Manappuram Finance Q1FY22 Result 6 Point Analysis

Manappuram Finance, a Non-Banking Finance Company announced its Quarterly Result for Q1FY22 on Tuesday 10^th August 2021. Post-announcement of the quarterly result, the market has shown disappointment with the Company’s result for Q1 which led to a falling down of stock by around 12% on Wednesday 11^th August 2021. So How are the result of the company and what are the major reasons behind this fall? Let us discuss this in this article.

Introduction:

Manappuram Finance shares tumbled 12% today after Q1 FY22 Results. There was a noticeable erosion in the company’s Gold Portfolio. The gold loan book declined 13% QoQ to Rs.16,500 Cr and Gold Holdings slipped 11% QoQ to 58.1 tonnages. Here is a 6 point analysis of Manappuram Finance Q1 FY22 Results.

1) Q1FY22 Result:

• The Assets Under Management of the company have sequentially gone down by 9.1% from Rs. 27,200 Cr. in Q4FY21 to Rs. 24,800 Cr. in Q1FY22. Even yearly, the AUM of the company has decreased by 2.3% from Rs. 25,300 Cr. in Q1FY21.
• Income from Operation of the company stands at Rs. 1,565 Cr. in the Q1FY22. Positive for the company here is the low fall on the sequential manner by 3.6% from Rs. 1,622 Cr. in Q4FY21. Income from Operation was Rs. 1,512 Cr. in the same quarter of the previous financial year up by 3.4% YoY.
• Finance Expenses of the company shows the efficiency improvement of the company as this expense has gone down by 13% YoY and 6% QoQ from Rs. 567 Cr. in Q1FY21 and Rs. 524 Cr. in Q4FY21 to Rs. 493 Cr. in Q1FY22.
• The Net Interest Income (NII) of the company is at Rs. 1,072 Cr. as of 30^th June 2021 up by 13.3% YoY from Rs. 945 Cr. as of 30^th June 2020. Sequentially, the NII of the company has decreased by 2.4% from Rs. 1,098 Cr. in Q4FY21.
• The Pre-Provisioning Operating Profit of the Company has increased by 10% YoY from Rs. 634 Cr. in Q1FY21 to Rs. 698 Cr. in Q1FY22. While Quarter on Quarter, this figure has gone down by 3% from Rs. 721 Cr. in Q4FY21.
• The provision for the quarter ended 30^th June 2021 is Rs. 122 Cr. in Q1FY22 which is lesser than 16% from Rs. 145 Cr. in Q1FY21. Whereas, sequentially, this figure has gone up by 15% from Rs. 107 Cr. in Q4FY21.
• The Profit Before Tax (PBT) of the company stands at Rs. 586 Cr. in the first quarter of FY22 against the PBT of Rs. 492 Cr. in the same quarter of the previous year amounting to growth of 19% YoY. The PBT was Rs. 622 Cr. in the last quarter down by 6%.
• The Net Profit of the company has shown growth of 26% YoY from Rs. 332 Cr. in Q1FY21 to Rs. 417 Cr. in Q1FY22. Sequentially, this figure has gone down by 15% from Rs. 490 Cr. in Q4FY21.

Manappuram Finance Limited- Q1FY22 Result

2) Effect of COVID on AUM and AUM Mix

i) Total Consolidated AUM- QoQ Trend:

• The AUM of the company has increased gradually from Rs. 24,100 Cr. in December 2019 to Rs. 27,600 Cr. in December 2020 due to a Rise in Gold Prices led by COVID uncertainties and Growing Gold Loans.
• Again, the total AUM of the company came down to Rs. 27,200 Cr. and Rs. 24,800 Cr. in Q4FY21 and Q1FY22 respectively.
• The decline in New Customer Acquisitions led by lockdown amid COVID 2^nd wave
• Depreciation in Gold Prices post-recovery of COVID 1^st wave
• Withdrawal of Collateral by Borrowers due to COVID stress

Manappuram Finance Limited- Total Consolidated AUM- QoQ Trend

ii) Q1FY22 AUM Mix %:

