Manappuram Finance Limited (531213) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 FY'21 Earnings Conference Call of Manappuram Finance hosted by Antique Stock Broking. [Operator Instructions] Please note that this conference is being recorded. I will hand the conference over to Ms. Vidhi Shah from Antique Stock Broking. Thank you, and over to you.

Good evening, everyone. We have with us the entire management team of Manappuram Finance led by Mr. VP Nandakumar. Without further ado, I would now like to hand over to Mr. Nandakumar for the opening comments. Over to you, sir.

Thank you. Ladies and gentlemen, welcome to the Manappuram Finance Q4 FY'21 Conference Call. We hope that all of you are safe and healthy along with your family and friends. The second wave has casted dark shadow on India, its people, its economy, business and industry. Hopefully, the rest is behind us, as things improve from here on. Far from this shorter backdrop, let me turn to our fourth quarter results and the full year performance highlights. As you know, gold loans have the dominant share in our company's business mix. About 70% of our loan book is against gold. The industry faced several challenges in the past 12 months, such as lockdowns and disruptions to the economic activity and a slowdown in consumption. However, I'm glad to report that Manappuram Finance has done quite well under these circumstances. For the full year, our gold loan AUM grew by 12%, in line with our guidance of 10% to 15% annual growth. The price of gold has peaked in August last year. Thereafter, by the end of the fiscal year, the prices have corrected by 21 percentage, with a 12% fall taking place in Q4 alone. That affected the gold loan business and some customers faced challenges in renewing their loans leading to a higher cost. At the same time, the fact that we are predominantly into short-term gold loans are in our favor as we carry the prices only for 5 to 6 months against the industry benchmark of 15 to 16 months. This allows us to recognize [indiscernible] and initiate recovery, thereby protecting our markets. Going forward, we expect higher demand, especially from micro and small enterprises, as they need capital to get back on their feet. Some key performance highlights for Q4 and the full year FY 2021 are consolidated AUM at INR 27,224 crores is up by 17.9% year-on-year, but declined by 1.5% quarter-on-quarter. While gold loan AUM grew by 12% -- 12.4% year-on-year, with our Q-on-Q growth was negative at 5.6 percentage due to the fall in gold prices and higher auctions. Our average LTV is at 71%. Our gold holdings stood at 65.33 tonnes. The tonnage degrowth for the quarter was 2.85 tonnes, of which 1 ton was auctioned quantity. The microfinance subsidiary, Asirvad Microfinance, ended the year with an AUM of INR 5,985 crores, a growth of 8.8% on a full year basis and 11.7% over the preceding quarter. Given the stress in the industry, we continue to prioritize asset quality over AUM growth. Asirvad enjoys one of the lowest operating expenses at 5%. Going forward, we expect some short-term pain in microfinance asset quality. However, based on our experience in the past episodes of stress, we are positive about the outlook. We believe that within the microfinance sector companies with lower borrowing costs hence lower lending rates also could be better place as they attract more creditworthy customers by natural selection. Our commercial vehicle business saw a higher GNPAs due to lockdowns. However, it came down to 5% at the end of the year. Our housing loan portfolio is relatively small and has been steady in terms of asset quality while reporting moderate growth in business. On the liquidity front, we are placed comfortably. And we continue to receive funds from all routes at competitive rates. The incremental cost of fund in Q4 was 7.93 percentage, with a the overall cost of fund for the full year was at 9.1 percentage. We do not expect any funding challenges to come in the way of our growth plans. And we are comfortably placed with our AUM, which we monitor closely. Finally, we are reporting a consolidated quarterly net profit of 600 -- I mean, INR 468 crores for Q4 FY'21 and INR 1,725 crores for FY'21, which is our highest full year net profit ever. Thank you. Now over to our CFO, Mrs. Bindu A. L., for a detailed look at the numbers.

