‘Plan to raise Rs 5,000 cr from markets this month’

NBFC Manappuram Finance reported a net profit of Rs 405.44 crore for the second quarter. Consolidated assets under management (AUM) grew 18.6% to Rs 26,902.73 crore. The gold loan portfolio posted a strong growth of 30.1%. VP Nandakumar, MD & CEO, talks to Rajesh Ravi on the company’s performance and future outlook. Excerpts:

What is the highlight of the second quarter? Net profit of the NBFC has seen a 6% year-on-year decline in the second quarter.

Actually, this second-quarter profit of Rs 405 crore is the highest-ever quarterly profit we have reported. We restated the profit for Q2 of the previous fiscal year to Rs 433 crore from Rs 402 crore that we had reported, due to a change in accounting of securitized assets of a subsidiary, according to the regulatory guidance on Ind AS issued by the RBI on March 13, 2020.

Bear in mind that last year we also got a one-time benefit due to the reduction in corporate tax rates announced in September 2019 which boosted profit of the second quarter (as the excess provision in the preceding quarter was written back). Moreover, in the second quarter of this fiscal year, we did not securitize any asset pool because of the pandemic.

What is your outlook on gold loans with the portfolio showing good growth in Q2?

The main reason for the growth is that it was not possible to get other loans during the pandemic. The easiest option for MSMEs and other small traders is gold loans. There was enough headroom for customers as the loan-to-value (LTV) of loans they had availed of was only 60%, and the regulatory cap was 75%. Gold prices also increased during the time.

What is your current LTV and what is the long-term LTV of Manappuram?

The current LTV is 63% because the price of gold has come down. When gold prices were high, the LTV had gone below 60%. The long-term average LTV for the company would be 66-67%.

Gold under custody has shown a decline during Q2. What is the average ticket size of loans and new client acquisition?

People take gold loans with a definite plan to redeem. They only borrow what they need. It is seen that customers are very disciplined when they borrow against family gold. They calculate their cash flow and borrow accordingly. Our auction is only 0.5% of the total loans, so 99.5 % of customers payback and take back their gold.

Regarding gold under custody, when gold prices go up, the gold kept as collateral comes down. The average ticket size of our loans is Rs 45,000. Almost 4,500 new customers come to us daily on an average.

Manappuram has reported plans to raise funds this month. How much are you raising from the market?

We have grown by 17% in the first half and in the second half, we expect to grow by another 5-6% and we need funds from the market for expansion. We may raise Rs 5,000 crore from the market because we also plan to retire some existing loans carrying higher interest. Basically, we are raising funds for our business expansion, and the rest we will use to retire some of our old loans.

Do you see the cost of funds coming down?

The borrowing cost is coming down for us. At the end of the second quarter, it was 9.3%, and now it is below 9%. The incremental borrowing cost is around 7.7%.

What is the share of the gold loan business and other subsidiaries?

During the last quarter, 73% of our consolidated business was from gold and 27% was from the non-gold business. The gold loan business will grow at 10-15% in the normal situation, while other business will grow at a higher rate. In the long-term, say 7-10 years, we believe the gold business will be 50% and the non-gold business will make up for the rest.

What about branch expansion in the fiscal?

We have applied to the RBI for opening branches in the gold finance business and we are still waiting for approval. For other businesses like home loans and microfinance, we plan to open 150 branches in the current fiscal.