Manappuram Finance Q1 2013 Earnings Call 2 Aug’12 Call/131213_ Finance Q1 2013...

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Transcript of Manappuram Finance Q1 2013 Earnings Call 2 Aug’12 Call/131213_ Finance Q1 2013...

  • ManappuramFinance Q12013EarningsCall 2Aug12

    Operator LadiesandgentlemengooddayandwelcometotheManappuramFinanceLimitedQ1FY13EarningsConferenceCallhostedbyICICISecuritiesLimited.Asareminderforthedurationofthisconference,allparticipant lineswillbe inthe listenonlymodeandtherewill be an opportunity for you to ask questions at the end of today's presentation. Please note that this conference is beingrecorded.Atthistime,IwouldliketohandtheconferenceovertoMr.AbhishekMurarka.Thankyouandovertoyousir.

    AbhishekMurarka Yeah. ThanksMyron. good evening andwelcome to the conference call,wehaveMr.Unnikrishnan theDeputyCEO and theExecutiveDirectorofMannappuramFinancewithus. Ithink it'sbeenacriticalquarter forthegold loancompanies intermsofbusinessrealignment.

    However,Manappuramhasoutperformedthestreetestimatesandmanagequietwellintoughtimes.SoIthinkwithoutmuchadoIwouldinviteMr.UnnikrishnantosharehisopeningsremarksandthequarterhighlightsfollowingwhichwecanhaveaQ&Asession.Overtoyousir

    I.Unnikrishnan,ManagingDirector&ChiefFinancialOfficer ThankyouAbhishek.Goodevening ladiesandgentlemen.Thanksfor joiningthecall.WelcometoconferencecalltodiscussthefinancialresultsofManappuramFinanceLimitedforthequarterended30thJune2012.

    Theresultsofthecompanyarealreadywithyoubynow.Thecompanyregisteredatotal incomeof725.5crore inQ1ofFY13asagainst493.5croreinQ1ofFY12.Netinterestinterestincomeregisteredagrowthof33%yearonyeartoRs.416.9croresinQ1FY13asagainstRs.314.5croresinQ1ofFY12,whiletheoperatingprofitwasup43%yearonyeartoRs.234croreinQ1ofFY13asagainstRs.160croreinQ1ofFY12.

    Profitaftertaxregisteredagrowthof46%yearonyeartoRs.158crores inQ1FY13asagainstaRs.108crores inQ1FY12.Thecompanyfollowingconservativeaccountingnormshaschangeditsestimatesondepreciationwithregardstocertainassetsandhasprovidedanadditionalaccelerateddepreciationof9.15croreduringthequarter.Soadjustingforthis,profitaftertaxwouldhavebeenhigherbyroughly6croresfortaxandwouldhavetouched164croresactually.

    Thecompanyenteredfirstquarter30thJune2012withtheAUMof10,850crores,registeringahealthygrowthof20%comparedto30thJune2011.

    Before Iopenthefloorforquestion, I'd liketogivea littlebitcoloronthetrendsthatweseefortheeconomy ingeneralandthegoalon industry inparticular,astheglobaleconomicenvironmentcontinuestoremainuncertainposingseveralchallengesgoingforward.

    Globaleconomycontinuestolosetraction,thewakeofdeepeningEurozonecrisis.WhiletheconcernsofsovereigndefaultandthepossibilityofGreeceexitingtheEurozonehaveabated,thepossibilityofaprolongedeconomicrecessionremainswiththedataindicatingthateventhecoreeconomiesareslowingdown.

    Webelievethisallgoeswellforgoldasanassetclassanditwillremainsafehavingprotectinginvestorsfromdeepdepreciationofcurrencies.Leadingglobalbankshavepredictedthatgoldpricestotouchhigher fromcurrent levels inthedaysaheadwhich ispositiveforallgoldloancompanies.

