Manappuram Finance Limited is one of India’s leading Gold Loan NBFCs situated in Valapad, Thrissur, Kerala State.
(A) About The Company
Manappuram’s origins go back to 1949 when it was founded in the coastal village of Valapad, Thrissur District by late V.C.Padmanabhan. The firm was involved in Pawn Broking and Money Lending carried out on a modest scale.
Later, in the year 1986, Mr. V.P. Nandakumar took over the reins of this one Branch business after the death of his Father. The group’s flagship company, Manappuram Finance Limited established in 1992. The company went public in August 1995.
Today, Manappuram Finance Limited is the 2nd largest Gold Finance NBFC in India and has a diversified lending portfolio across Retail, Microfinance, SME and Commercial Customers.
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- Executive BOD of Manappuram
- Shareholding Pattern
- Revenue Segmentation
- Interest income & expense
- Borrowings Profile & Cost of funding
- Assets under Management
- Branch Network of Manappuram
- Group Structure
- Financial Performance
- Growth Opportunities & Risks/Concerns
(B) Family Structure
(C) Executive Management
(i) Mr. V.P.Nandakumar (Managing Director & CEO)
He is a Post Graduate in Science with additional qualifications in Banking & Foreign Trade. Immediately after completion of his education, he joined the erstwhile Nedungadi Bank Limited.
In 1986, he resigned from the Bank to take over the Family Business, upon the demise of his father, V.C. Padmanabhan. In 1992, he promoted Manappuram Finance Ltd. and has been a Director of the Company since then. He is also the Chairman of the Kerala state council of the Confederation of Indian Industry (CII).
Age of Mr. Nandakumar is 66 years. In FY20, he received remuneration of INR 11 crore i.e. 0.20% of total revenue and 0.74% of net profit.
(ii) Mr. Jagdish Capoor (Non-Executive Chairman)
He holds a Master’s Degree in Commerce from Agra University and a fellowship from the Indian Institute of Banking and Finance. He has over 40 years of Work Experience in Banking and Finance. Mr. Capoor is also a Former Deputy Governor of Reserve Bank of India, former Chairman of HDFC Bank, Former Chairman of Deposit Insurance and Credit Guarantee Corporation of India, Unit Trust of India and BSE Ltd.
(D) Shareholding Pattern
(D) Revenue Segmentation
The Company derive its 80% Revenue from the Gold Loan and other Loans segment, out of which, more than 70% of Revenue is contributed by Gold Loan Segment alone. Other Loan Segments include Home Finance, Vehicle Finance and others. On the other hand, remaining 20% is contributed by the Microfinance Segment to Total Revenue of the Company in the year 2020.
The Company has a diversified lending portfolio across retail, microfinance, SME and commercial customers. Moreover, it is the 2nd largest gold finance NBFC in India. The Company provides loans against the pledge of used household Gold Jewellery and extends short-term Gold Loan primarily to customers who require funds immediately and may not have access to formal credit.
On the other hand, Muthoot Finance Limited, the closest Peer of the company, has 87% Share in the Gold Loan Segment and the rest 13% is contributed by the other Loan Segment of the Company.
Gold Loan Industry
Specialised gold loan NBFCs witnessed exceptional growth amongst organized players. Driving this growth is the aggressive expansion of branches, massive spending on marketing as well as rapid acquisition of customers.
NBFCs and banks approach the gold loan market differently, reflecting in their interest rates, ticket sizes and loan tenures. NBFCs focus more single-mindedly on the gold loans business and have accordingly built their service offerings by investing significantly in workforce, systems, processes and branch expansion.
(i) Interest Income
Interest income is recognized by applying the Effective Interest Rate (EIR) to the gross carrying amount of Financial Assets other than credit-impaired assets and financial assets classified as measured at fair value through profit or loss.
From the year 2014 to 2020, company’s interest income grew drastically at a CAGR of 17% over last 6 Fiscal Years.
(ii) Interest Expend
Interest expense recognized by applying the Effective Interest Rate (EIR) to the gross carrying amount of Financial Liabilities.
Interest Expend by the Company includes – Interest On Debt Securities, Interest On Borrowings, Interest On Subordinated Liabilities and Interest Expenses on Finance Lease Obligations.
In the F.Y. 2020, Company’s Interest expenses increased by 36% to INR 1,832.23 crore due to increase in interest on borrowings (consolidated) from INR 730.21 crore in F.Y. 2018-2019 to INR 1,111.14 crore in F.Y. 2020 (52% increase). Interest expense for FY21 is Rs 2,218.95 (increase of 21% YoY).
(iii) Net Interest Spread
Net Interest Spread of Manappuram Finance Limited has shown a volatile growth over the years.
On the Other hand, Closest Peer of the Company , Muthoot Finance’s Net interest Spread shows a consistent growth over the years.
