Manappuram Finance Limited

Rated amount enhanced for Bank Debt

 

Rating Action

Total Bank Loan Facilities Rated	Rs.12000 Crore (Enhanced from Rs.9500 Crore)
Long Term Rating	CRISIL AA/Stable (Reaffirmed)
Short Term Rating	CRISIL A1+ (Reaffirmed)

 

Rs.2100 Crore (Reduced from Rs.2500 Crore) Non Convertible Debentures	CRISIL AA/Stable (Reaffirmed)
Rs.997.8 Crore Non Convertible Debentures	CRISIL AA/Stable (Reaffirmed)
Rs.190 Crore Non Convertible Debentures	CRISIL AA/Stable (Reaffirmed)
Rs.116.73 Crore (Reduced from Rs.150 Crore) Non Convertible Debentures	CRISIL AA/Stable (Reaffirmed)
Rs.60.24 Crore (Reduced from Rs.85 Crore) Non Convertible Debentures	CRISIL AA/Stable (Reaffirmed)
Rs.600 Crore Non Convertible Debentures	CRISIL AA/Stable (Reaffirmed)
Rs.4000 Crore Commercial Paper	CRISIL A1+ (Reaffirmed)

Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.

1 crore = 10 million   

Refer to annexure for Details of Instruments & Bank Facilities

 

Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL AA/Stable/CRISIL A1+' ratings on the bank facilities and debt instruments of Manappuram Finance Limited (MAFIL; part of the Manappuram group)

 

CRISIL Ratings has also withdrawn its rating on non-convertible debentures amounting to Rs 458.03 crore as CRISIL Ratings has received independent confirmation that these instruments have been redeemed (See 'Annexure - Details of Rating Withdrawn'). The withdrawal is in line with CRISIL Ratings' withdrawal policy. 

 

The ratings continue to factor in MAFIL’s established market position in the gold finance business while maintaining strong financial risk profile. These strengths are partially offset by high, though improving, operating costs, geographical concentration in operations and the associated risks, and potential challenges associated with the non-gold product segments.

 

The consolidated assets under management as on September 30, 2024, stood at Rs 45,716 crore registering YTD growth of 8.6% as against Rs 42,069 crore as on March 31, 2024, compared to Rs 35427 crore as on March 31,2023, i.e, a year on year (y-o-y) growth of 18.7%. The gold loan AUM stood at Rs 24,365 crore as on September 30, 2024, registering y-o-y growth of 17.1%. From a growth perspective, the micro finance, housing and vehicle finance reported year y-o-y growth of 11%, 30%, and 54% during the first half of fiscal 2025.

 

As on September 30, 2024, at a standalone level the NPA position increased to 2.4% from 1.9% as on March 31, 2024. The ultimate credit costs during the first half of fiscal 2025 increased to 0.6% (annualized) from 0.3% during fiscal 2024. However, it still continues to remain better than Industry mostly supported by the highly liquid nature of the collateral.  With the company focusing on streamlining the loan-to-value monitoring, renewal of loans after due dates and monitoring end use of gold loans being done by the company following the RBI circular on September 30, 2024, the asset quality at a standalone level is expected to improve in the medium term.

 

CRISIL Ratings believes that the consolidated credit profile has the ability to absorb asset quality and earnings risks in the microfinance, vehicle or housing finance businesses in the near term.

With regard to the directive issued by the Reserve Bank of India (RBI) on Asirvad Microfinance Limited (Asirvad), CRISIL Ratings understands that the company is in continuous engagement with the RBI and the business restrictions imposed will be reviewed upon receipt of confirmation from Asirvad regarding suitable remedial action being taken to adhere to the regulatory guidelines at all times, more particularly the pricing policy, risk management processes, customer service and grievance redressal aspects, to the satisfaction of the RBI. Accordingly, CRISIL Ratings will continue to closely monitor the developments pertaining to these restrictions and the time taken for revocation of the same.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of MAFIL and its subsidiaries, Asirvad Microfinance Ltd (Asirvad), Manappuram Home Finance Ltd (MAHOFIN) and Manappuram Insurance Brokers Pvt Ltd. This is because all the companies, collectively referred to as the Manappuram group, have significant financial, managerial, and operational linkages.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Established market position in the gold finance business: The family of the promoter, Mr. V P Nandakumar, has been in the gold-loan business for more than 60 years. Based on this industry experience, the company has designed an appropriate assessment and underwriting methodology. Assessing the purity of gold, fixing the sum that can be lent against a gram of gold, and determining appropriate LTV ratios are critical aspects in the assessment process. The company has a strong brand and reputation in south India (particularly Kerala and Tamil Nadu). Reputation and trust play a significant role in this segment as these give the customer an assurance of getting back personal gold ornaments once the loan is repaid. After shifting towards shorter tenure gold loans of three months in 2015 to de-risk the portfolio from sharp fluctuations in gold prices, the company has witnessed stability in business with an increase in customer base and gold holdings. Despite moderate volume growth and increased competition, the company’s gold loan AUM grew by 17.1% (Y-o-Y) as of September 2024 and stood at Rs 24,365 crore. Historically, the company’s operating efficiency – indicated by average gold loan AUM per branch – has been improving over the past few years. As on September 30, 2024, the average AUM per branch stood at Rs 6.03 crore, almost double that for fiscal 2016. MAFIL’s extensive branch network and client base, which is relatively more diverse in terms of geographies and is gradually improving further, should support the further strengthening of its competitive position over the medium term. While the company had started to diversify into non-gold segments, its primary focus would remain on gold loans over the medium term in light of the challenges being faced by other asset classes after the pandemic,

