manappuram finance y 2012 earnings call 21 may’12 call/131213_20120521.pdf · manappuram finance...

Manappuram Finance Y 2012 Earnings Call 21 May’12

Operator Ladies and gentlemen, good day and welcome to the Q4 FY12 Results Conference Call of Manappuram Finance Limited hosted by ICICI Securities Limited. As a reminder, for the duration of the conference, all participants line are in the listen‐only mode and there will be an opportunity for you to ask questions at the end of today's presentation. Please note that this conference is being recorded. At this time, I would like to hand the conference over to Mr. Abhishek Murarka. Thank you and over to you, sir.

Abhishek Murarka Yeah hi. Good morning everyone, welcome Q4 Earnings Call for Manappuram Finance. We have with us Mr. Unnikrishnan the Managing Director of the company.

I'd now like to hand over the floor to him for some opening remarks after which we can follow up with Q&A. Mr. Unnikrishnan, over to you sir.

I. Unnikrishnan, Managing Director Hi, Abhishek. Thanks for organizing this call. Ladies and gentlemen thank you for joining this call for the quarterly call of Manappuram Finance Limited. I am the new Executive Director and Deputy CEO of the company, the old person.

The result of the company are already with you by now. The company registered a total income of 803.75 crore in Q4 FY12 as against 420.45 crore in Q4 FY11. Net interest income registered a growth of 53% year‐on‐year to 436.17 crore in Q4 FY12 as against 284.17 in Q4

FY11. While the operating profit was up 79% year‐on‐year to 264.75 crore in Q4 FY12 as against 147.61 in Q4 FY11.

Profit after tax registered a growth of 84% year‐on‐year to Rs. 186.95 crore in Q4 FY12 as against 101.80 crore in Q4 FY11. For the full year, 2012 company has registered a total income of 2,665.84 crore in FY12 as against 1,181.53 crore in

FY11.

Net interest income registered a growth of 85% year‐on‐year to Rs. 1,526.45 crore in FY12 as against 856.27 crore in

FY11, while the operating profit was 105% year‐on‐year to 836.9 crore in FY12 as against 407.79 crores in FY'11 profit after tax registered a growth of 109% year‐on‐year to 591.46 crores in FY'12 as against 282.66 crores in FY'11. The company ended the year 31 March, 2012 with a AUM of 11,630.8 crore registering a healthy growth of 54% over

31 March, 2011.

Before I open the floor for questions. I would like to give you my opening remarks on trends that we are seeing for the economy in general and gold loan industry in particular along with the outlook for FY 2013. I would also like to briefly touch up on the regulatory changes and it's impact on our business. The first trend that we

are seeing is that the global economic environment continues to remain uncertain posing several challenges going

ahead. The Eurozone ‐‐ few elections and after some degree of inability due to the inability of ‐‐ to form a new college in government.

On the other hand ‐‐ election have resulted in socialistic government coming to power.

The U.S. is seeing a mild recovery but we must not forget that this is on the backdrop of ‐‐ interest rate environment.

There is high ‐‐ volatility in the currency market and people are at a loss to ‐‐ any single currency for many years ‐‐

U.S. dollar to be the ‐‐ currency of the world but after global financial crisis gold has emerged as a new safe haven protecting investors from deep depreciation of currencies.

Gold is considered as must own in all portfolio and globally there is tremendous demand for gold which has increased post 2008.

Due to it's continuous out performance of all ‐‐ in the last five years gold is considered as the best investment update ‐during this uncertain global environment.

It's our belief that as a global economic environment deteriorate it only means that gold will continue to rise. Leading global brand ‐‐ gold price are all set to touch higher levels in the days ahead.

Going forward this is very positive for gold loan company.

The second trend that's visible in the slow pace economic reform in the Indian economy and also lack of inflow of both FIS and FDI which has put tremendous on the Indian rupee which has already depreciate by 21% over the last 12 months or even more may be more than 21%.

Gold being international commodity the price validity is more in the U.S. dollar and any depreciation of the Indian rupee further bloats the price of gold in Indian rupee.