(G) Source Of Funding
Around 47% of the consolidated borrowing is from banks and financial institutions with which the company has established relationships. This source is stable and costs competitive.
Also, the Company raised funds from long-term capital market instruments such as non-convertible debentures and subordinated debt. As microfinance and commercial vehicle portfolios are securitized, it further widens the funding sources.
As of 31.March.2021, the Company’s Borrowing Profile is as follows-
From about 63% in the Q-4 F.Y. 2020 to about 48% in Q-4 F.Y. 2021, the company reduced its dependence on Banks and other Financial Institutions for borrowings and increased its borrowing through NCDs and Bonds to 36% in Q-4, F.Y. 2021 from 17% in Q-4, F.Y. 2020.
Cost of Borrowings (%)
In the F.Y. 2021, Company’s cost of Borrowings stands at 9.1% against 9.46% in the previous Fiscal years. Also, Company’s Cost of Borrowings has reduced from 11% in the year 2016 to 9.1% in the F.Y. 2021.
(H) Assets Under Management (AUM)
(i) Gold Loan AUM
Company’s Gold Loan AUM has grown at a CAGR of 14% in the past 4 Fiscal Years, showing a consistent growth.
On the other hand, Muthoot Finance Limited’s, the closest Peer of the company, Gold Loan AUM grew at a CAGR of 14% over the last 3 Fiscal years i.e. from 2017 to 2020.
(ii) Microfinance AUM
The Company provides Microfinance Loans through its Subsidiary, Asirvad Microfinance Limited (AML), 4th largest NBFC-MFI in India.
Company’s Microfinance Loan AUM grew at a CAGR of 45% in the last 3 Financial years, showing a significant growth.
(iii) Housing Finance AUM
Housing Finance AUM of Manappuram Finance Limited has shown a consistent growth over the past 3 years, grew at a CAGR of 27%.
(iv) Vehicle Finance AUM
The Company’s Vehicle Finance AUM, has grown drastically from the year 2017 to 2020. Vehicle Finance AUM has grown at a CAGR of 64% over the last 3 Fiscal years.
(v) Other Loans AUM
(vi) Total Assets Under Management
Manappuram’s Total assets Under Management grew at a CAGR of 19% over last 4 Financial years, showing a Consistent growth.
(vii) Assets Per Branch
Company’s Assets Per Branch increased from 30.84 Million in the year 2016 to 54.58 Million in the F.Y. 2020, showing a steady growth.
(I) Branch Network
Manappuram Finance Limited has a robust pan-India presence through its 4,622 strong Branch Network, spread across 28 States and 4 Union Territories, serving an active customer base of more than 5.14 million.
Company has a Strong presence in Gold segment i.e. 58% in the South region. On the other hand, Share of Gold Segment in West, North and South Region is 15%, 14% and 13% respectively.
(K) Group Structure
Manappuram Finance Limited has 4 Subsidiaries.
(i) Manappuram Insurance Brokers Limited (MAIBRO)
Company’s wholly owned subsidiary, Manappuram Insurance Brokers Limited (MAIBRO), operates in various products of Life, Health, Personal Accident and Motor insurance.
(ii) Manappuram Home Finance Limited (MAHOFIN)
MAHOFIN, a wholly owned subsidiary of Manappuram Finance started operations in January 2015 and focuses on affordable housing loans. It caters to the needs of mid-income to the low income group.
(iii) Asirvad Microfinance Limited (AML)
Asirvad Microfinance Limited, an NBFC operating as a microfinance institution (NBFC-MFI), is a majority-owned subsidiary of our Company. AML provides mainly three types of loans, namely income generating programme loan (IGP), product loan and MSME loan.
AML is ranked as the 4th largest NBFC-MFI in India. Moreover, the Company has a Network of 1,030 branches across 22 States and union territories with presence in 316 districts and 209,956 centers.
(iv) Manappuram Comptech And Consultants Ltd. (MACOM)
This subsidiary of the company offers services in audit and taxation along with core IT services to service varied market requirements including application development for Digital Personal Loan, Loan Management Solutions etc.
(L) Financial Parameters
(i) Net Sales
The Company’s Net Sales had a Robust growth from the INR 2,100.46 crore in the year 2014 to INR 5,465.32 crore in the year 2020. Thus, net sales of Manappuram Finance Ltd grew at a CAGR of 17% over last 6 Financial Years.
(ii) Profit After Tax
Manappuram’s Profit After Tax has shown a good growth over the years. Company’s PAT has grown at a CAGR of 37% over last 6 years.
In the year 2020, Company’s PAT grew by 56% to INR 1480.32 Crore from INR 948.55 Crore in the previous year. The significant increase registered in profit for the year is mainly due to changes in the Income Tax rates and the better than expected growth in the company’s Gold Loan business.
