VP Nandakumar, MD & CEO, Manappuram (Q,N,C,F)* Finance said the company will leverage its existing infrastructure to grow its new businesses. He said growth in mortgage and commercial vehicle business to pick up substantially once company's branches gets well established.
In an interview with Sourabh Pandhare, Nandakumar said, "We have a high capital adequacy of over 25% that enables us to equip our new businesses with adequate equity and debt capital."
Interview Excerpts:
1. Manappuram expects new businesses contribution of upto 20-25% of total AUM in next three years. How do you rate performance of microfinance, mortgage & housing, and commercial vehicles lending so far?
Our microfinance subsidiary is doing very well having grown to an AUM of Rs. 538 crore as of September 30, 2015. In fact, when we took over this company in February 2015, its AUM was Rs. 250 crore. We expect growth to continue in the coming quarters as well.
Our Mortgage and Commercial Vehicle business have been setup organically and this is their first year of operations. We expect growth to pick up substantially once our branches are well established.
2. Could you give us some sense on your business plans and capex requirement for expansion of these businesses to targeted levels?
We do not expect any major capex requirement in the new businesses as we can leverage on our existing infrastructure.
3. Mortgage & housing and commercial vehicles finance business is extremely competitive with dominant players controlling major market share. How to you plan to tackle competition and create niche for company?
These are basically growing business segments that offer ample scope for new entrants. Moreover, Manappuram has over 18 lakh live customers spread across the country right from metropolitan to rural areas. The new business can easily leverage on our strong nationwide brand image and customer reach. Further we have a high capital adequacy of over 25% that enables us to equip our new businesses with adequate equity and debt capital.
4. Manappuram's loans and advances grew 19.2% to Rs 102.60 billion on Sep. 30, 2015 from Rs 86.07 billion on Sep. 30, 2014. Going forward, how to you see growth in loans and advances in the second half of financial year 2016?
We do not give any formal guidance on our numbers. But we do expect to maintain our growth rate in the future as well.
5. Net interest margin shrunk 150 basis points to 12% in the quarter ended Sep. 30, 2015 from 13.5% in the same quarter last year. Why there is drop in NIM? Do you think drop in NIM will continue?
NIM dropped due to higher auctions in the legacy portfolio of gold loans of one year duration which has now been wound down. We expect our NIM to pick up in coming quarters.
6. Gold loan companies are operating at NIM of over 12%, whereas banking industry's NIM ranges between 2 to 4%. Why there is such big gap in NIM? Is it justified?
When you deal in small ticket, short duration loans, operating expenses are high and this necessitates higher NIM.
7. Company's gold loan branch network remained static over last 1-year to 3,293. Is there any specific reason to keep branch network at current level? Do you think there is limited scope for branch expansion?
We feel we currently have adequate branches as far as numbers are concerned. We are in the process of relocating some branches from saturated areas to high potential areas.
8. Gold loans are generally used for short-term purpose. Unlike un-collateralized microcredit lending, gold lending is fully secure. NPA levels are also not that high. So what is the rationale behind charging interest rate as high as 24% or more that is close to microfinance lending rate?
Gold loans are small ticket, short duration loans. As I mentioned earlier, this means that our operating expenses are higher. Also, our cost of borrowing is higher than banks. Therefore, the rate of interest charged to borrowers is proportionately higher.
9. Earnings for second quarter declined 17.6% when compared with the prior year period. Going forward, do you think earnings will remain under pressure for second half of fiscal 2016?
We expect our earning to pick up in the second half.
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