The depreciation of Rupee versus U.S. dollar means that gold price will rise to the extent in terms of Indian Rupees. As you are aware that in rural India's consumption of gold has remained strong and gold continues to be preferred as a cloud at the bottom of the pyramid.

Investing in gold as in part of the tradition and has been so for many decades.

Gold continues to be an important financing asset for all Indians at the bottom of the pyramid who do not have access to the bank interest and as well as financial market.

Gold loan company satisfies the demands for this section of society who otherwise turn to the money lending sharks who charge unheard of interest rates. While we do have PAN India presence we carter lower section of the society as is represented by the average ticket size of our loans which is hardly Rs. 38,000.

Majority of the loan disbursed ‐‐ are in semi‐urban and rural India.

Due to favorable monsoon, as well as under penetration of goods and services we see a higher rate of growth in rural India compared to urban India.

This augers well for all companies like Manappuram catering to this segment of the market.

Manappuram was as you know established in 1992. This year we completed 20 years of operations, company has still maintained a consistently rapid pace of growth demonstrating its ability to rapidly scale the ability to leverage on the well established brand it has built over the last two decades.

The company has over 2,900 clients across 22 states and four union territory with an AUM of more than 11,500 crores and the live customer base of 1.6 million.

Company has already have spend over 200 crore on it advertising and brand building campaign with some of the most well know personalities they are the company's brand ambassador across various regions in India.

Manappuram is a very well know brand across various parts in India. Our brand stands for trust, reliability and three year old ‐‐ I'm happy to share with you that rupees customers account for 80% of our business in our three year old brands.

It is testament to the fact that brand Manappuram remains very strong.

Gold loan industry has grown at a tremendous pace in the last five years. Strong growth in Assets under Management of gold loan NBFC have caught attention of the Reserve Bank of India thereby bringing a new regulatory changes for the industry it has 60% Cap on the LTV.

KYC norms have also been tightened and the ‐‐ has imposed a Cap of 7.5% of the bank's network, bank's capital fund towards

launch to any one gold loan NBFC.

There has been sweeping changing in the regulatory landscape which we have to some extent alter the business and also brought about greater accountability within the industry.

In the last few months industry has faced all possible headwind and that too in a very short span of time.

We are happy to state that we are compliant with all the new ‐‐ and continue to respect the divisions of the regulatory. ‐‐ not only tighter renewals for all existing companies but also make it difficult for new entrant to easily enter the industry.

In the last year Manappuram witnessed a several changes and transformed in fact emerging stronger from the challenges that we faced.

We have very sound business model which we should not forget.

Gold loan financing is a window to provide financial people at the lower end of the pyramid for their immediate personal and the business needs. We believe our business model is geared to satisfy the business needs of people at the bottom of the pyramid as it's evident from our average ticket price of Rs. 38,582. Thus we play a very important role by helping bridge the gap between urban and rural India.

I'd also like to update you on the Manappuram Agro issue. Manappuram Agro have stopped public ‐‐ and the promoter has already deposited money ‐‐ account to repay all the depositors. The amount they've been able to lease depositor is already in ‐‐ account with Punjab National Bank.

The promoters of the company invested 4.5% stake in the company to completely resolve its obligations. The company has also completed segregation of promoter entity where ‐‐ and listed entity

Moreover the promoters of Manappuram Finance have transferred the brand Manappuram to the company for a ‐‐ Rs. 1 indicate they have a strong commitment to Manappuram Finance Ltd.

Going forward no promoter entity in finance services will use the brand Manappuram. To strength corporate government standards at Manappuram finance the Board of Director have constitute the independent committee under the Chairmanship of Mr. Jagdish Capoor who was the former Deputy Governor of RBI and Chairman of HDFC Bank.

To reveal all relevant aspects of company's operations, ‐‐ control and organization structure including both competition and effectiveness.

The company has also appointed a senior banker Dr. A K Khandelwal, former Chairman and MD of Bank of Baroda as an adviser to advise on regulatory matter, strategic issues and matters relating to corporate governance.

To further strengthen the corporate governance in the company the Board has decided the divide the role of Chief Executive Officer and the Chairman.

