Manappuram Finance

Prof Bakshi on valuing lending business. Closely resonates with Manappuram and why he thinks such a business is really cheap at current prices


What prof missed was NPA in Microfinance post Covid .Market is smart and waiting for npa picture to become clear before they assign high pe and high book value .And till that rerating won’t happen .
And it may derate it if there is substantial increase in NPA
Pre covid market gave it 15-18 PE.So market takes into account everything and does not value just on PB.
It looked more biased view as there was nil mention of most crucial factor non gold NPA post Covid

Over the last 2-3 years I understood one thing that every story has few positive and few negative points .No one can predict what’s going to happen in future and if story plays out positively then people say “ bola tha na Maine “
And if it plays out negatively than “stop loss ne Bacha diya”
Luck plays major role in exuberant returns and logical analysis plays crucial role in downside protection and average returns


ROE is the bridge between P/B and P/E (PB = ROE*PE). Anytime, P/E looks low but P/B looks higher, it means market is saying that the current ROE of the business is not sustainable i.e. the business is going through a cyclical uptrend. Does this apply to gold financing? Hell yes! ROEs of Manappuram and Muthoot are shown below (taken from tikr).

In the last cyclical downturn, ROE of Manappuram went down to single digits (close to cost of capital) and P/B also went below 1. It will be prudent not to extrapolate 30% ROEs as the inherent business of gold financing depends on gold prices which is cyclical. Over a cycle, this business is still quite attractive making ROEs much higher than cost of capital. But 30% ROEs cannot persist forever.

A good way to play these cyclicals is to wait until market gets excited about them and starts paying a high multiple (>4x P/B) during a business upturn and sell it to the optimistic participant. This has not yet happened for Manappuram because market is skeptical of their non-gold finance lending (vehicle, microfinance) but has already happened for Muthoot (look at PB ratios for Manappuram and Muthoot).

Disclosure: Invested (position size here)


Vp nandkumar saying Aum growth of 15% Will be achieved in first 6 months and extra 5-6% in next 6 months .Microfinance collections more than 90%.

He did not mention about the 25% moratorium Collection .
25% of Microfinance is under moratorium.

25% of 6000 Crore Microfinance is 1500 crore of portfolio is under moratorium.Not sure how much of that is recoverable .

It’s the major overhang and it can badly hurt them

That’s the reason muthoot trading at premium valuations as it’s non gold portfolio is less


We anticipate 30 to 40 percent in cost savings over the next 5 years and performance improvements in the range of 2 - 3x times than what is available currently."

Manappuram Showing Fintech
It’s showing good integration of technology in its business.It paid it heavily during covid crisis .In future also for survival businesses needs excellent app and swift transaction platform to gain business share .

Manappuram has core
technology gene .

Some companies are still using slow apps eg
I am using sbi net banking and it sucks but too lazy to shift to other bank . Hoping one day it will make a clean and fast app.From my own example I think Many people don’t change their preferred shop,banks etc and stick to one .Hence businesses should strive hard to keep their loyal customers happy


Net profits for the Sep-20 quarter as measured by PAT was down 6.36% at Rs405.44cr

Result PDF

10% plus net profit Qoq
-6% yoy net profit

Investor presentation


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Hi, anyone has any views on their MFI & Vehicle finance book? Seeing huge provisioning there.

MFI has already provided 4% of the book, with some more expected in H2 (they provided 7-8% of book during demon, again on the higher side as compared to peers).
On the vehicle side, already provided 10-12% of the book.

I understand the rationale behind non-gold diversification and growth, but at what cost? Any thoughts are appreciated.


Manappuram Con-call updates: I may be wrong due to mishearing.

Cons. AUM 26900 cr, up 18% YOY , 6%QoQ
27% non gold. 73% gold.
Cons. PAT 405 cr, 10% of first half improvement.
Gold loan grew 30% YoY, 11% seq basis to 19736cr helped by increase in gold price.
Gold holding 68.83 T. down 4% YoY.
Gold loan avg ticket: 46499 INR and Avg duration 47 days.
Auctions: 2.32 cr
Weighted average ltv @ 61%. Disbursements: 93368 cr vs 68390 cr in q1.
Online gold loan @ 61% of total gold loan book.

MFI: 4971 cr AUM increase 5% YoY, decline of 1% in QoQ.
Posted marginal loss of 2.42 cr, provision of 66 cr. cumulative provision:196 cr ~ 3.9% of AUM.
Collection efficiency @ 90%, disbursements: 557 cr
32% of AUM was in moratorium.

