Clouds with a golden lining

The meltdown on the Street, post demonetisation, has hit gold loan non-banking finance major, Manappuram Finance, as well. Since the move was introduced in early November, the stock of the Kerala-based company tanked 38% from ₹98 to ₹61 as of December 23.

In the ensuing period, founder Nandakumar VP bought 4.15 lakh shares in two tranches from the open market. One tranche, comprising 1.63 lakh shares, was bought on December 20, while 2.52 lakh shares were purchased on November 17. Following the purchase, Nandakumar’s personal holding has marginally increased to 28.21% from 28.17%. As on September 2016, the total promoter holding stood at 34.40%.

Though the Street is concerned about the impact of the move on gold financiers, the management believes that it is organised players like them which will gain the most in the long run. To begin with, companies like Manappuram Finance and Muthoot Finance will wean away market share from unorganised gold financiers, a segment which is thrice the size of organised gold financiers' market.

The shift from a cash economy to digital is expected to hurt unorganised lenders the most. The founder was quoted as saying that even before the demonetisation move, about 50% of the total disbursements were made through NEFT payments or cheques. The company had set up alternative repayment channels such as net banking, debit cards and e-wallets for customers. Last year, Manappuram had launched an online gold loan product, which is fully cashless and, today, 2/3rd of its customers have moved to the facility.

In the second quarter of FY17, the assets under management for the NBFC grew by 42% YoY (11% QoQ) to ₹14,500 crore, led by a surge in non-gold portfolio which currently accounts for 15%. Within the non-gold portfolio, the microfinance segment grew by 27% QoQ to ₹1,570 crore. The management is looking at non-gold portfolio proportion of 25% by FY18 and has diversified into lending to smaller verticals such as commercial vehicles and medium and small manufacturing enterprises.

More importantly, the NBFC’s gross non-performing asset is minimal at 0.9%, as of Q2FY17, despite the company moving its NPA reporting system to 90 days past due basis. Going ahead, given that 74% of Manappuram’s borrowings are from banks, the cost of funds, currently at 10%, is expected to further decline as interest rates continue to trend lower.