gold loans | Assetmultiplier

02 Sep

Growth not constrained by availability of either capital, geography or liquidity – Federal Bank

Update on the Indian Equity Market:
On Tuesday, Nifty50 ended 0.7% higher at 11,470 after the Supreme Court ordered telecom companies to pay their pending Adjusted Gross Revenue (AGR) dues to the Department of Telecommunications (DoT) over 10 years. Among the Nifty50 stocks, BHARTIARTL (+7.1%), JSWSTEEL (+6.5%), and HINDALCO (+5.3%) led the gainers. INFRATEL (-4.6%), ONGC (-2.9%), and AXISBANK (-2.0%) led the losers. METAL (+3.2%), PHARMA (+2.3%), and MEDIA (+1.4%) led the sectoral gainers. IT (-0.6%), PSU BANK (-0.2%), and PRIVATE BANK (-0.1%) were the only sectoral losers.

Excerpts of an interview with Mr. Shyam Srinivasan, MD & CEO, The Federal Bank with ET Now on 31st August 2020:
• Since the moratorium ended on August 31, 2020, no material changes are expected in September and the real picture would become clearer as they go into 3QFY21.
• The net moratorium at the end of 1QFY21 was 24%. Despite banks calculating moratorium in different ways, the Federal bank has been very strict with defining moratorium. If three or more payments were received, those borrowings were out of moratorium. All indications so far suggest the impact of the moratorium end would be as per planned and provided for by the bank.
• The gold loan performance is quite well. 1Q saw 9.5% growth in this segment and that growth is going to be very strong in the year. Gold being anti-cyclical and people resort to gold borrowing when there are any challenges in the economy.
• Businesses like auto loans in select geographies Karnataka, Kerala seem to have picked up in terms of monthly volumes while parts of Maharashtra are not doing as well.
• Typically, the NIMs (Net Interest Margin) are influenced by the margin of businesses, and reversals and low-cost funds. Strong growth in low-cost funds coupled with no material slippages helped, good growth in gold loan helped achieve good NIMs.
• The slippages in September are predictable. The NIMs for 2Q would be around the same levels as 1Q. 3Q and 4Q would depend on the slippages. The guidance for the full year remains at ~3.1%.
• They have an enabling provision for Rs 10bn of equity raise. Right now, they are not looking at raising any money and capital adequacy is looking reasonably good.
• It would be wise to see how 3Q pans out before plunging into any M&A and portfolio expansion opportunities. The growth is not constrained by the availability of either capital, geography, or liquidity, all of which are in abundance with the bank.
• Mr. Srinivasan’s term as the bank’s CEO & MD ends in September 21. With a well-thought-out succession planning in place, there is not a lack of continuity or lack of candidate and by April 21, there will be clarity on his successor.
• There is a high CASA flow from Dubai and the Middle East where oil prices have moved and job losses have happened. Whenever there is any kind of dislocation in these geographies, the bank has been a net beneficiary due to physical presence, large diaspora base, and the client base are not great shoppers and must send money home. It is not a singularly large destructive area. In the last 10 years, they have been able to diversify their business across geographies and product streams.

Consensus Estimate: (Source: market screener and investing.com websites)
• The closing price of The Federal Bank was ₹55/- as of 01-September-2020. It traded at 0.7x/ 0.7x/ 0.6x the consensus book value estimate of ₹ 77.4/83.8/90.4 for FY21E/ FY22E/FY23E respectively.
• The consensus target price of ₹ 66/- implies a PB multiple of 0.7x on FY23E BV of ₹ 90.4/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

By Maitreyee Vaishampayan Bank, Federal Bank gold loans, Moratorium, succession planning 0 Comments Read more...

24 Aug

More than Rs 80 bn cash ready to take care of loan demand – Muthoot Finance

Update on the Indian Equity Market:
On Friday, Nifty50 ended higher at 11372 (+0.5%). Among the stocks, NTPC (+5.1%), POWERGRID (+4.6%), and ASIANPAINT (+4.4%) led the gainers. ZEEL (-3.7%), HINDALCO (-1.6%), and BHARTIARTL (-1.3%) led the losers. Among the sectoral indices, PSU BANK (+1.8%), BANK (+1.4%), and PRIVATE BANK (+1.3%) led the gainers. MEDIA (-1.4%), METAL (-0.6%), and IT (-0.3%) were the only losers.

