Manappuram Finance extends decline, dips 11% post June quarter earnings

Shares of Manappuram Finance slipped 11 per cent at Rs 170.45 on the BSE in the intra-day trade on Wednesday after the company reported consolidated profit after tax (PAT) at Rs 436.90 crore, up 18.7 per cent year on year (YoY), but down 8 per cent quarter on quarter (QoQ) for the quarter ended June 2021 (Q1FY22).

The company missed Street expectations due to lower net interest income (NII). In Q1FY22, NII was up 13.3 per cent YoY, and down 2.3 per cent QoQ. Meanwhile, provisions were elevated at Rs 120 crore.

The gold loan book declined 13 per cent QoQ to Rs 16,500 crore and gold holdings slipped 11 per cent QoQ to 58.1 tonnage. Over the last two quarters, gold holdings have cumulatively declined 15 per cent and gold AUM 18 per cent over this period. In all non-gold segments, the respective loan books were flat sequentially.

The company said lockdowns during the months of May and June and branch closures adversely affected new customer additions (down by 36 per cent sequentially during Q1FY22). This has come back to normal levels since July / August.

"Due to Covid, many branches were either not functional or only partially functional leading to decline in new customer acquisitions. Borrowers also withdrew collateral due to Covid stress. Proportion of high LTV (loan to value) portfolio (over 80 per cent) has come down to 6 per cent. It has reduced due to better risk management prices of gold declined by 17 per cent from peak leading to some borrowers withdrawing collateral," the company said.

Analysts at Motilal Oswal Financial Services, however, say commentary from the gold finance NBFC suggests a strong uptick in demand and new customer acquisitions in Jul’21, which appears to have sustained in Aug-MTD’21 as well. "MGFL’s shorter tenure gold loan product (three months v/s the industry average of 6–12M) has led to higher auctions and withdrawals from customers, resulting in sustained decline in gold AUM/holdings over the last two quarters,” it said in a result update.

Although MGFL has traded off growth, we derive great comfort in its standalone asset quality (which was flat QoQ), especially in the context of its >80 per cent LTV loan portfolio declining to around 6 per cent in 1QFY22. Over the medium term, we expect MGFL to deliver around 15 per cent steady-state gold loan growth. Other segments, especially MFI and Vehicle Finance, would remain moderately vulnerable due to COVID, the brokerage firm added.