CAR: 25.7%

Collections improved in CV finance. Aum @ 1062 cr fall of 19.4% YoY, 16% QoQ as focus was on recovery. Collection eff: 93%, 106%in sept/oct.
Restructuring of 3% of VF aum and 0.15% of standalone AUM.

Housing Finance: total book 621 cr, down 1%QoQ, up 2.3% YoY
collection @90% vs 62% in Q1.

Loan to NBFC: 320 cr. loan to sME: 193cr
Overall opex to aum @ 5.5%
Fresh borrowing 2400 cr.
Cash & cash eq: 4300 cr, undrawn bank lines:1140 cr.
CP exposure @ 7% in the standalone entity.
ROE 26, ROA 5.

1)More provisions in Asirvad MFI expected ?
Current method ECL provisions take into account the whole year. Major provisioning has been done.
2) Banks’ aggression on gold loans, why has not yields been affected by manappuram?
Customers are different. Turnarounds and avg ticket size/time is also a factor. Banks intention is to have larger tickets and longer duration.
3) Borrowings break up in Asirvad?
Termloans 60%, debentures 12%, securitization 25%
4) 66cr was an exceptional covid provision.
5) Increase in employee cost in Asirvad?
Conscious strategic addition for collection, reduction from 750 to 500 people contact load. Improved collection efficiency.
6) No. of gold loan customers?
Live customers around 26 lakhs. In Fy20 Q2, around 24 lakhs. Closed FY19 with 24 lakh.
7) How much extra provision in H2 for Asirvad? Additional capital infusion reqd?
Both are interrelated. Adequately provided for now. Additional provision might come in. No infusion reqd.
8) Collection efficiency across businesses(arrears & billing)?
VF - Q2 avg 90%, oct-105%, ytd-77%.(pre-covid19 ~92-94%)
MFI - Q2 Avg- 75%, Oct-87%(pre-covid levels ~97-99%) Even the 1% is collectible later.
Housing Fin - precovid is 95% plus. Current also 95%+, catering the segment we are in, mostly collectable in 1-1.5 month post EMI.
9) Provision in vehicle finance: 78 cr
10) Any changes in underwriting strategy to overcome provision % in vehicle and MFI?
We do conservative provision, but we continue collection as done during demonetization as well.
11) Why is gold tonnage coming down?
Gold prices are high and customers are availing at lower weight of gold.
12) More than 50% of the gold loan is from the urban and metro area?
Large number of branches in the metro. Because of online gold loan facilities, a lot of customers are availing the same. The profile of customers is also changing with online facilities. Profiles are slowly moving up the economics pattern.
13) Advantages of customers using online gold loan v/s other sources at lower int.rates - free custodian and liquidity they can use like overdraft.
14) Is online gold loan a fresh customer or renewal customers?
5% of customers are new.
15) Write-offs in Q2?
Includes 50cr for all businesses. Comparatively more than last year as there were aggressive provisions due to covid.



Concall Summary

Next 6 month good growth guidance
VP nandkumar was not keen to give exact number

Worst is behind for Ashirwad and no major provisioning required going forward .Nature of business is such that it requires ongoing provisioning .But COVID provisioning won’t be much going forward

Another extra 10-15% growth possible as LTV in 50s( provided gold price remains same )

Bank customers are different from Manappuram customers in their profile .These customers prefer quick loan post work so that they don’t lose 2 days of wages which is more than interest amount.Manappuram competes with local gold lender rather than With banks
Manappuram advantage is gold locker where customers can put gold and then withdraw as overdraft and quick loan disbursements
Overall good set of numbers .

Getting more urban customers given online trend

VP nandkumar :duck: ducked one question
If Microfinance requires such kind of provisioning on and off then should we change our strategy to expand Microfinance business ?

Gold - seeing good traction
Non gold - Major provisioning dons ,now no major provisioning expected
Non gold collections 95%
Non gold lending was reduced in Covid period but now its back to normal



Few interesting links ,slowly market giving some attention to Manappuram

New research report

Couple of things to affect

  1. gold price
  2. non gold NPA
  3. regulatory risks

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Expecting 50:50 gold non gold business in 7-10 years

Cost of borrowing coming down and is now below 9%

Awaiting approval from rbi to open new branches

Expecting 5% growth in second half

As gold prices have come down average LTV has gone up to 67% ( LTV cap is 75%)

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small correction, current LTV is 63%. long term avg LTV is around 67%

Oh yes . Thanks for the correction.
And one latest report .

Moneylenders constitute ~75% of the gold lending market while the rest is with the organised sector

That’s a huge percentage and hence possibly gold NBFCs have long runway .

