Manappuram Finance reported a 46 % year-on-year (y-o-y) decline in consolidated net profit for the third quarter to Rs 261 crore . VP Nandakumar, MD & CEO, talks to Rajesh Ravi on the company’s performance and future outlook. Excerpts:
How do you review the third quarter?
The important takeaway from our Q3 performance is that despite the Omicron impact, we have achieved good growth in our business volumes from our core business of gold loans, as also from vehicle loans and home loans. Our consolidated AUM of Rs 30,400 crore grew 7% sequentially and 10% year on year. Gold loans showed growth of 8.3% sequentially after suffering a decline in Q1. Likewise, there was good growth in vehicle and equipment finance and in home loans. However, the microfinance book posted a modest decline in volumes as we decided to go slow on fresh disbursements and focus more on collections in the context of the Omicron surge.
You have mentioned yield declining due to competition. What is the outlook?
In Q2, we had launched a few lower-yielding gold loan schemes targeting high-value customers, following the decline in volumes in Q1. It impacted the yield on gold loans, which fell from 25.3% in Q2 to 20.3% in Q3. These schemes were initially applicable to the larger ticket loans of Rs 1 lakh and over, and subsequently the eligibility was recalibrated based on market conditions. From what I can see, thanks to the abundance of liquidity in the market, the competition appears to be targeting business with a yield of around 17% in mind. But we are trying to maintain our yield at a somewhat higher level. In the process, our growth may get moderated for some time, say, one or two quarters more. However, I believe that these other NBFC players may not be able to sustain business at that low yield and therefore they will have to increase their yield soon. That’s why I expect that the present phase of intense price competition among NBFCs will be a temporary phenomenon and in the coming quarters the situation will improve.
What about AUM and what is the guidance for the next fiscal?
Our consolidated AUM has grown by about 7% sequentially in Q3 and the growth was led mainly by gold loans. I expect improvement in the coming quarters given the declining trend of Covid-19 and expected recovery in economic activities, including the unorganised sector. Assuming that we don’t see further disruptions from the pandemic and newer variants, we would target growth of about 10 to 15% in gold loans in the coming fiscal year.
What about competition in large loans — ticket size of Rs 1 lakh and above?
Following the disruptions in the financial services sector caused by the pandemic, private and PSU banks as well as other non-gold loan-focused NBFCs had sought to counter the stress in their general loan books by pushing their gold loan offerings and competing on price. They had particularly targeted our high-value customers having loans above Rs 1 lakh for takeover. Since then, we have responded with aggressive efforts of our own to retain and attract high-value customers. The results are visible in growth in our gold loans portfolio, which crossed Rs 20,000 crore and is up 8.3% sequentially. Importantly, this was accompanied by proportionate growth in gold collateral which, at 70 tonne, is up 7.8% sequentially.
Do you feel that cost of funds has bottomed out and will rise in the coming quarters?
The cost of funds appears to have bottomed out as far as the lending rates of the banks are concerned, and the likely trend from now on will be upward. In our case, even if the incremental borrowing costs were to go up marginally, to the extent it replaces higher cost borrowings of the past, our average borrowing cost may continue to remain stable for a while. Besides, increasing interest rates may not be a problem because the pace of such increase will be calibrated, and we don’t anticipate any sudden shock. Also, if the cost of funds go up, it is likely to cut short the price competition among NBFCs and that will be positive for the sector.
Do you see the share of gold business coming down in the coming quarters?
Our microfinance business posted a modest decline in volumes in Q3 because we consciously chose to go slow on fresh disbursements to focus on prudent lending, given the uncertainties around the Omicron variant. At same time, our commercial vehicles business reported a brisk sequential growth of 19% to Rs 1,510 crore, while our housing subsidiary grew its book sequentially by 11.5% to Rs 817 crore. This was achieved despite the loss of momentum in the final month of the quarter. In the last two years, growth in the non-gold businesses was more affected by the pandemic. With economic recovery in the offing, this trend is likely to reverse.