 

• Sound capitalization: The company has maintained a strong capital position while ramping up operations over the years. The consolidated networth and on-book gearing were Rs 12529 crore and 2.9 times, respectively, as on September 30, 2024. Large accretion to networth in the past several years has resulted in a healthy capital adequacy ratio of 29.2% as on September 30, 2024. Lower asset-side risk (security of gold, which is liquid and is in the lender's possession) also supports capitalisation. AUM in the gold loan segment is expected to grow at a steady rate and will remain the major asset class over the medium term even while other segments (microfinance, housing finance and vehicle finance) continue to grow. Over the past six fiscals, gearing (consolidated and standalone) remained below 4 times whereas standalone tier I capital adequacy ratio remained above 20%. CRISIL Ratings believes that strong internal cash generation from the gold finance business will strengthen MAFIL’s standalone capital position and allow the company to prudently capitalise its subsidiaries and provide timely need-based financial support.

 

• Profitability continues to remain strong: Profitability has remained strong with a consolidated RoMA being over 4.0% over the past 6 fiscals, driven by the large profit generated by the gold loan segment. The consolidated net profit for the company stood at Rs 2,198 crore during fiscal 2024 as against Rs 1,500 crore in fiscal 2023. However, during first six months of fiscal 2024, the company reported RoMA at 4.4% (annualized) owing to high operating cost. The microfinance segment reported a profit of Rs 458.3 crore during fiscal 2024 against Rs 218 crore in fiscal 2023. During first half of fiscal 2025, the microfinance segment reported a profit of Rs 175 Crore as against Rs 229.5 crores during the same period during the previous fiscal. Asirvad’ s profitability has been affected by the decline in collections from certain geographies, resulting in its higher credit costs. The management has indicated that they have increased their collection efforts and are in the process of implementing advanced tracking systems to improve the recovery rates. As on September 30, 2024, the collection efficiency stood at 89.5%. CRISIL Ratings, therefore, will continue to closely monitor the developments pertaining to these restrictions on the microfinance business, its ability to control the credit costs and improve its collections, thereby keeping its earnings profile healthy will remain key monitorable. 

 

The home finance segment reported net profit of Rs 19.9 crore during fiscal 2024 as compared to Rs 19.5 crore in fiscal 2023. The ability of the company to maintain its yields and limit operating costs will be critical for stability in profitability. Besides, given its diversification into other segments, asset quality and profitability of the non-gold businesses will also remain monitorable.

 

• Stable funding profile: During the six months of fiscal 2025, the company’s consolidated incremental borrowings (including external commercial borrowings - ECBs) from banks (public and private) and financial institutions stood at around Rs 4823 crores. Because of its legacy and highly secured asset class, MAFIL is able to roll over existing bank lines/ CP and continue to raise fresh funds from diversified sources. During the fiscal 2024 the company raised fresh borrowings around Rs 27887 crores through CC/WCDL, term loans and ECBs. The incremental cost of borrowing was around 8.4% during six months of fiscal 2025 as compared to 8.6% in fiscal 2024. In terms of standalone funding, while a larger proportion of the borrowings comprised funding lines from banks and financial institutions (66%), the company’s resource profile was diversified across avenues such as non-convertible debentures (NCDs) and subordinated debt (14%), ECB(17%) and CP (2%) as on September 30, 2024.