Thank you very much, sir. Thanks to all our stakeholders for attending this quarterly update call. The year FY'21 redefined the way in which we all think and live. We have accommodated once in a lifetime crisis to strengthen and revamp our balance sheet and presented a healthy performance. Our purpose has helped us to stay strong despite the challenges in the external environment. In terms of collection efficiency and disbursement trends in most loan segments are close to pre-COVID levels. However, the slippages for the system would remain elevated for the near-term. The recent rise in COVID cases remain a key money trouble. Now coming to the operational overview. We are carrying surplus liquidity across all businesses. Cash and cash equivalents on hand was INR 2,548 crores and undrawn bank line was INR 7,364 crores. Our CP exposure has come down to 6.5 percentage against 11 percentage a year ago. In the stand-alone entity, our ALM position has strengthened significantly. Borrowing costs declined sequentially by 18 basis points to 8.77 percentage despite the significant extension in average duration of borrowings. Our consolidated AUM for Q4 was INR 27,224 crores, up by 7.9 percentage Y-o-Y and down by 1.5% Q-on-Q. The Y-o-Y growth was led largely by gold loans. Consolidated profit after tax was INR 1,725 crores for FY'21, up by 16.5 percentage Y-o-Y. Whereas the PAT for Q4 was INR 468 crores grew by 17.6 percentage Y-o-Y and down by 3.1 percentage Q-on-Q. ROE on a consolidated basis was 26.4 percentage and ROA was 6 percentage for the quarter. Talking about the gold loan business, which constitutes 70 percentage of consolidated AUM, the AUM increased by 12.4 percentage Y-o-Y and down by 5.6 percentage Q-on-Q. Gold holdings stood at 65 tonnes. During the quarter, we were able to add 3 lakh new customers and collateral of nearly 4 tonnes of gold. Gold loan average ticket size and average duration was INR 44,600 and 100 days, respectively. Total number of gold loan customers stood at 25.94 lakhs and the gold loan book at INR 19,077 crores. Auctions during the quarter were INR 404 crores. The sequential decline in AUM was largely on account of significant decline in gold prices by 12 percentage during the quarter and 21 percentage from Q2 disbursement level. And the disbursement number was INR 93,000 crores. And this portfolio matured in Q4, which led to auction of collateral as well as higher-than-normal redemptions. As you would note, the short tenure of our gold loan product, which is 3 months on average, results in early recognition of NPAs compared to other players in the market who offer longer tenure gold loans. The company follows a policy of regular auctions in case of delinquencies. We are happy to inform you that we have not had any significant credit losses despite the sharp fall in gold prices, given our regular auction policy. Our weighted average LTV stands at INR 2,922 per gram or 71 percentage of the gold price as on March 31, 2021. Our interest accrued was INR 716 crores, 3.8 percentage of gold loan AUM. Gold loan disbursement at INR 44,630 crores compared to INR 57,445 crores in Q3 FY'21. Online book accounts for 54 percentage of the total gold loan book. Coming to MFI business. Asirvad MFI AUM stands at INR 5,985 crores, up by 11.7 percentage Q-on-Q and 8.8% Y-o-Y. And this business reported a profit of INR 4.1 crores in Q4 FY'21 compared to INR 17.8 crores in Q3 FY'21. Our collection efficiency from MFI business was at 101 percentage in March and disbursements during the quarter was INR 1,767 crores, loan loss provisions at 5.71 percentage of closing AUM. The company has a capital adequacy ratio of 23.3 percentage. Coming to the vehicle finance business, we have reported an AUM of INR 1,053 crores, which is up by 6.5 percentage Q-on-Q and down by 21 percentage Y-o-Y. Collection efficiency was 103 percentage and 111 percentage in February and March, respectively. The home loans business had a total loan book of INR 666 crores, which is up by 5.2 percentage Q-on-Q. It operates at 47 branches and reported a profit of INR 5.3 crores during Q4 FY'21. Collection efficiency was 95 percentage and 101 percentage in February and March. Collection efficiency for the quarter was 96 percentage compared with 94% in Q3 FY'21. Loans to NBFCs at INR 183 crores and loan to SME and others at INR 261 crores. Provisions and write-offs for the stand-alone entity during the quarter stood at INR 12 crores compared to INR 29 crores in Q3 FY'21. We have provided additional provision of INR 25 crores due to COVID-19. Our GNPA is at 1.92 percentage as compared to 1.26 percentage at the end of the Q3 FY'21. The Board declared an interim dividend of INR 0.75 on improved performance. Our capital position is strong, and the company is well capitalized with a capital adequacy ratio from 28.9 percentage. Company's consolidated net worth stands at INR 7,307 crores. The book value stood at INR 86.3. Thank you. Now we can go for the Q&A session.

[Operator Instructions] The first question is from the line of Dhaval Gada from DSP.

Congratulations on decent performance in a pandemic year reporting 26% ROE. I had 3 questions. First is related to the collection and billing efficiency. So you've provided a collection efficiency for some of the segments in February and March. If you could provide the billing efficiency for the 3 months and also the January numbers for vehicle and HFC, that would be useful? So that is question number one. The second question is related to the MFI where you talked about that in the near term you expect some pain. And I was looking at the PAR data. Just trying to understand, in terms of coverage, what is the level of excess provision that you want to carry going into the first half of next financial year, given that the PAR data is still in double-digit as we speak. So that is -- just your thoughts on what kind of pain can come? And how much provisioning you think is required to address the issue? And the last question is related to borrowings. Like overall, 8.8% borrowing -- cost of borrowing. Just trying to understand, when should we start seeing the benefit of lower rates? I know that you've been increasing the tenure. But is there a scope for seeing some benefit in FY'22? So some thoughts around that.

Yes. Senthil and Raja sir can talk on the collection efficiency.

