On track to achieve 10% loan growth in FY20: VP Nandakumar, Manappuram Finance

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Excerpts from an interview with Mr VP Nandakumar, MD & CEO, Manappuram Finance published on ETNOW:

·        Manappuram has achieved net profit CAGR of 40% in the last 10 years. Mr Nandakumar talked about the strategy which helped the company to deliver growth. The company was focusing on reducing the contract period in gold loan from one year to three months with an option to the customer to renew that every quarter by paying full interest plus bringing the LTV to the new level.

·        The company is able to collect the interest almost every month now and the auctions have come down drastically. It used to be around 4-5% of the total disbursals in the past which has come down to less than 0.5% now.

·        He said that the emphasis is now on new customer acquisition and maintaining the customer base through the use of digital gold loan platform. This facility allows customers to store their jewellery for free. He can also use the gold to avail and service the loan 24 hours a day. Even after office hours, the company observes transactions worth millions of rupees taking place through online platform. Even on holidays, sometimes it touches ₹ 1,000 mn.

·        The company has given a guidance of 10% growth in the loan book for FY20. He is confident of achieving the target. As for the geographies, the growth has been seen all over India, other than the Southern states. This is because of the lower competition amongst the organised lenders. The Bimaru states (Bihar-Rajasthan-Madhya Pradesh-Uttar Pradesh) are showing better growth, the reason being low competition in the states. The strategy of expanding into places, where there is a high concentration of unorganised lenders is paying off for the company.

·        In the last few months, gold prices have gone up and the average LTV in the books have come down. It is somewhere near 60% now which indicates that many of the customers are not availing the full LTV. Maybe around 5-10% or maybe at the maximum 15% of the customers may go for the highest LTV. Others borrow on the basis of their need. The contract period is only for three months. The average life of the loan is around 70 days only. At 70 days average duration plus the LTV of around 60% and ticket size of around Rs 35,000, The Company is insulated by price fluctuation.

·        About the non-gold segment, the asset quality remains the same without any vitiation like in microfinance and the collection remains around 99%. The strategy is to focus on quality. It also enjoys the highest credit rating from CRISIL– AA minus and because of that, the liquidity comfort for the company remains good. For other businesses like vehicle finance, our GNPA was around 2.9% in the last quarter. That has been maintained at the same level whereas the industry GNPA remains higher.

·        In the home finance segment, NPAs are brought down consistently. This quarter, the company plans to bring it to around 4% and towards the end of this year, the company is trying to further bring it down to around 3%. The asset quality in non-gold segments will be improved at the cost of business, still, these businesses like microfinance may grow at around 30%, vehicle finance also may grow around 30%, as would CV financing.

Consensus Estimate: (Source: market screener website)

·        The closing price of Manappuram Finance was ₹ 177/- as of 01-January-20. It traded at 2.7x/ 2.2x / 1.8x the consensus Book Value estimate for FY20E/ FY21E/ FY22E of ₹ 65.7/ 81.3/ 97.6 respectively.

·        Consensus target price of ₹ 177/- implies a PB multiple of 1.8x on FY22E BV of ₹ 97.6/-.