 

Weaknesses:

• Geographical concentration in operations and the associated risks: Operations have significant regional concentration compared to large asset-financing non-banking finance companies (NBFCs); South India accounted for 63% of total AUM as on September 30, 2024. Moreover, there is susceptibility to regulatory risks related to revenue concentration in a single asset class (gold-loan financing), which accounts for 75% of revenue. The non-gold loan segments like vehicle finance, affordable housing finance and microfinance segments, these accounted for 47% of the total portfolio and around 25% of revenue as on September 30, 2024. In view of the large gold loan book (51% of the total portfolio) and the presence of the gold loan business mainly in South India, revenue is likely to remain concentrated geographically and in terms of asset class over the medium term.

 

• Potential challenges associated with non-gold loan segments: The non-gold segments accounted for 47% of the overall portfolio as on September 30, 2024, which was 29% as on March 31, 2022. While the company has managed to grow these businesses and increase the segmental share over the past two years, potential challenges linked to seasoning of the loan book and asset quality remain. Within the housing finance segment, MAHOFIN operates in the affordable housing finance segment, catering to self-employed customers engaged in small business activities and thus, have a relatively weak credit risk profile because of the volatile nature of their income and employment in un-organised segments. Similarly, microfinance loans (under Asirvad Microfinance), through which the company intends to cater to weaker sections of society, are unsecured in nature and are rendered to borrowers with a weak credit risk profile. This segment also exhibits high subjectivity to local socio-political issues. The vehicle finance business (under MAFIL) deals with lending against commercial vehicles and equipment – majority of which are used/pre-owned vehicles. With respect to impact of covid-19, the non-gold businesses faced asset quality challenges in its aftermath leading to a spurt in reported NPAs requiring additional provisioning. While the asset quality situation has started to restore, owing to the inherent weaknesses of the non-gold segments in which MAFIL operates - the standalone earnings profile of non-gold businesses is expected to remain susceptible. From a longer-term perspective, as the growth within these segments has remained limited as yet, the asset quality and profitability in these businesses will be a key monitorable.

Liquidity: Strong

The company’s liquidity remains strong, with a liquid balance of Rs 5664 crore as on November 30, 2024 (including cash and liquid investments of Rs 3254 crore and unutilized CC/WCDL limit of Rs 2410 crore). Liquidity cover for debt obligations arising over December 2024 till February 2024, without factoring in any roll over or incremental collections and continues to remain adequate at over 1.9 times. The company has also been able to roll over existing capital lines and also raise incremental funds at competitive rates over the last few quarters.

Outlook: Stable

CRISIL Ratings believes MAFIL's capitalisation and asset quality will remain strongly supported by its gold loan business. The strong earnings will also provide support as the company diversifies into other asset classes and scales up its non-gold business.

ble

Rating sensitivity factors

Upward factors:

• Continued strong market position in the gold finance business with increasing diversity in AUM into non- gold business without affecting its asset quality
• Sustenance of profitability with RoMA above 5% on a steady state basis, while improving asset quality

 
Downward factors:

• Increase in consolidated gearing to over 5 times
• Steep decline in interest collection in the gold loan business or deterioration in asset quality or profitability in the non-gold loan segments

About the Company

Incorporated in July 1992 and promoted by Mr. V P Nandakumar, MAFIL is the flagship company of the Manappuram group. It is a non-deposit-taking NBFC that provides finance against personal gold ornaments. It had ~5,355 branches across India as on September 30, 2024. The company went public in August 1995, with shares listed on the stock exchanges of Chennai, Kochi and Mumbai (Bombay Stock Exchange and National Stock Exchange). Over the past three years, the Manappuram group has diversified into other businesses such as microfinance, vehicle finance, loans against property and affordable housing finance. It also entered the insurance broking business.

The overall AUM of Rs 45716 crore as on September 30, 2024, includes gold loan (51%), microfinance (27%), commercial vehicle finance (11%), housing (4%) and lending to other NBFCs (2%). The gold loan portfolio is diversified across 28 states and Union Territories, while the microfinance, commercial vehicle and housing finance portfolios are diversified across 24, 22 and 9 states, respectively.

Key Financial Indicators

As on/ for the period ended	Unit	Sep-24	Mar-24	Mar-23	March-22
Total managed assets#	Rs crore	45,716	42,069	40,681	35,057
Total income	Rs crore	5149	8921	6,749	6,126
Profit after tax	Rs crore	1129	2197	1,500	1,329
Gross NPA@	%	2.4	1.9	1.3	3.0
On-book gearing	Times	3.0	2.9	3.0	2.9
Return on managed assets#	%	4.5*	4.9	4.0	4.0

#including off balance sheet assets,

@standalone

*annualised

Any other information: Not Applicable