Yes. Mr. Raja, can you talk on collection efficiency? Mr. Raja?

Good evening. The collection efficiency for microfinance business increased from 99% in January to 100% in February to 101% in March. And as you noticed this from April, again, we have this scare of second wave. So there is a certain amount of dip in April. But it is much, much better than what we had witnessed last year. And going forward, we are in a much better position to address this based on the experience we have had in the last 12 months. On the provisioning question, which you had asked, we had made a provision of 5.7% on the AUM of INR 341 crores based on the IndAs requirements -- ECL requirements of IndAs. This has well affixed provisions, which will take care of our losses. However, this -- while making this provision, we had taken about INR 30 crores of provisions towards the second wave. We still have to assess the impact of the second wave on this. But I would say that considering all that and considering the higher AUM and higher AUM and growth we are going to witness this year, the performance of the company, including all the provisions that may come during the year, will be much better than the current year.

Senthil?

What was the dip in April? Sorry, I missed that. You said there was a dip in April. What was the dip?

Yes, in April, because very -- states like Madhya Pradesh and Chhattisgarh announced right in the beginning lockdown. We are in the region of 90 -- it's not -- it is not very less, but we are in the region of 90s. From 101%, we came down about 7% to 8%.

78%?

This is Senthil here from vehicle finance. In terms of vehicle finance, our collection efficiency was 106% in the month of January, which increased to -- I think which was stable in the month of February around 105%. And in the March, it increased to 113%. Current bucket collections have been hovering around 90% in the month of March. We have both commercial vehicle and the 2-wheeler portfolio, but I think the collections have been similar -- the percentages have been more or less similar in both the portfolios.

And the borrowing cost, as you know, during the quarter, there was a decline in the portfolio and the opportunity for additional availments was less. And that is the reason the surplus liquidity, we were repaying the short-term maturities, mostly CPs have come down. So when we start utilizing additional limits with the current incremental cost of borrowing, the benefits will be better.

Understood. And on the first -- sorry, the question related to write-offs, sorry, MFI write-offs. Any comments on that?

What is the question on the write-off?

Sorry, how much is the write-off during the year? And what's the kind of impact you see in the second wave?

The write-off was INR 123 crores during the year. And it is normally, we have provisions on the write-offs and the write-offs we have a policy that anything, which is over 180 days and which we feel has not been paid is written off, and we follow the same policy. So many times, the write-off moves from the provisioning. It is not a direct thing, which comes to the write-off. So we -- after that, we still have the provisioning in the balance sheet. We're excited about INR 300 crores for the year.

The next question is from the line of Shweta Daptardar from PL India.

Sir, a couple of questions. Am I audible?

Yes.

Yes.

Sorry. A couple of questions. First one is, sir, we have mentioned on Slide 23 the reason for tonnage decline. So I just wanted to know if auctions-related decline was pretty sizable, then what was the profile of these defaulting customers? Secondly, ma'am, you mentioned that there was almost 3 lakh additions of customers for this particular quarter. So is it that the redemptions have been higher than the new collateral, which came through these customers and, therefore, that was also the key reason why the tonnage declined? So that is question number one. Question number two, this is related to the MFI. So in the MFI, if we look at 0 dpd PAR, so quarter-on-quarter, there has not been much of improvement for basis of 18%, it's down to 16%. And so in the light of second COVID wave, how do you believe this 0 dpd PAR will pan out? And lastly, ma'am, I just wanted to know the interest rate on the recent ECB raise of USD 15 million for Asirvad Microfinance?

So the reason for the gold loan reduction is, see, one, the price is down. So when the reset is happening, it will be at a lower LTV. The second is, of course, the cash flow of these customers, rural, semi-urban customers, the impact is there. So our gold loan is of 3 month -- gold loan product is 3 months. So in the next 3 months, unless they redeem it or renew that at a new LTV, they will not be able to -- yes, it will be auctioned. So what they do if their cash flow is very much first, either they sell it as a scrap on their own or leave it to the company to sell through auction. So we had an auction of around 1,000 tonnes -- 1 tonne, this year. It was -- compared to normal situation, this 1 tonne auction across all our branches is very high. So the reason is their cash flow was not comfortable as a a reason. So the profile -- you asked the profile, yes, most of them daily wage earners or a tea businessmen or small type entrepreneurs, self-employed people, farmers, small farmers. This is the typical profile of our customers.

Yes. And to add to that, you would remember Q2, we had nearly INR 100,000 crore disbursement. And the portfolio growth was also good. For us, as majority of the portfolio under 3 months scheme, this portfolio will mature in Q4. So these disbursements were happened at the peak price. From the peak price, there was almost a 21 percentage price fall, if we compare the time of disbursement and the maturity. So because of the cash flow issues, the amount of the principal part, payment of principal was also a concern for the customers, and that resulted into higher redemption. At the time of maturity, majority of the customers redeemed and another INR 400 crores we auctioned. So these are the reasons. So we have given the details in Slide #23. And on the ECB pricing, Raja sir, and Asirvad second wave.