Excerpts from an interview with Mr George Alexander Muthoot, MD, Muthoot Finance with ET Now on 20th August 2020:
• The past two months have been good and the going is great now as well. They are on track to reach or surpass the AUM estimate of about 15% growth. They are seeing good demand for gold loans since gold has been the buzzword recently. People are interested to associate with gold and gold financing is a part of it.
• Mr Muthoot believes it might be a little difficult for people to get credit via personal or housing loan, as lenders and NBFCs are not comfortable with fresh lending. Hence, for the next three-four quarters, there will be a good demand for gold loans.
• All their branches are open and people are able to come to the branches. The past two months has been a good growth period for their business and the momentum is likely to sustain. People are using gold to finance their requirements. Small businesses, small traders, and business people and individuals are using this.
• Gold price has also helped as people with lesser quantities of gold can have more gold loans in their hands. Unfortunately, the tonnage has not grown in line with the growth in AUM because newer loans need to bring only lesser quantities of gold.
• About 89-90% of the portfolio consists of gold loans which don’t have NPAs. NPAs are just loans which have crossed the threshold time limit. Auctioning the gold which is in NPAs is not beneficial as they have to refund money to the customer. Instead, they would give more time to the customer and pay it back and hold it as NPA in the books. None of the NPAs result in loan loss as the full interest and principal is recovered in time. This also keeps customers happy that their gold is not being auctioned off.
• For about 10% of the loan book which is in vehicle finance, housing finance, they have given moratorium to customers.
• Standard provisioning and loan loss provisioning is applicable to them just as to NBFCs. There are about Rs 10 bn provisions in terms of standard assets or loan loss provisions. This is just a technical provision and he never sees it converting into loan loss.
• There is no plan of acquiring any gold loan company since the average tenure is four months only. By the time negotiation with the company is done the loan would have gone off their books.
• The regular growth through 5,000 branches is sufficient for them because the average branch business is about Rs 10 crore and any branch can cater to double that. So an average of Rs 20 crore per branch is easily sustainable for them.
• In South India, both the public and private sector banks are advertising about giving gold loans. Banks coming into this space is good as it gives more credibility and visibility to this business. There are about 25,000 tons of gold in the market with the public and only about 3,000 tons is in the organised gold loan sector. Since there is a lot of gold which has not come into the gold loan market, there is a place for everybody.
Consensus Estimate: (Source: market screener and investing.com websites)
• The closing price of Muthoot Finance was ₹1,181/- as of 21-August-2020. It traded at 3.4x/ 2.7x the consensus book value estimate of ₹ 352/438 for FY21E/ FY22E respectively.
• The consensus target price of ₹ 1,195/- implies a PB multiple of 2.8x on FY22E BV of ₹ 428/-.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

By Maitreyee Vaishampayan Gold loan NBFC, Muthoot Finance gold loans, NPAs 0 Comments Read more...

01 Feb

Growth picking up post demonetization, GST- Mr V.P.Nandakumar, Manappuram Finance

Update on the Indian Equity Market:

On Friday, NIFTY closed -0.6% lower. Among sectoral indices NIFTY Metal (-2.3%), NIFTY Pharma (-1.2%), NIFTY IT (-1.1%) closed lower while, NIFTY Realty (+1.2%), NIFTY PSU Bank (+0.8%), NIFTY Bank (+0.6%) higher. The biggest gainers were Kotak Bank (+3.7%), SBI (+2.4%), IndusInd Bank (+1.9%) whereas Tata Motors (-5.0%), ONGC (-4.5%), and PowerGrid (-3.6%) ended with losses.

Edited excerpts from an interview of Mr V.P.Nandakumar, MD, CEO, Manappuram Finance on CNBC-TV18