• The major reason behind the NPAs is that Gold Loan only accounts for 67% or Rs. 16,450 Cr. of the total AUM Mix of the company as of June 2021.
• Next to Gold Loans is Microfinance, which stands at Rs. 6,053 Cr. in Q1FY22 and accounts for 24% of the Total AUM Mix of the company. The Microfinance Loan of the company has grown by 1% YoY as well as QoQ. The Microfinance AUM stood at Rs. 5,038 Cr. and Rs. 5,985 Cr. in Q1FY21 and Rs. Q4FY21 respectively.
• Nextly, the Housing Finance section contributes 3% of the total AUM Mix of the company as of June 2021. The Housing Finance AUM was Rs. 627 Cr. in Q1FY21 and Rs. 666 Cr. in Q4FY21 which now stands at Rs. 668 Cr.
• The Vehicle Finance of the company stood at 4% to the total AUM Mix % of the company as of Q1FY22. Its contribution to the total AUM Mix has gone down by 18% YoY and 1% QoQ to Rs. 1,045 Cr. in the quarter ended 30^th June 2021.
• The Others segment accounts for 2% of the total AUM Mix of the company as of 30^th June 2021 which is down by 33% YoY and up by 2% QoQ to Rs. 451 Cr. in Q1FY22.

Manappuram Finance Limited- Q1FY22 AUM Mix (%)

3) Erosion in Gold Portfolio:

i) Gold AUM:

• The Gold AUM was Rs. 20,200 Cr. in December 2020 which has now come down to Rs. 16,500 Cr. as of June 2021.
• Gold AUM per branch has also gone down from 5.74% to 4.69% in the same period.
• Key Factors Impacting Gold AUM in Q1FY22:

• COVID 2^nd Wave: Decline in New Customer Acquisition.
• Borrowers withdrew Collateral due to COVID stress.
• Risk Management Measures: Auctioning of High Loan to Value (LTV) Portfolio over last 2 quarters : (High LTV Portfolio (LTV >80%) came down to 6% from 53% in Q4 FY21).
• Attrition in High Ticket Gold Loan Portfolio due to churn to Competition.
• Gold Price Decline by almost 17% from Peak leading to Borrowers to withdraw Collateral.

Manappuram Finance Limited- Erosion in Gold Portfolio: Gold AUM

ii) Gold Holdings and Customer Base:

• The Average Loan Ticket Size of the company has also gone down to Rs. 42,700 Rs. In June 2021 from Rs. 46,500 in September 2020.
• The Customer Base which was increasing consistently and was constant for some period has now decreased to 24 Lakhs in June 2021 against a customer base of 26 Lakh between Q2FY21, Q3FY21, and Q4FY21.
• Total Gold Holdings in terms of volumes is at 58.1 tonnages in June 2021 against the highest Gold Holdings of 69 tonnages in June 2020 which has depressed sequentially.

Manappuram Finance Limited- Erosion in Gold Portfolio: Gold Holdings and Customer Base

4) Key Ratios:

• Due to high-interest rates, the company has been able to post some phenomenal ratios. Just like Net Yield of 26% in June 2021 against general Net Yield of around 25% in the past quarters.
• Cost of Funds for the company is also coming down from past few quarters. It was 9.8% in June 2020 which has decreased gradually and currently the same stands at 9% in June 2021.
• The company has posted a Capital Adequacy Ratio of 34% in the June Quarter of FY22 against 29% in the previous quarter and 23% in the same quarter of the previous financial year.
• The Return on Equity (ROE) and Return on Asset (ROA) of the company as of June 2021 stands at 24% and 7.2% respectively.

Manappuram Finance Limited- Key Ratios

5) Asset Quality:

• The Gross NPA of the company is 2% while the Net NPAs of the company is around 1.60% as of June 2021.
• The company is quite confident about the recovery of these NPAs and hence has done less provisioning.

Manappuram Finance Limited- Asset Quality

6) Valuations:

• As of August 11, 2021, the company is trading at a PE ratio of 9.39.
• The Median PE of the company for the last 1 year, 3 years, 5 years, and 10 years are 8.58, 9.32, 10.51, and 11.24 respectively.
• As per the median valuations, the company seems to be trading at a reasonable valuation.
• The peer- Muthoot Finance of the company is trading at a 15.06 PE ratio, premium valuation of 60% over the PE ratio of Manappuram Finance.

Manappuram Finance Limited- Valuations