Yes. On this 0 dpd ma'am, the question is on the not a fast declining loan ratio. So in Q2, we had about 21%, and then it came down to 17% and -- 17.4% in Q3. And as of March, it is 15.74%. What happens in a microfinance business, unlike other businesses, once a person enters the 0 to 30, it is extremely difficult for them to keep paying 2 installments at one time to bring it back to normal. So the AUM is more or less our -- the company's policy is to make sure they continue to pay that one particular installment so that they don't move to the next bucket. So the focus is to retailing that particular bucket itself at the same stage. So that's why you're not seeing a major drop, but that is not a big concern for us because we know that ultimately, the tail gets extended and the payment is made. Addressing the second wave, unlike the first wave where we totally got unaware, and we couldn't do anything for nearly 4 to 5 months because of the moratorium given, so the resolution RBI has come out with the guidelines on May 5th itself for a resolution framework, which a company can do based on the stressed geographies. And the company is working on it. By end of May, we will be in a position to address any increases in this 0 to 30 bucket because of this new second wave. And we are in a much better position to address this. We are very confident that this ratio will -- as the AUM also keeps growing, the second point was the AUM growth was not good that much in FY'21. And as the AUM keeps growing, all these ratios look much better for us. And I am sure that in the coming quarters, this also will -- this ratio will also show a declining trend. On the ECB, we are done with the recent transaction about 9.7%. And it's again a landmark -- we did one last year. And this is again a landmark transaction, considering the state of the MFI space and the confidence the lenders have in this space and also the company and the group. So we feel it's a very significant transaction. That's why although the quantum is not very large, we felt you know it's something which we should talk about.

[Operator Instructions] The next question is from the line of Prateek Agrawal from our ASK Investment Managers Limited.

First, I thought the presentation that you have brought out is pretty interesting, so thumbs up to that, a lot of additional data has been provided. Two questions and related to the performance of the quarter, which I thought was good in the context of times. One, given the valuation, why do dividends and not buyback? I understand that there is some regulatory norms on buybacks by financials, but if you can pay out dividends, then to the extent of dividend, you should be allowed to do a buyback. That was the first question.

So the buyback, you are aware about the regulatory challenges, so...

Yes. I'm aware there is a leverage thing which is there, but I really think that the regulator has a larger buyback in mind when they put that limit. The point is if dividends are allowed when -- which is money going out of the company, then with that money, buyback should be allowed?

Yes, yes. So yes, see, we are very conservative as far as our dividend policy is concerned. With our improved performance, we have increased our dividend also by INR 0.10 during this quarter compared to the previous quarter.

I was more on if you would explore the regulator for allowing you to buyback rather than dividend for the same amount, that was the query. Did you do touch base with the regulator for buybacks, no?

See, there are regulatory guidelines in this regard. Yes, so...

Okay. The second question was, I was looking at microfinance guidelines and in the guidelines it says, correct me if I'm wrong, but 85% of our microfinance, NBFC has to be unsecured small ticket loans, what we understand as microfinance. But 15% of the book can be anything else. And there, there is no cap on interest rates also. If that is right, can you use Asirvad to also diversify its activity into other high yield spaces, maybe including gold as well.

Yes. Sir, we have already started that. In our portfolio of INR 5,985 crores. We have about INR 45 crores of other assets, about INR 40 crores -- INR 42 crores of SME assets that's completely secured, and INR 2.5 crores of loan deferrals. And as we speak, we are -- this year, we are going to have a much larger portfolio of gold assets. Using the knowledge and know-how of the parent company, we also want to develop gold loan businesses in the areas where they are not currently present and where Asirvad is present. And we are completely wanting to utilize the 15% as you rightly said.

Okay. And just an associated thing, can you securitize the 15%, securitize stroke, assign the 15% because then it can become a continuous business.

We can do that. We can do that.

So then -- yes, then it can be a pretty large opportunity.

Yes. It will be a continuous business, yes, you're right. Right, sir.

The next question is from the line of Shubhranshu Mishra from Systematix.

Couple of questions. So the first one is, we are carrying a good amount of liquidity on our balance sheet, the bond markets are thawed and banks are also lending at lower rates. So why are we carrying such a huge amount of cash on our balance sheet, given the fact that a large portion -- 70% of our consol AUM is gold loans, which is fairly liquid in itself? That's the first question. Second is what is the quantum of write-offs that we have done in the stand-alone book? And how much of that is from the vehicle finance loans? And what's the kind of provision that we are carrying on the stand-alone book? These are the 2 questions. And the third question, it's actually a data keeping question. What is the proportion of the gold loan AUM, which has more than INR 1 lakh ticket size?

