Manappuram Finance Ltd Q3 FY22 Earnings Conference Call Insights

Key highlights from Manappuram Finance Ltd (MANAPPURAM) Q3 FY22 Earnings Concall

Management Update:

• On gold loan demand, the company continued its offering of competitive interest rate to high ticket size customers, the impact of this new strategy was better growth, but decline on spreads and margins.

• MANAPPURAM foresees a steady to declining trend in its GNPA going forward. In 3Q22, the company witnessed growth in gold loan in terms of amount and tonnage.

Q&A Highlights:

• Dhaval Gada from DSP Mutual Fund asked about the INR217 crore breakdown of opex, excluding employee cost, into ad, IT support and other opex. Bindhu CFO said the majority of the expenses between the two quarters remain the same. The increase between the quarters is INR40 crore. Majority is coming from advertisement, INR51 crore, INR10 crore from depreciation, and IT support, rent and other operating overheads remains similar number.

• Dhaval Gada from DSP Mutual Fund asked about the advertisement spends trajectory and the plans going forward. V.P. Nandakumar MD answered that the company has to go for a massive advertisement because it felt there is slump in the market due to prolonged lockdown. The ad spend of INR51 crore for 3Q22 was a booster dose for the market, which may not continue in the coming quarters and will be moderated to lower levels.

• Dhaval Gada from DSP Mutual Fund also enquired about the return ratio and its guidance. V.P. Nandakumar MD replied that the company’s yield was higher compared to the other players in the market.  The company is maintaining its yield at around 21% and trying to maintain that. In the processes, the growth may get moderated for one or two quarters.

• Piran Engineer of CLSA asked that what percentage of the company’s loan book are teaser loans. V.P. Nandakumar MD said the percentage of teaser loan is around 20%.

• Piran Engineer of CLSA also asked why the company has not seen any growth in Ashirvad.  Nandakumar MD replied that the company saw uncertainty with the Omicron variant, so the company’s underwriting was made tighter and preference was on retaining existing good customers. As things improve, the company will increase the speed of disbursement. And collections, inclusive of restructured portfolio and other loans, all inclusive, have come to a level of 87-98%. And this is expected to improve to 99-100% by next month.

• Piran Engineer of CLSA also asked what percentage of loan book is at a three month tenure, which was 53% in 2Q22. V.P. Nandakumar MD replied that it’s more or less same, 50:50 kind of thing. 50% for three months and balance in normal tenure.

• Abhijit Tibrewal from Motilal queried about momentum pickup in gold loans or does the demand in gold loan continue to remain tepid.  V.P. Nandakumar MD said the company is not seeing much increase in the momentum in January, February 2022. However, the company believes things will get better with schools opening and such things.

• Ashwini Agarwal from JM Financial questioned that why would a borrower come to the company rather than going at another NBFC or a bank lending at a cheaper rate. V.P. Nandakumar MD replied that for the borrowers there will be some regular connect with some NBFCs. For those customers pledging for a short duration, the interest rate difference may not be a big issue as many of the company’s customers are short term borrowers.

• Ashwini Agarwal from JM Financial asked about the time taken for disbursement of loans for the customers versus other NBFCs and banks. V.P. Nandakumar MD said the company disburses loans within 15 mins and if it’s a very new customer it may take 20 mins. This is the case with many NBFCs. For banks, it may take 1-2 hrs etc. as the procedures are more.

• Sanket Chheda from  B&K Securities asked that why the company is losing confidence on the growth front going ahead as a sharp cut was taken on yields and reported 8% growth. V.P. Nandakumar MD said it is losing customers at a yield of around 25%. That’s the reason for bringing the yield to around 20%. The company has seen a decline to INR16,000 crore from INR19,000 crore in 1Q and then reached to INR20,000 crore. MANAPPURAM believes going below 20-21% is not good for gold loan NBFC.

• Manan Tijoriwala  from ICICI Prudential asked about proportion of disbursements above 3 lakhs ticket size and if there is less demand in the lower ticket size customers. Bindhu CFO said the company used to track above INR1 lakh ticket size and has seen a 3-4% increase during 3Q22. COVID has impacted bottom of the pyramid highest, so the demand has come down from the lower ticket size customers.

• Manan Tijoriwala  from ICICI Prudential also asked about the rate sensitivity between larger versus smaller ticket size customers and if the company expects yield to remain at 20% or if it go back to the 25% number. V.P. Nandakumar MD replied that it all depends on the market conditions, government policies, and market liquidity etc. And going back to 25% cannot be ruled out.

• Dhaval Gada from DSP asked if the company still sees the visibility of achieving 15-20% AUM growth for next year.  V.P. Nandakumar MD said the company is foreseeing that opportunity.

• Dhaval Gada from DSP also enquired about the credit cost and the company’s expectations going forward. V.P. Nandakumar MD said the company is expecting some impact on credit cost for the next 2-3 quarters. After that it will go to pre-COVID level, provided there are no more variants of COVID entering. The company expects the situation to come back to pre-COVID level in 4Q23 of 99% collection.