Accordingly, Mr. Jagdish Capoor has been appointed as a Non‐Executive Chairman and Mr. Nandakumar will continue as the CEO of the company. And myself will be the ED and the Deputy CEO and the current Joint Managing Director Mr. Ravindra Babu will be Executive Director. We also have appointed external audit from KPMG as our internal auditor. Also the company will be strengthening its management team particularly in areas of compliance, finance and HR. We believe current year will of consolidation of gold loan NBFC after few years of high growth. We believe the company will continue to strive to maintain high quality growth and continue to enhance shareholder value.

The management have taken several measure to ensure company is able to maintain reasonable growth with acceptable margins.

2012‐13 is a year of consolidation for the company before it returns to a healthy growth part in '13, '14. During any period of rapid growth, we tend to loose sight on the cost structure. But during a challenging environment, the relentless focus on identifying areas of cost rationalization to protect the company's bottom‐line. In FY'13, we shall see a much slower growth in brand expansion. In fact we shall try and enhance the productivity across all branches.

This augurs well not only for the current year, but also for future years as we shall be able to optimize our cost structure to so depending operating environment. During the year, that shall bring in tremendous cost efficiencies for the company. As you are aware, RBI have constituted a working group under the leadership of Mr. K.B. Rao to examine current practice of gold loan NBFC. The working committee will also effect influence on gold imports. That is the trends in gold prices are net examine there are gold loan NBFC is having any role in influencing gold prices.

The report by RBI working committee is expected to be released by end of July with regulator views and incremental regulations for gold loan NBFC. I'd like to mention that while India recorded a ‐ 900,000 tonnes of gold in FY'11 '12, approximately its sort of

gold lying with all gold loan companies does not exceed 300 tonnes object to the gold loans, stock at the Manappuram is only 65 tonnes. Even the total stock of gold in India is well over 20,000 tonnes, it is very difficult to believe that gold loan companies are responsible for influence gold imports of their prices.

While gold import in India are a major concern, we believe gold loan industry in India is not even a fraction of the total gold in the country. Gold loan NBFCs are just the facilitator to the very low end customers which we believe don't have the processing power to influence the price of gold. We expect RBI working group committee to endorse the similar view. influence the price of gold we expect‐ working group company to end of the similar view. We are now moving towards the challenging business environment as our business model undergoes transformation. Despite of same, we believe business continues to remain healthy and provides more than acceptable returns in this new environment.

One of the obstacles of the new regulatory environment is that is a reduced rate of growth which Manappuram will not need to raise a kitty as the capital that it has is sufficient to sustain a normalized rate of growth therefore, Manappuram will not be diluting its ‐‐ capital in the foreseeable future.

We at Manappuram are still assessing new environment post the regulatory changes and think it's too early to comment on the changes and provide you with an accurate guidance for FY13

Having said that I'd like to mention that we will continue to maintain healthy and normalized ROA in excess of 3% to 3.5% and very healthy ROE's in excess of 18%‐20%.

We believe these normalized return ratios are very good considering that our business model has emerged even stronger and profile of our business has reduced considerably with lower LTVs and gold as a collateral.

Asset Manappuram, my last observation is, our key lands in the past 24 months where I would like to say that our conception of the situation always moves in extremes.

When the environment is good, we may have over estimated our business potential and when the environment is bad we seem to be underestimating our business potential.

At the Manappuram Finance, we fail to understand that despite our constant efforts for shareholder value, value creation on a continuous basis, capital market does not seem to be reflecting the true value of the company.

I am shocked to see that, our company sales are closing below their book value. Anyway, neither me or Mr. Nandakumar understand how stock market operate. So, we will stick to what we know, that's create continuous value by growing our gold loan business.

Stock prices are a reflection of the investors belief in the business and business model of the company. All I can say is that we as the management are fully committed to enhancing shareholder returns through continuous growth of our business.

At this moment I would like to assure all the stakeholders that Manappuram Finance remains a strong and profitable company and continues to create value for its stakeholder and the company will emerge stronger after consolidation.