Targeted growth in gold loan had been 10-12%. In three quarters the achieved growth is 11%.
Price increase of gold has helped the company and that has led to volume growth.
Microfinance institutions (MFIs) are doing well and the asset quality is also maintained in this difficult hour for the non-banking financial companies (NBFCs) industry. The gold loan industry and the MFI industry are faring better.
Overall demand is better in last three quarters.
In non – gold loan, the recovery is slightly less because of natural calamities such as floods, political issues.
There is some interference of local politicians with the collection but the companies themselves are confident of achieving it.
10%-15% AUM is growth is expected. changes made in regulation, demonetization, GST have crippled the market. The market is now picking up post-GST, demonetization.
The company has raised $300 Mn as overseas bonds and the cost is 11.6%. The coupon rate was 5.9% but because of hedging, the all-inclusive cost is about 11.6%.
The domestic cost is easing because of the banks’ lending rates, it has slightly come down. It is now 9.25%.
Speaking about the decision to take dollar loan Mr V.P Nandakumar says, the domestic cost is low but the sectoral liquidity pressure cannot be ignored. There is liquidity pressure in the NBFC sector.
Mr Nandakumar says natural calamity is a challenge that the company faced. In the last year, there had been floods and that had led to delays.
Speaking on asset quality, he says, the company is analyzing district wise and pin code wise. with these measures, he doesn’t think the asset quality will deteriorate any further.

Consensus Estimate (Source: market screener website)

The closing price of Manappuram Finance was ₹ 188/- as of 31-January-20. It traded at 2.8x / 2.3x / 1.8x the consensus Book Value for FY20E / 21E / 22E of ₹ 64.9/81.6/101 respectively.
Consensus target price of ₹ 190/- implies a Price to Book multiple of 1.8x on FY22E Book Value of ₹ 101.

By Aniket Khanolkar Gold loan NBFC, Manappuram Finance gold loans, liquidity, MFI, Microfinance, NBFC 0 Comments Read more...

02 Jan

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

Update on the Indian Equity Market:

The stock market started 2020 on a cautious note as Nifty posted muted gains of 14 points to reach 12,182. Among the stocks, the gainers were led by ADANIPORTS (3.1%), POWERGRID (2.7%) and NTPC (2.1%) whereas TITAN (-2.8%), EICHERMOT (-1.9%) and INDUSINDBK (-1.5%) were the laggards. 6 out of 11 sectoral indices were in the red with MEDIA (-0.6%), AUTO (-0.5%) and REALTY (-0.3%) being the top losers while IT (0.5%), FMCG (0.3%) and FIN SERVICES (0.2%) were the gainers.

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/-.

By Abhishek Salunke NBFC gold loans, Manappuram 0 Comments Read more...

01 Oct

AU Small Finance Bank (AUBANK): No liquidity issues with the banks or the large NBFCs

Update on the Indian Market:

On Monday, NIFTY closed 0.3% lower at 11,477 points. NIFTY reported September 2019 gains of over 4%. Amongst the NIFTY 50 Stocks, BHARTIARTL (+6.9%), HCLTECH (+3.6%) and UPL (+3.3%) were the top gainers while YESBANK (-14.4%), INDUSINDBK (-6.1%) with other banks dragged the NIFTY down. In the sector-wise performances, IT (+1.9%) and FMCG (+0.3%) were the only gainers while PSU Banks (-3.5%), Private Banks (-2.7%), Financial Services (-2.1%), Media (-2.1%) and Pharma (1.9%) were losers for the day.

AU Small Finance Bank (AUBANK): No liquidity issues with the banks or the large NBFCs

Key takeaways from the interview of Mr Sanjay Agarwal, MD & CEO, AU Small Finance Bank; dated 26^th September 2019 on CNBC TV 18:

In the meeting with the Smt. Nirmala Sitharaman, Minister of Finance and Minister of Corporate Affairs, India; Mr Agarwal mentioned that the representatives of the banking fraternity accepted that there are no liquidity issues with the banks or the large NBFCs.
AUBANK operates in around 150 districts and 10,000 villages. There are no liquidity crises in any of the areas where AUBANK operates.
In 1QFY20, AUBANK reported 44% in growth in Assets Under Management (AUM) and 40% in disbursements v/s RBI financial sector growth rate of ~10%. The deposits increased by 100% YoY.
AUBANK has been able to deliver the target they had set. Personal vehicle sales have suffered. The commercial vehicle segment is cyclical and will turn around in due time.
AUBANK already has a business strategy in line with the Finance minister’s advice of increasing the presence in the field.
Mr Agarwal mentioned that the money is available for customers who meet the requirements of eligibility of credibility.
Recent tax reforms from 35% to 25% will lead to growth in the margins. AUBANK is yet to decide on how it is going to utilize the benefit arising from these reforms; whether for Capex or for improving the Return on Assets (ROA).
AUBANK has a small presence in the gold loans segment but is growing at ~80% YoY. Consumer durable loans too, form a very small part of the advances and is expected to grow at ~80-90% YoY.