| Manappuram Finance Limited | ||||||
| 'CRISIL AA-/Stable' assigned to NCD | ||||||
| Rating Action | ||||||
| ||||||
| ||||||
| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities $earlier Short Term Debt |
| Detailed Rationale |
|
CRISIL has assigned its 'CRISIL AA-/Stable' to non-convertible dentures of Rs.199.5 crore of Manappuram Finance Limited (MAFIL). The ratings on other debt instruments and bank loan facilities has been reaffirmed at 'CRISIL AA-/Stable/CRISIL A1+'. |
| Analytical Approach |
|
For arriving at the ratings, CRISIL has combined the business and financial risk profiles of MAFIL and its subsidiaries, Asirvad Microfinance Ltd (Asirvad), Manappuram Home Finance Ltd, 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 |
| Key Rating Drivers & Detailed Description |
|
Strengths * Strong track record of the promoters in financing against gold jewellery 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 loan-to-value ratios are critical aspects in the assessment process. The company has a strong brand value and reputation in South India (particularly Kerala and Tamil Nadu). Reputation and trust play a significant role in this financing segment as these give the customer an assurance of getting back their personal gold ornaments once the loan is repaid. * Adequate capitalisation The consolidated networth was Rs 3836 crore and the gearing 3.3 times, as on March 31, 2018. Large accretion to networth and moderation in gold loan growth in the past two fiscals resulted in a healthy standalone capital adequacy ratio of around 27% as on March 31, 2018. Lower asset-side risk (security of gold, which is liquid and is in the lender's possession) also supports capitalisation. Assets under management (AUM) in the gold loan segment are expected to grow moderately over the medium term. Also, other segments (affordable housing finance, loans against property, and commercial vehicle finance) have a relatively small scale. Therefore, despite continuation of rapid growth in the microfinance segment, the consolidated gearing is not expected to exceed 5 times over the medium term, though this will remain a key rating monitorable. * Stable funding profile Around 47% of the consolidated borrowing is from around 19 banks (public and private) and financial institutions, with which the company has an established relationship. This source is stable and cost competitive. The proportion of funds raised against commercial paper (CP) has increased significantly to around 27% of consolidated borrowing as on March 31, 2018. However, the company intends to reduce the CP exposure and maintain this at around 28% on a steady-state basis at a standalone level. Funds are also raised from long-term capital market instruments in such as non-convertible debentures and subordinated debt. In addition, microfinance and commercial vehicle portfolios are eligible for securitisation, further widening the funding sources. The consolidated cost of borrowing (quarterly average) declined to 8.7% during the fourth quarter (Q4) of fiscal 2018 from 9.4% in Q1 of fiscal 2018, partly due to increased share of short-term debt and partly to the general interest rate scenario. * Strong profitability Profitability at group has remained strong with RoMA of 4.1% during fiscal 2018. While the profitability has shown declining trend during last year, it has primarily been due to losses in microfinance operations and increase in the operating costs within gold loan segment. Nevertheless, during fiscal 2018, the group made provisions to the extent of 100% on the delinquencies in microfinance segment. Therefore, the microfinance business will return to profit making from fiscal 2019. Within the gold loan segment, the profitability has been sustained due to reduction in auction losses consequent to the shift to short-tenure products of three months along with a focus on regular interest collection. The auctions are now conducted periodically, and therefore, interest loss is minimal on the auctioned portfolio. However, with moderation in yields, the profitability in gold loan segment has also undergone correction. The yields have been moderated due to competition and the operating costs have increased due to branch security expenditure. Ability to limit operating cost will be critical for stability in profitability. Also, restricting credit costs in the non-gold finance segments, as they grow, will remain a key rating monitorable. Weaknesses * Geographical concentration in revenue Operations have significant regional concentration compared with large asset-financing non-banking financial companies (NBFCs). South India accounted for about 60% of total AUM as on March 31, 2018, though this has reduced from 82% as on March 31, 2012. Moreover, there is susceptibility to risks related to revenue concentration in a single asset class (gold-loan financing), which accounts for more than 85% of revenue. Though the company has ventured into the vehicle finance, affordable housing finance, and microfinance segments, these account for only 26% of the total portfolio and around 15% of revenue. In view of the very large size of the gold loan book compared with other segments, and the predominant presence of the gold loan business in south Indian states, revenue is likely to continue to be concentrated geographically and in terms of asset class over the medium term. * Challenges associated with non-gold loan segments Growth, asset quality, and profitability in the non-gold loan businesses are yet to stabilise. The collection efficiency in the microfinance and housing finance portfolios was affected during fiscal 2018. Asirvad's profitability will be significantly affected on account of increased credit cost during fiscal 2018. Similarly, the housing finance portfolio is not well seasoned. Delinquencies have inched up in the recent past and are likely to increase as the portfolio seasons further. Additionally, the commercial vehicles portfolio is growing at a fast pace and is not yet well seasoned. Around 7% of the gold loan portfolio and 15% of the company's branches are in Kerala. Hence, impact of the Kerala Money Lenders Act, 1958, for NBFCs (applicability of which depends on the decision of the Supreme Court) could affect lending rates and operational expenditure. This too will remain a key rating monitorable. |
| Outlook: Stable |
|
CRISIL believes MAFIL will continue to benefit over the medium term from its adequate capitalisation and strong earnings profile. The outlook may be revised to 'Positive' in case of significant improvement in competitive positioning and further diversification of the resource profile, while maintaining profitability. The outlook may be revised to 'Negative' in case of a steep decline in interest collection, asset quality, profitability, or capitalisation; or inability to borrow funds adequately from diverse sources to support growth. |
| 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 3330 branches across India as on March 31, 2018. 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 fund-based businesses such as microfinance, vehicle finance, loans against property, and affordable housing finance. It has also entered into the insurance broking business. |
| Key Financial Indicators | ||||||||||||||||||||||||||||
@ standalone |
|
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
| Annexure - Details of Instrument(s) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
# CRISIL is awaiting independent confirmation of redemption before withdrawing rating on the instruments @ Details awaited ^Yet to be issued $ earlier Short Term Debt |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||
| ||||||||||||||||||||||||
| For further information contact: | ||||||
|