(iii) PBIDTM (%)
(iv) PATM (%)
In the year 2020, Company’s PAT margin surged by 4.39%. This is because of changes in the Income Tax rates and the better than expected growth in the company’s Gold Loan business
(v) ROA (%)
(vi) ROE (%)
The Company has been maintaining a healthy Return on Equity (ROE) and Return On Assets (ROA) over the years.
(vii) Capital Adequacy Ratio (%)
The Company has a healthy Capital Adequacy Ratio of 21.74% as on March 31, 2020. Lower Asset-side risk also supports capitalization.
(viii) Gross NPA (%)
(ix) Net NPA (%)
On the Asset Quality side, NPA is not a major issue for Gold Finance Companies like Manappuram as these are Secured Loans with highly liquid underlying asset.
Lets see what are the overall growth opportunities as well the risks associated with the business of Manappuram Finance Ltd
(N) Growth Opportunities & Strengths for Manappuram Finance
(i) Gold Loan Market Poised To witness Strong Growth
India’s gold loan market is expected to reach Rs 461,700 cr by the year 2022 at a five-year compounded annual growth rate of 13.4%. This estimation is as per 2017 industry report. Organized gold loan penetration remains significantly low, which provides a great opportunity for organized Financiers loan book growth. Also, the organized gold loan market comprising banks, non-banking finance company (NBFCs) and Nidhi Companies contribute to nearly 35% of the Indian gold loan market.
(ii) Untapped Potential
The core business of the Company, of providing gold loans, continues to offer excellent growth potential. Lucrative yields, increased product awareness, valuable collateral including the ease of liquidating have seen frenzied activity by the industry, including new entrants ie. online fintech platforms. Also, The World Gold Council estimates privately held gold to be anywhere between 20,000 to 25,000 tonnes in India. Manappuram’s gold holdings stood at around 72 tonnes as of March 31, 2020.
(iii) Strong Position in Gold Loans
The Company is the second-largest gold financing NBFC, has created a niche by focusing on its core clients having low/middle income, largely unbanked households and also the shorter duration products.
Moreover, the family of the promoter, Mr V P Nandakumar, is in the gold-loan business for more than 60 years. The company has a strong brand and reputation in south India (particularly Kerala and Tamil Nadu). Reputation and trust play a significant role in this segment as these give the customer an assurance of getting back personal gold ornaments once the loan is repaid. After shifting towards shorter tenure gold loans of three months in 2015 to de-risk the portfolio from sharp fluctuations in gold prices, the company witnessed stability in business with an increase in customer base and gold holdings.
(iv) Higher Gold Prices could drive Incremental Lending
Prices of gold rallied in the recent past and companies can lend more amount to their customers. Although the demand has still not reached the pre-Covid state. Existing customers are borrowing more, compensating for the slowdown in new customers, which means most of the customers have a lot of room to borrow more against their gold mortgage.
(v) Portfolio Diversification
The Company has a diversified lending portfolio across retail, microfinance, SME and commercial customers. It is the second-largest gold finance NBFC in India. Also, the Company provides a range of retail credit products and financial services.
To reduce its concentration risk in gold loans, Manappuram since FY16, diversified into new business areas like microfinance, vehicle and housing finance, and SME lending. In February 2015, the company acquired Asirvad Microfinance Pvt. Ltd. which is one of the lowest cost microfinance lenders in India.
(vi) Stable Funding Profile
Around 47% of the consolidated borrowing is from banks and financial institutions with which the company has established relationships. This source is stable and costs competitive. The Company has also raised funds from long-term capital market instruments such as non-convertible debentures and subordinated debt. As microfinance and commercial vehicle portfolios are securitized, it further widens the funding sources.
Due to company’s legacy & secured asset class, company is able to get fresh funds from diversified sources. More importantly, the cost of borrowing of Manappuram Finance did not increase significantly over the years.
(i) Geographical Concentration in Revenue
Company’s gold loan operations are largely concentrated in South India, which constituted 58% of the total gold loan portfolio as 31 of March 2021. More than 37% of the microfinance portfolio is in southern states: Tami Nadu, Karnataka, and Kerala.
However, the share of the Gold Loan portfolio in South India steadily reduced from 82% as on March 31, 2012 and from 70% in March 31, 2014.
(ii) Challenges Associated with Non-Gold Loan Segments
In order to accelerate its lending business the Company had ventured in adjacent segments of Non-Gold financing. However in the current scenario emerging post covid-19 there have been concerns with the asset quality of non-gold businesses.
Though Manappuram Finance is comfortable with its NPA levels in gold loan business due to the high margin of safety and shorter duration of loans. However, the non-gold business could witness higher risks increasing the consolidated NPA levels.
For instance, profitability of the microfinance segment significantly affected by increased credit cost during year 2018 due to demonetisation. Also, other business segments like, housing, microfinance, vehicle finance suffer seasonality as well as varied impacts of economic environment changes.
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