Given our confidence in the future for company our Board has declared a final have proposed a final dividend of 100%, taking the total dividend for the year to 150%.

That is Rs. 1.50 per share total. Before I end my opening remarks, I would like to assure all participants and investors that management at Manappuram Finance is ceased off all the concerns and we will take all steps necessary to emerging on stronger as a company that creates consistent value for its shareholder. I'm sure we shall all be much more cheerful one year down the line, as we are back on the growth track in this new environment. Thank you. Now we'll take questions.

Questions And Answers

Operator Thank you sir. We will now begin the question‐and‐answer session. [Operator Instructions]. Our first question is from the line of Suruchi Chaudhary from Edelweiss.

Kunal Shah Yeah. Hello sir, this is Kunal Shah. Sir, firstly in terms of our disbursements, we have seen almost 47% kind of a decline quarter‐on‐quarter, okay. So that would be maybe we have deliberately slowed down over the Manappuram Agro issue. Where do we see it stabilizing over the next two three quarters, so what is the kind of disbursement run rate which we look, and say the AUM

there has been decline of say 5 odd percent. So how long can it continue maybe considering all the regulatory environment and whatever changes in the LTV's have been there.

What is sense over next two quarters in terms of disbursements and loans book?

I. Unnikrishnan, Managing Director Yeah, Kunal you put it rightly. If you look at the disbursement has not come down on account of any lack of availability of opportunity for funding the loan growth or disbursement. In fact, we must have lost some business on account of our funding constraints actually. So in Q3, what happened is that we have to repay lot of commercial pay per outstanding and as such we have to focus more on repayment rather than on disbursement. As such, we have to curtail our disbursements. So the disbursement number which we are seeing for Q3 is not representative of the market opportunity.

Once the market, I mean funding becomes normal, the disbursal will also become normal. I think the disbursement should stabilize at around quarterly basis, at around 10,000 crores for the existing number of branches. But that may take a little bit time.

Kunal Shah Okay. And sir in terms of branches, you gave guidance that you would slow down but what would be the kind of number which we should look at constraint like almost 800 odd branches having being added over last one year, so and 900 odd branches. So what is now the target as to over next one year, two years how many branches are we planning to add?

I. Unnikrishnan, Managing Director As of now, let us just talk about FY'13. In FY'13, as I said our emphasis would be on cost saving and all that. So we may not be able to add a considerable number of new branches, maybe there are some 200 branches which are kept ready actually for openings, that make it opened. But at the same time, there could be some consolidation happening here and there depending upon the performance of a particular branch or so. So net net, we may not see any increase in the number of branches or we may see 100 to 200 branches. We are still studying the situation.

Kunal Shah Okay. And sir in this quarter, maybe in terms of yield there is something wherein there was a surprise, okay so AUM has declined but still the operating income has been on the higher sides. So what has actually led to this increase in yield?

I. Unnikrishnan, Managing Director See it's a very simple thing. In Q3, they are being focusing on the high end of the products only. Since we are to reduce the disbursement, we focus more on the high linked products.

Kunal Shah Okay. So,sir this high yielding would be say high LTV, high yielding loans say relatively shorter tenure or how is it so?

I. Unnikrishnan, Managing Director No, tenure remains the same, one of the things, we were disbursing only high yielding of products, meaning now we withdrew all loan yielding products temporarily.

Kunal Shah Okay. So it would be low LTV low yielding product would have wihtdrawn and then...

I. Unnikrishnan, Managing Director

LTV anyway is the new regime is lower than what is used to give.

Kunal Shah Okay. So now where is it exactly per gram rate?

I. Unnikrishnan, Managing Director Per gram rate is around 1,900 to 1,950.

Kunal Shah Okay, okay, okay. So what all gold value we are considering somewhere at around 3,200?

I. Unnikrishnan, Managing Director That's right. banking charges yeah.

I. Unnikrishnan, Managing Director Jewelery value.

Kunal Shah Jewelery value. Okay, and sir one last question on this OpEx you have been talking about cost rationalization so as far as I understand may be advertisement is one areas okay, but over last three quarter that would be on a an average 15% of the overall expenses so how much of the expenses do you think is variable which is linked to branch expansion and say that employee productivity and how much is the fixed within the overall expense structure?