Okay. So our business is a cash oriented business, so all branches should have may -- some retention amount. So that is one reason for cash. And as you are aware, this HQLA maintenance also increasing the cash balance. And on an average, we will be maintaining another 15 or 20 days repayments in cash. So the quarterly numbers are not the average numbers. And quarter end, there will be some pressure for availment. And that is the reason, quarterly numbers may be high, but this is not the average, which we are maintaining during the quarter. And on the provisions, in the stand-alone entity, we are holding nearly INR 200 crores provision. So that is INR 104 crores for gold loan and another INR 100 crores for non-gold businesses. Vehicle Finance is holding nearly INR 63 crores provision in that INR 100 crores. And the last thing is on the -- what is the last question, Shubhranshu? Proportion of...

Ticket size more than INR 1 lakh, what is the proportion of AUM?

So outstanding, it is 50 percentage. No, 41%.

41% is more than INR 1 lakh.

No, no. In terms of loan outstanding, 62 percentage is more than INR 1 lakh, in terms of loan outstanding. In the case of customers, it is 20 percentage.

The next question is from the line of Piran Engineer from Motilal Oswal.

Firstly, on the gold loan business, I just want to understand now that the LTV arbitrage is over between banks and NBFCs, how are you seeing competition shape up over the last couple of months? And also like what percentage of customers rollover the loans when the tenure ends?

So the competition, yes, you have said that 90% the LTV permitted by -- to the banks, that period is over from the -- as of the last quarter. So there is a good opportunity for the growth in AUM. Now the situation is almost half of our branches are not able to work because of the lockdown. I think when the branches are open, which we are hopeful of towards the end of this month, all the branches. Yes, the growth opportunities would be good. The competition from the banks in that front of LTV have definitely come down. And the rollover percentage, yes, 80% of the customers -- 80% rollover is there. What the rollover means means when they rollover, they bring this to the current ruling LTV, and they pay interest up to that date.

Got it. Got it. And sir, I was just seeing our performance in the fourth quarter on the gold loan business compared to some of the banks was a bit tepid. Now, we had that issue in Maharashtra where our branches were shut in the third quarter. Did that also continue in the fourth quarter leading to this tepid growth performance?

No. That was over during the last quarter itself. See, one thing which has to be understood here is, yes, our price risk management is better than the industry assets. We are short-term lender, 3-month lender, whereas industry in general is a 1-year lender. So the price -- we have seen a price decline from the peak to the lowest level. Last quarter was around 21 percentage. So in such a situation, we feel like, yes, a 3-month product is always safer, and the customer has the option to roll it over at a prevailing LTV. So our risk management practices, we believe that is better.

Got it, got it. And just one last clarification from Mr. Raja Vaidhyanathan. I didn't hear correctly, the collection efficiency in MFI was 78% or 98% in April? And what was it in May?

No, no, no. The collection efficiency is dropped by 7%, 8%, I said.

Dropped by 7%, 8%, from the 101%.

101% -- yes, correct, correct, yes.

Yes. And is that a similar level in May? Because I'm guessing May would see a larger decline?

Yes. May we are -- as of yesterday, it was you know -- the decline was much more than that. But it is understandable because 90% of the country and the branches went into a lockdown. But as I said, the customer contact is being maintained. And all the customers are saying that they have cash to pay and it is only the logistics, which is preventing them to pay. So we are expecting a clear bounce back.

The next question is from the line of Prashanth Sridhar from SBI Mutual Funds.

Just on the MFI bit, if we get some more color on, say, disbursements policy, what would be the policy around disbursements to existing customers or 0 plus? And what proportion that would be of our total disbursements in Q4? And maybe if you could just touch upon the collection scenario in some of the weaker states, West Bengal, MP, Maharashtra, I don't know Assam maybe?

See, the policy, the disbursement policy has always been the existing customers first. So our priority is always maintain -- retaining of existing customers by giving them a higher ticket size. Obviously, even these customers should be non-defaulting customers and should have been paid on time. But policy continues. We will continue -- I believe the policies will be continued right across. But what we do during a crisis period at certain times is we'll try to convert them 1 or 2 installments earlier so that they have a cash in hand and it will be easier for them to pay the installments. That is the only change we make during difficult times. Otherwise, the policy remains the same. In a proportion of new members to existing members, the existing members will always be more. We are trying to push that more -- as the year progress, we are trying to push that more to you know about -- from about 55-45 to about 70-30 and ultimately going towards 80-20. We need a conversion of about 80% and 20% new numbers. That is the policy, which we have. Obviously, when we convert, the ticket sizes are higher, so it pushes up even in terms of the volume. That's your first question. On the -- what was the second thing you had asked?

