they done it before?
Yes that happened in the past, RBI capped goal loan LTV (loan to value) at 75% (60% and then revised to 75%) around 2013 and it remains same till today. Though it affected NBFCs in the medium term but acts as a guard rail now from fall in gold rate. It had a medium term impact as unorganised lenders don’t follow this norm, hence an advantage to them.
Even a cap on interest rate is possible, in-order to support micro enterprises and poor people post covid. But don’t know whether they have done it before.
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I think with so much money printing all over the world ,Gold will reach new peak in 6-18 months
Non gold lenders are struggling
Gold lending has bad reputation in India but the viewpoint is changing and PE rerating might happen
Post recession gold business usually booms
Current valuations offers lot of margin of safety
Management has seen many ups and downs and is very conservative in giving growth targets
Pan India presence
No issue with liquidity
Short term loans
Manappuram has 60% online gold lending
Microfinance is a major trouble ,but they are capping at 0.5-1 % per district
So it will help in minimising the risk
Current pE of 6 with 2% dividend yield is not a bad bargain
Worst situation : severe covid 19 in India and 100% npa in non gold plus severe price correction in gold can lead to survival difficulty for Manappuram
The probability of this happening looks unlikely
At this moment market dosent want to give double digit PE
I think covid situation will be more clear in next 2 quarters
demand may pick up in q3/4
Management is expecting 16% growth in q3 plus 4
Q1and q2 May not see any growth
Till that time stock price may remain near 100 plus minus 30
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Highlights from recent interview with CNBC (link):
- Monetization of gold has increased (i.e. people are redeeming their gold and selling it)
- Gold volume (in tons) has gone down by 2% over the May-June. However, the outstanding loan has gone up because of increase in LTV
- Comfortable liquidity position, Cost of recent TLTRO borrowing from bank: slightly over 8%, Overseas borrowing cost (including hedging): 11%
- Large influx of Middle-east workers back to Kerala due to oil price drop is likely to impact Kerala economy, exposure to Kerala is ~5%.
Its very hard to understand some parts of the interview (specially the 2% part). If I have jotted something incorrectly, please rectify it. Thanks!
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The new update here are:
- PSU banks might offer gold loans up to 75% LTV
- The government might guarantee gold loans
I personally feel that the impact of move 1 would be very minimal for Gold loan companies like Manappuram as they too offer up to 75% but customers are availing lower value in loans. Banks have been pushing Gold loans even in the past but with minimal success. Changing LTV will not create a significant impact to the business model of banks.
Also, banks already have collateral(in Gold) for these loans, and government guarantee might not be useful in that case. It is because of some other reasons that banks are unwilling to sell these loans to customers (They have been discussed enough in this thread). As a customer, I have nothing to gain from this announcement.
Disclosure: One of the major holdings in my portfolio. Counter views are welcome!
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I think it boils down to how hard they push these loans. Because even though gold loans were part to of their portfolio in the past, Banks somehow never did any marketing about it and most customers were in the dark about availability of gold loans from banks. Personally, I also share your views that gold loans are hard to sell for banks compared to gold loans companies as they’re not specialists. But, I do think that if any one bank approaches gold loans seriously with heavy marketing push, they might create competition in gold loan duopoly.
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I agree with your views. However, gold loans are process heavy and low value products. Compare a auto loan of 8 lakhs, home loan of 50 lakhs to a gold loan of 30,000. A manager would struggle to achieve his monthly targets selling gold loans and that is one of the major reasons for banks to avoid gold loans. But if a renewed push is given by the government, PSU banks might take it seriously in the next few months. At 8-10% interest rates and cumebrsome evaluation process, I see little threat from banks even after today’s news. However, if banks are able to pull enough customers, the scenario may change in the medium term.
Disclosure: Invested, views may be biased
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Looks like ,Everyone including Bajaj finance and psu banks are going to try their luck in gold finance
Let’s see ,as in the past many have tried with not much success
One thing is sure gold loan demand is going up post covid
Advantage of Manappuram over psu banks is fast processing
It will be Interesting to watch next 12 months
But I think the winner was /is and will always be the local non branded gold loan lender who lends at extremely high rate …but most local farmers go there due to convenience and fast processing
And these local guys will always beat Manappuram and psu
with 8 Pe and 1-2% dividend yield ,anyhow market is not expecting any miracles from Manappuram(Market expectations is just high single digit groth )
Manappuram and muthoot both runs in opposite time frame
When safety matters muthoot runs
When growth matters Manappuram runs
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Another set of insider trading violations from the employee’s of the company. This time there is an error in the company filing where they report the same PAN for two different employees. Will contact the CS about this. The person Vishva Prakash Tiwari seems to have traded again in these set of violations, will have to confirm with the PAN no.
Even though the offences are minor these violations are getting ridiculous now and an investor needs to question how hard it is for the management to give out organization wide guidelines whenever such trading windows close.
https://www.bseindia.com/xml-data/corpfiling/AttachLive/03f70b32-e519-4e25-b497-e9f16ed53caa.pdf
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