I. Unnikrishnan, Managing Director See only discussion cost which we can think about in the total operating is ‐‐ advertisement of course. So I think it should come down to something like 35 crores to 40 crores in FY13, from what you have seen in the last year?

Kunal Shah Overall advertisement cost?

I. Unnikrishnan, Managing Director Yeah.

Kunal Shah Okay. How much, 35 crores to 40 crores?

I. Unnikrishnan, Managing Director 40 crores.

Kunal Shah Okay. As compared to 80 crores.

I. Unnikrishnan, Managing Director Compared to 80 crores yeah.

Kunal Shah Okay. So delta of 35 crores, 40 odd crores in this line item?

I. Unnikrishnan, Managing Director That's right yeah.

Kunal Shah Okay and apart from that most of the cost would be broadly variable in nature. So there if

I. Unnikrishnan, Managing Director There could be some savings by rationalizing some of the branches ‐‐ could happen.

Kunal Shah Okay. Sir this 40 crores sir where do we see the OpEx to average assets settling down? Would there be a significant decline or it will continue at somewhere near 6% level?

I. Unnikrishnan, Managing Director We are by the end of the year we are signing for a number of 5%.

Kunal Shah Okay. 5%?

I. Unnikrishnan, Managing Director Yes.

Kunal Shah Okay. Okay sir. I will come back with more questions later.

Operator [Operator Instructions]. Our next question from the line of Mr. Karthik Chellappa from Beuna Vista Fund Management. Please go ahead.

Karthik Chellappa Good morning sir. I have two questions. Firstly what would our LTV on the portfolio be at the end of March

And related to that we have seen our gold stock and our customer numbers shrinking this quarter is that a trend which we should expect to continue at least in the next couple of quarters in order to adjust to the new LTV?

That's my first question and my second question is this quarter we have actually seen a rise in NPL both gross and net can you give

us some color on what is causing that? And whether that is something we should expect going forward as well? Thank you.

I. Unnikrishnan, Managing Director Yeah, see on the LTV side it is around 65% as of now. On the cumulative balance sheet and that's would come down to 60% or so less than that. Yeah. It is on jewelery value it is 55% Karthik.

Karthik Chellappa 65% is it?

I. Unnikrishnan, Managing Director 55% on the jewelery value.

Karthik Chellappa Okay okay. And this will come down to 60% over the next

I. Unnikrishnan, Managing Director This will come down to not 60% this will come to some 50% going forward.

Karthik Chellappa Okay.

I. Unnikrishnan, Managing Director See I said 50 yeah, because 60 is the maximum ‐‐ so our LTV all the loans cannot be blended 60% no, so some of the loans will be at 45, some of the loans will be at 40 so the average should settle down around 50%, 50.

Karthik Chellappa And by when will this happen sir?

I. Unnikrishnan, Managing Director This should happen in another three months time, max July.

Karthik Chellappa Okay. And sir our shrinkage in both the gold stock and customers when do we see that settling down at least? Not in this quarter. It should happen we should see that either the second quarter or in the third quarter not in this quarter.

Karthik Chellappa Okay sir. This quarter our customer base and gold stock will continue to go down as we adjust the LTV?

I. Unnikrishnan, Managing Director There could be some marginal reduction. I'm not saying it will continue to go down continuously what I'm saying we can see a marginal reduction in Q1.

Karthik Chellappa Okay fine sir. And sir on the gross NPA, the net NPA for this quarter?

I. Unnikrishnan, Managing Director It is 0.52% the gross NPA and net NPA is 0.3%

Karthik Chellappa So this was I think 0.37 in last quarter. That has gone up to about 0.52 so any idea what is causing this rise in gross NPA?

I. Unnikrishnan, Managing Director No see that is only technical because the disbursement number have come down. See the percentage is a function of loan outstanding. The vendor disbursement goes down, the percentage tends to rise. The percentage NPA tends to right down.