    Duringour last sixmonthsor so,wehavebeenpassing through certain regulated turbulenceaswell.Stronggrowth inassetsundermanagementofgold loancompaniesgotfromtheReserveBankof Indiatherebybringing innewregulatorychangesfortheindustrywitha60%capontheloantovalue.AndalsotheregulatorhastightentheKYCnormsandhasputacap7.5%caponthebanks'capitalfundswhilelendingtogoldloancompanies.

    RBI's concern is that the rapid growth of gold loan companies alongwith dependence onpublic funds causes a systemic risk.Further,therewereconcernsaboutconcentrationrisksingoldloanNBFCs,risingfromthereintoproductfocus.WhilethemarkethaveinterpretedRBIstandhasbeennegativetothegoldloansectorasinsidersintheindustryweholdadifferentview.

    WebelieveRBIhasactedoutof itasa responsibilitytopreventcritical risk frommaterializing.Wecontinue tobelievethatgoldloanscanbeatransformationforceinIndiaforfinancesectorparticularly inpromotingfinanceinclusionand inmonetizingIndia'svaststockofprivategold.Therefore,itisimperativethatwedonotlosesightofasignificantupsidepotentialthatgoldloanshold.

  • Goldloanfinancingisawindowtoprovidefinancetopeopleatthelowerendofpyramidfortheirimmediatepersonalandbusinessneeds.Byrestrictingtheloantovalueto60%andmakingitapplicableonlytononbankingfinancialcompanies,thereisrealriskofbringingnewlifeintotheunorganizedsectorwhichaspawnbrokersandmoneylenders,theloanshops.

    Weexpect theReserveBank to continue tokeepa closewatchon theevolving situationand recalibrate thepolicy, responsesadequate.We'rehopefulofthefavorableoutcomefromReserveBankconstitutionalworkinggroup,undertheleadershipofMr.K.U.BRaotostudythebusinessgoldloansandexaminecurrentattractivenessgoldloanNBFCs.

    Seewehavehad interactionswithReserveBankoff lateaswell.Andonthebasisofour interactionwithRBI,weunderstandthat largely theconcernson thebusiness, thegold loanbusinesshavebeenonhighgrowth, increasingnumberofcustomercomplaintsandperceivedlackoftransparencyintheauctions.Theoftheconcernsaroundthesame,theReserveBankofIndiahasdescribed the reduced selling limitsonbankexposure togold loancompaniesat7.5%of the capital fund.Andhasalsoreducedtothe loantovalueto60%ofthe jewelleryvalue.Andhasalsoput inplaceafasttrackcourtmakingtheboardsofnonbankingfinancialcompaniesresponsibleforitsimplementation.

    AtManappuram,wehaveproactivelyimprovedourKYCprocess,haveputinplaceatransparentauctionpolicyandpracticeandhaveintroducedanintrudeandautomatedcustomercomplaintredressmechanism.

    Apartfromtheabove,wehavealsobeenhitbythenewsecuritizersnormswhichhavemadeasecuritizersofgoldloanverydifficultgoingforward.Further,goingforwardweexpectcertainmarketpracticesofNBFCsrelatingtoraising,nonconvertibledebentures,certainpracticesarelikelytobemodifiedbyremovinganyofanyothercomplaintstopublic...

    WebelievethatwhiledoingthisdueregardwillbegivenbyotherbankstokeepNCDasoneofthemostimportantsourcesoffunding.

    WearehappytoseethatwearecomplinedwithallthenewRBIguidanceandcontinuetorespectthedecisionsoftheregulator.Thesechangesnotonlytightenedthenewsforallexistingcompanies,butalsomakeitdifficultfornewentrantstoeasilyentertheindustry.

    InFebruary2012,asyoumaybeknowing,theReserveBankhasissuedapublicnoticethatthecompanyforcontinuingtoexitthedeficitsfromthepublicafterbecominganondeficit,takingnonbankingfinancialcompanyinMarch2011.WhileweclarifiedthatthecompanyofacceptingretailsubscriptionstoitssecuredNCDs,nonconvertibledebentures,whichispermitted,arelatedissuehadalsocomeupregardingdeficitfactsubjectbyaproprietaryconcernManappuramAgro.