The collections in some of the weaker states like...

Yes. See, the collections you know very ironically, the states, which were very weak earlier, the collections are better now. We have excellent collections in -- right now in Odisha, West Bengal and the areas like that, which suffered greatly in the first wave. So it's a mix. And states like Tamil Nadu, Karnataka and all that because of the lockdown will decrease. So you do see it has changed now, and it will be better because we always feel the original states safe if you are doing better now in the second wave, that is a good thing for the company. And that is why it is -- our optimism is also based on that particular point, where the states of the COVID 1 impact, it is not impacting them economically now. It is more impacting them more humanitarian grounds, and we found that among our warriors and the people who are affected by this are much, much -- very, very small proportion. And that is the reason why we have -- we feel that collection, once the lockdowns are lifted, will definitely bounce back to the earlier levels, if not March immediately, at least 90-plus percent in June. And then going forward, we'll definitely improve more. All these states are better -- doing better now.

Sure. Sure. And just one data keeping question. Across the different loan products that Manappuram does, if you can get the states to and restructuring numbers add on data? That's it from my side.

Restructuring, MFI, we did around 4 percentage of the book, and vehicle finance around 8 percentage. No other portfolio we have done the restructuring.

Sure. And how would the stage 2 -- so other than MFI and vehicle finance, there is no restructuring? And how will the stage 2 number be?

That I'll come back.

The next question is from the line of Digant Haria from GreenEdge Wealth.

Sir, my question is mainly on the microfinance business. Sir, when we started this business in 2014, '15, the sector dynamics were very attractive. The overall credit cost used to be 1% across the cycle. But now we have seen that, especially in the last 4, 5 years, the average credit cost for the whole industry has been 3% every year. As you know we have 2 good years, we have a bad year where we lose almost everything that we made in the previous 2 years. So maybe that the risk perception of microfinance industry has really changed in the last 6, 7 years. So Manappuram, as a company, do we have anything in mind in terms of rethinking our microfinance strategy that maybe you want to cap the microfinance loan book at X percent of our overall loans? Or maybe do safer products in microfinance, which I saw marketing material saying that we'll do gold loans in Asirvad? So sir, any thoughts on this would be appreciated. So that's my first question.

See, the last 3, 4 years were unusual years, one, because of the demon. Demon has hit the microfinance customers the worst than many sectors because they were in the cash economy, then they were relying on the cash economy. So that was a big hit. Then the pandemic. That also hit the microfinance profiles very badly. Even in spite of that, the microfinance industry has come back. So this has -- these impacts were at a short-term duration. That's the reason. We believe in the strength of the microfinance industry, it will come back. It will come back to pre-pandemic, pre-demon period very fast. So one thing we have taken into account here, the resilience of this business in confronting these pandemics or other challenges like demon, et cetera, et cetera. So we believe that microfinance business on a sustainable model can bring forth an ROE of over 20 percentage. So it's a good ROE in any lending business. So we stick to our plan of having microfinance business in our hold, and we expect that to be around 10% to 15% of our consolidated portfolio.

Sir, you said 10% to 15%, or sorry, I did not hear that properly?

Yes, 10% to 15%, we feel like would be the ideal situation. Yes, the other businesses are also -- secured businesses are also growing like, gold loan, we expect 10% to 15% growth; affordable housing, we expect a higher growth percentage; the commercial vehicle segment and [indiscernible] secured MSME business also, we look forward for a higher growth percentage.

Okay. Sir, so the 10% to 15% is a good number, sir, because as I see now, we are like INR 6,000 crores out of INR 26,000 crores roughly. And you know 23%, 24% of our loan book is in microfinance. And somehow, this microfinance business brings a lot of volatility in our profitability because gold is a very steady business. We have exceptional ROEs and very well known gold loan business. But yes, so the 10% to 15% cap overall means that maybe in the next 5 years, gold and microfinance should probably grow at the same rate, right, because otherwise the proportions won't balance, right, sir?

Yes, yes. It will be like that. See, in gold loan business, the situation is -- because of the situation. One, the cash flow of the gold loan customer profile has hit very badly because they are also mostly from the bottom of the [indiscernible]. Then the other issue also sudden decline, unusual decline in the gold price. So see, what has come for auction now, in our case, is what we have lend at the highest LTV in terms of amount, at the highest gold price. So it has come to the lowest -- the auctions that we conducted at the lowest price during the last 1 year -- so the last 6 months that we conducted, that lowest price during the last 6 months. So this has led to a decline in the portfolio, which will be adjusted, which will be corrected in a steady price.