Provisions in the MFI portfolio are likely to remain elevated in the near term

87% customers have repaid completely while 9% have not made any repayments.

Clarity regarding credit cost is expected by 3QFY21


Ease of doing biz is impacted by these measures by the local authorities.

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In India, gold is considered to be a sign of social status, financial security and cultural legacy. As of 2019, households in India assembled about 25,000 tons of gold, making the country the largest holder of the yellow metal in the world. Rural communities account for ~65% of the total gold demand in the country. Owing to the sentimental value that Indians associate with this indispensable item, people seldom sell it to meet financial emergencies. They prefer to pledge gold as collateral to secure short-term loans. Gold loans enjoy a relatively low interest rate that varies between 9.5% and 24%, and have a flexible tenure (ranging from a few days to 5 years).

The gold loan market in India was valued at ~INR 2,921.42 Bn in 2019 and is expected to reach ~INR 6,275.40 Bn by 2025, expanding at a compound annual growth rate (CAGR) of ~12.75% during the 2020-2025 period.

Segment insights:
The Indian gold loan market is segmented into organized gold loan market, also known as formal gold loan market and unorganized gold loan market or the informal gold loan market. The organized gold loan segment includes public banks, private banks, small finance banks, co-operative banks, NBFCs and Nidhi companies. In contrast, the unorganized sector is dominated by money lenders and pawnbrokers.
The unorganized segment accounts for more than 60% of the gold loan market in the country. Nevertheless, the organized sector is anticipated to expand exponentially during the forecast period.

NBFCs constitute the largest share of the organized market. Customers residing in rural parts of the country are gradually switching to these NBFCs, owing to quick loan processing, systematic gold valuation, auctioning and safe-keeping. Banks also offer gold loans, but they primarily consider these as their priority sector lending (PSL) requirements. Further, small finance and Nidhi companies represent the co-operative segment in the Indian gold loan industry, and account for ~12.98% of the organized gold loan market. Private sector banks are gradually entering the Indian gold loan market with tech-driven offerings like online gold loan services.

Impact of COVID-19:
The Indian gold loan market has witnessed a positive impact on business during the nationwide lockdown due to the Coronavirus pandemic. Gold loan products have experienced rapid growth than other retail banking products during this period. Due to economic distress and job losses, gold is acting as an insurance policy, as well as a retirement plan across India. People are availing gold loans to fulfill their immediate fund requirements.

Moreover, demand for gold loan is further expected to expand as risk profiles of borrowers have depreciated considerably and lenders are becoming risk-averse. Many NBFCs are facing liquidity crisis, which is deteriorating their liquidity capacity. Therefore, gold loans are becoming a fallback plan for borrowers who are denied loan through regular channels.

Read more:

As an observation note - many Gold NBFCs are coming up these days. For instance - In Kerala- KLM Axiva, Kosammattam Finance etc. Also I hear CSB is capturing a fair share here. Muthoot started, Manappuram followed. With many new imitators coming to picture and growing, competition increases. Would this be a worry for Manappuram/Muthoot?

Disc: Invested. Reduced allocation.

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Market is treating it as a borderline value trap given its experience in deploying excess funds from the gold loan biz. There has been no valuation pick up over the last 3-4 yrs and it remains a den of arbitrage funds doing entry and exit at different points of time. Secondly, high free float prevents any favorable supply-demand scenario for speculators to jump in. Thirdly, the current MD and others are perceived to be lacking vision like Sundaram Fin or aggression like Bajaj Fin. I can’t imagine it getting any big rerating anytime soon. It will continue to get 8-12x fwd as gold loan is supposed to grow @8-12% pa. I am not saying this is justified but the market has resigned to this fate untill it changes its character dramatically.

Disc: Exited last year but bought back half the quantity during the last crash. waiting for a last hurrah to exit and not look back again. It has imposed considerable opportunity cost on my PF.


PE re-rating can happen in Manappuram only when market gets convinced that the last 5 year sales growth is sustainable for next 10 years and company can leverage its brand in other credit segments successfully. Right now there are lot of concerns around such as gold business future growth, micro finance recovery, gold business competition, and government regulations so unless there is a big bull market, it going to take few more quarters for Manappuram to buy market confidence. If profit growth sustains, even without a PE re-rating it should compound at decent rate in near to mid term.

Gold collateral and current valuation of PE 10 mitigates risk to an extent, so if someone has reasonable expectations and has patience to wait for few more years for PE re-rating to happen, its a good risk-reward scenario to game on.