    In the light of the concern expressed by RBI the promoters have since transferred the enter amount of his depositsintoaccountwithalocalnationalizedbankandbulkofthedepositshavenowbeenrepaid.

    Arising from these developments, the top management of the company initiated a series measures to review and improvegovernancestandardandbenchmarkitthroughthebestpractices.TheleadinglawfirmAmarchandMangaldaswastakenonboardtoassistthennewreviewexerciseandwe'renowintheprocessofimplementingtheirrecommendations.

    Wecontinuedtoretradecurrentyear.CurrentyearwillbeayearofconsolidationforgoldloanNBFCs.Aftertheyearsofhighgrowth,webelieve thecompanywillcontinue tostrive tomaintainhighqualitygrowthandcontinue toenhanceshareholdervalue.

    Themanagementhastakenseveralmeasurestoensurethecompanyisabletomaintainreasonablegrowthwithacceptablemargins.FY13isayearofconsolidationforthecompany,beforeitreturnstoahealthygrowthpathinFY14.

    We atManappuram are constantly assessing new environment post the regulatory changes and still think it is too early tocommentonthechangesandprovideyouwithaccurateguidanceforFY13.

    Havingsaidthat,I'dliketomention,wewillcontinuetomaintainhealthyNIMsandnormalizedROAsclosertoabove4%andveryhealthyROEsinthebandof20%to25%.Webelievethesenormalizedreturnratiosareverygood,consideringthatourbusinessmodelhasamuchevenstrongerandtheriskprofileofourbusinesshasreducedconsiderablywiththe lowerLTVandgold if itcollapses.

    Lastly,we thankall the shareholders, thedistinguished shareholders,employees,our lendingbanksand finance institution,ourforeignanddomestic investors,regulatorybodiesandthegovernment,furthervaluablecontributions inoursuccess.AlsoworthspeciallymentionReserveBankofIndiaitdevotedconsiderabletimeandresourcestoensurethesecurityofthefinancesectorandthelongtermsurvivalofthegoldloansector.

    AsIsaid,ManappuramFinanceisinaphaseofconsolidation.Bydefinition,consolidationisnothalfasexcitingasrapidgrowth,neverthelessorthelonghaul,itisvitalforthehealthoftheorganization.Weseekyouwholeheartsupportsothatthecompanyisabletoachieveitstruepotentialintheyearstocome.Managementwilltakeallthestepsnecessarytoenlargeevenstronger

  • asacompanythatcreatesconsistentvalueforitsshareholder.

    BeforeIconclude,letmequotetheReserveBankGovernor,Dr.Subbarao,"Wecannotbanorrestrictloansagainstgoldbeyondacertainpointbecausethereisindeedalifelineformillionsofhouseholdswhokeepgoldasahedgefordifficulttimes."

    Manappuram believes that the expected policy of framework, some policy framework is going to be based around the abovestatementoftheGovernor.With18,000metrictonnesofhouseholdusedjewellerywaitingtobemonetized,webelievegoldloanbusinessisgoingtohaveagreatfutureinthiscountry.

    Withtheseopeningremarks,IhandoverthephonetoAbhishek.

    AbhishekMurarka Myronareyouthere.CanwecontinuewiththeQ&A?

    Operator Yeah.

    QuestionsAndAnswers

    Operator Participantswewillbegin thequestionandanswer session. [Operator Instructions].Wehave the firstquestion from the lineofAjiteshNairfromUBSSecurities.Pleasegoahead.

    AjiteshNair Thankyou.Goodevening,sir.

    I.Unnikrishnan,ManagingDirector&ChiefFinancialOfficer Hi.Goodevening.

    AjiteshNair Sir,justtwoquestions.Thefirstone,canyouhelpuswiththegrossNPAnumberforthisquarter?

    I.Unnikrishnan,ManagingDirector&ChiefFinancialOfficer GrossNPAisaround112crores.

    AbhishekMurarka Ascomparedto64croreslastquarter?

    I.Unnikrishnan,ManagingDirector&