No, sir. Yes, I have been tracking you for a long time. And I do know that we take the hit upfront and other players take around 1 year to take that hit. So that's completely fair. So sir, my second question was on this gold loan business itself, that, see, in the last 14, 15 months, a lot of banks have entered. As you rightly said, a lot of them don't have the back-end infra to auction the gold on time or the risk management, they're still learning. But sir, one thing looks clear that maybe some banks will stay in this gold loan business even if those LTV relaxations are not there and even if the growth is not as good as in the past. So what is our learning -- maybe if some of our customers or employees have gone to the banks or -- what is our learning in terms of how do we react to this new set of players who will probably be there for a longer time now? So yes, that was my second question.

See, the banks are there in the gold loan industry over a century, in fact. So why they don't want to scale up. So their approach to these short-term loans or small tickets is very different from a specialized player like an NBFC. So we have the wherewithal to dispense our customers in a matter of 10, 15 minutes, whereas the bank counters are open from 10 o'clock, they are available up to 1 o'clock for gold loan customers. These doesn't suit. So many of our customers redeem during the first week itself. Yes, we have -- 1/4 of our customers -- 1/5 of our customers during the -- redeem during the same month. For such a loan of INR 20,000, INR 25,000, wasting a day for pledging or a lease may not work for them. It becomes really too costly for them because they lose 2 days wage going to a bank. So the bank customers and our customers are different. Now you are very right, absolutely right when you say, recently, we have seen an aggression from banks. There are 2 reasons for that. One, there, other lending opportunities were limited because of the risk aversion for some time. They have some risk aversion. Any lender has their own risk aversion before taking steps after the last year's lockdown. So that is one reason when they thought of going to the safest business. The second thing is they had the opportunity to lend up to 90%. And this has helped many of them to refresh their other NPAs. So that is the -- these are the 2 reasons for that aggression. Now that 90%, yes, many of these lenders would be -- feel like, yes, it was not a good decision even though there was a regulatory permission. The reason is currently what they carry, their lending amount or the principle itself is higher than the current price of the gold. So I don't think the NBFCs will have a sustainable competition from the banks. And the opportunity for NBFCs is very large because as per our assessment 75% of the gold loan market is still dominated by the unorganized players.

Next question is from the line of Akshay Ashok from Dalal & Broacha Stock Broking.

Yes, so I just have two questions. This plan for [Technical Difficulty] like are you planning to launch an IPO, and what is the time line? And then I want to know what are the unique customers you have in gold loans, like only people who have taken a gold loan and not taken both the microfinance loan as well as the gold loan? So if you could just, if possible, give the unique customers -- what percentage will be unique for gold loan? It will be very helpful.

So the IPO plan for microfinance is what you have asked, right?

Yes, because I read an article that you had made a comment that we are planning to hive off the microfinance business. I just want to know what is the plan and what is the time line by which...

Yes. See, the capital adequacy of the microfinance business is around 24%. So for the parent company, it is around -- the capital adequacy is around 28%. So the group itself has got a very high capital adequacy. That doesn't mean that we will not go for an IPO. So all will be to protect the interest or stakeholders. Yes, if the valuation is good, market is very good, we may look at an IPO for the microfinance. But when is the market going to come? I think it may come back sooner than later because the resilience is fully seen, resilience of microfinance industry confronting these challenges are now known to the market, not to the investors. So it will be only to -- only in the interest of shareholders we may take a call as and when to take -- not for want of capital.

Yes. But Manappuram will hold controlling stake in Asirvad Microfinance still, that is what you say?

Yes, yes. We entered the microfinance business fully convinced -- after fully convinced that it's a good business. It can give us an ROE of around 20 percentage -- about 20 percentage.

This percentage of unique customers in gold loan business, like, please talk through...

Yes, see, it may be around 10 percentage.

10 percentage, okay, okay.

The next question is from the line of Aalok Shah from MNCL Group.

Sir, is my voice audible?

Yes.

I had a few questions more from what we saw through. One is on client additions. How do we look at that as an overall number for our 2 core businesses, the gold loan and MFI? You talked about adding close to 3 lakh customers in the gold loan segment in Q4. How is that trajectory looking like as we speak now? And likewise on the microfinance space, what is it that we are looking at in terms of client addition or the AUM piece?

So client addition we are looking at a rate of 10% to 15% annually. That is possible. And yes, we have introduced several innovative products like online gold loan, yes, to gold loan at the doorsteps of the customers, et cetera, so and cross-selling options also. So we have to sustain the customer addition at the rate of 10% to 15%. In -- yes, client addition in microfinance, I request Mr. Raja to comment on.

See, currently, we are at about 25 lakh number. So we are expecting to add about 4 lakh to 5 lakh members this year basically because this year is going to be new member additions might be less this year. We want to retain more of existing customers. But in a normal year, we definitely want to do an addition of about -- clearly about 20% to 25% of the membership -- on the membership basis.

And when we talk about adding a substantial part of our client base from the existing clients on the MFI side, how is the incremental ticket size looking like there?

How is the?

Incremental ticket size?

Yes. We have a clear policy of -- based on cycle wise ticket has increased, and we follow that. And we are one of the more conservative on the total ticket size we have. After 15 years, we are still to cross INR 60,000. And only this year where we were planning to cross INR 60,000 as a ticket price to the customer. So we made a very judicious increase based on the cycle size and the performance, each cycle and the performance of the client. For each cycle, there is an increase of a certain percentage.

May I request Mr. Shah to please rejoin the queue. We have the participants waiting for their turn. The next question is from the line of Utsav Gogirwar from Investec.

Sir, just want to reconfirm, on the microfinance business, you mentioned the outstanding provisions is around INR 300 crores. Is that correct?

The charge to the -- yes, INR 341 crore is the provision. The charge to this year is INR 300 crores based on that. And we have -- also that includes INR 30 crore of COVID overlay for the second wave.

Okay. And secondly, can you just help us with the PAR 30 and PAR 60 for the top 3 states?

The top 3 states -- you want the bucket wise?

Yes, for West Bengal and some of the other top 2 states?

I could -- I immediately don't have that state wise. I could give it you later. But yes, West Bengal is the one of the top states. But more in the first 10, the 1 to 30 and 30 to 60, as I said, because the livelihood is affected. So the hit is in the Eastern states only, West Bengal and Odisha and all that.

Okay. Okay. Sir, secondly, on the gold business. So in the presentation, you highlighted that going forward, you on the large front would focus on the new channels, which is kind of a doorstep business through DSAs. So can you just help us with the -- how the DSA works in the gold business?

See DSA means here we call it as business associates. These are our own customers. Not -- yes. We are not relying on corporate DSAs also barring a couple of them, couple of NBFCs, we plan to call it. So other than that, there is no DSA. Our own business associates bring us the customers from their communities.

May I request Mr. Gogirwar to please rejoin the queue. We have participants waiting for their turn. [Operator Instructions] The next question is from the line of Bunty Chawla from IDBI Capital.

Just one question. If we see the stand-alone gross NPA, which has increased to 1.9%, and if we move from stand-alone part vehicle financing portfolio, where the gross NPA's impact decline on a sequential basis, which reflects that gold loan AUM NPA has increased substantially, although we have said that there has been a INR 400 crores of provisioning, INR 400 crores of auction has been already done. So if you can share your thought process on that as well as if you can share the data on this auction? Have we have any interest reversal or interest loss on this auction?

See, in gold loan, the NPA is only technical, it is because of one reason only. So we had the buyers for this, but we were not able to sell because the branches were closed. So we need to -- we have to classify this as an NPA because of a regulation we saw, which is going to be liquidated in the ensuing month or quarter. That's all.

Sir, on the interest loss?

So we are accruing the income as per the accounting policy. So we have a prudent accounting policy, and that is the reason we were able to maintain stable gross income.

Sir, if you can, sir, interest accrual as of FY'21?

So INR 716 crores.

The next question is from the line of Abhijit Tibrewal from Reliance Securities.

I'm just referring to your Slide #23, where you have kind of spelt out that about INR 5 billion was withdrawal related decline in your AUM and about INR 23 billion was because of a decline in gold prices. I mean, excuse me, this sounds like a stupid question, but if you could just explain the difference between the two?

So we added a lot of new customers during the quarter. But because of the lesser LTV, the eligible loan amount will be lesser than the earlier quarters. So that is what we try to explain, what is the price impact? And what is the LTV adjustments? Our LTV was at 62 percentage, has gone to 71 percentage. These are because of the decline in price, because in the past, if the customer has to avail INR 10,000, he has to bring maybe 4 grams of gold. But now if -- at the time of a decline in gold price, he may be coming with the same quantity of gold, but the eligible loan amount will be less. So this will -- reversal happen at the time of increase in gold price. So that is what we explained in this slide.

Okay. And my last question was -- I mean, while you have suggested that you have auctioned about about INR 4 billion or 1 tonne of gold, I feel in quantum terms or other amount, currency terms, it's about INR 400 crores. Can we rightly assume that whatever loan disbursement that you did maybe in the month of August and September, this is Q2, all of that has either been recognized as an NPA or has actually been auctioned of now? In other words, is there a proportion of the book where you would have done disbursements where old prices were at its peak, and they are still sitting in your book now?

The gold price when it was peak, yes, these are auctioned.

Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Ms. Vidhi Shah. Thank you, and over to you.

Thank you, everyone, for joining the call, and I would really thank the management for giving us an opportunity. We can now disconnect the lines. Thank you.

Thank you.

Thank you. Thank you participants.

Thank you, sir. Thank you Nandakumar, sir. Thank you, Mr. Raja. Thank you for participating.

Thank you.

Thank you. On behalf of Antique Stock Broking, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.