Karthik Chellappa Let me ask what would be the gross NPA in absolute numbers be this quarter compared to last quarter sir?

I. Unnikrishnan, Managing Director The absolute NPA number in this quarter is around 73 crores.

Karthik Chellappa And last quarter?

I. Unnikrishnan, Managing Director Last quarter it was 57 crores.

Karthik Chellappa At this rise, you feel it's something normal part of the operations, is it?

I. Unnikrishnan, Managing Director This is quite normal.

Karthik Chellappa Okay, okay. Okay sir. Thank you very much.

Operator Our next question from the line of Vinay Shah from Reliance Mutual Fund. Please go ahead.

Vinay Shah Hello, good morning sir.


Hi.

Vinay Shah Sir, there is an increases in the Tier I capital....

I. Unnikrishnan, Managing Director That is because, if you look at the securitized book has gone up to almost 1,900 crores.

Vinay Shah Okay.

I. Unnikrishnan, Managing Director Last quarter it was only 1,100 crores.

Vinay Shah Okay. So on account of that its increased?


Vinay Shah There is also an increase in other investments from 50 crores to 250 crores something?

I. Unnikrishnan, Managing Director Those are our mutual fund I mean liquid funds.

Vinay Shah Okay. Other thing is assignment as of now forms a large chunk of our source of funding, almost around 16% to 17% as in March '12. And going back, the recent RBI guidelines this route seems to be going away, so how do you plan to regroup this route?

I. Unnikrishnan, Managing Director Yeah. See under a new securitization norms, we may not able to securitize or assign our gold loan book.

Vinay Shah Yes.

I. Unnikrishnan, Managing Director Therefore we'll have to substitute this with the bank funding.

Vinay Shah

Okay. But you earlier mentioned that in this quarter, you lost some business opportunity on account of funding constraint. So those funding constraint couldn't met out through your bank lines or banking this thing?

I. Unnikrishnan, Managing Director No, no. See that is the sudden thing, that is not on account of ‐‐ we can't say it is funding constraint, it was because of the market condition, because the market there was lot of liquidity grind and we had to repay the CP.

Vinay Shah Right.

I. Unnikrishnan, Managing Director So part of it be repaid by borrowing from banks and rising other sources. Only 600 crores, we have to reduce our portfolio, no.

Vinay Shah Okay.

I. Unnikrishnan, Managing Director Actual payout was more than 1,000 crores, 1,200 crores.

Vinay Shah Okay, okay. Sir there was the gold coin portfolio if Rs. 160 crores as mentioned in the last conference call. So as per the recent guidelines, this portfolio will go away or what will happen with this portfolio?

I. Unnikrishnan, Managing Director Which one?

Vinay Shah Loan against gold coin.

I. Unnikrishnan, Managing Director Loan against gold coin, no we don't have.

Vinay Shah In the last call it was mentioned.

I. Unnikrishnan, Managing Director No,no no. What I would have told you is that maybe less than 1% of our portfolio could be ‐ gold coins, in the overall total loan book of 11,600 crores.

Vinay Shah Okay. And last question, sir you mentioned that RBI has put a cap on the banking side to restrict the funding at 7.5% to gold loan

NBFCs. So do you see in your vehicle fraternity any issue coming fitness limit?

I. Unnikrishnan, Managing Director See basically we have to understand why this has happened first. See what we understand is that Reserve of India have ‐‐ this is why it has happened. The Reserve Bank is not comfortable any industry growing beyond a particular point. So this particular industry has grown over 100% over the last four years. So what I understand is the Reserve Bank has broadened these controls, so that the industry slows. So that the regulator and all other stakeholders do not take and get time to study what is what.

Once that study is over, I'm sure some of this will go some of this controls may either the LTV Cap may be advised or the funding Cap they have prescribed it may be revisited.

All this things can happen so as of now we are having this situation there is a 7.5% Cap on bank credit to gold loan NBFC on their capital funds. So while that 7.5% as of today is not affecting us because all of our banks less than that particular only one or two banks smaller banks have crossed that limit even they have got an another six months time to bring it down to normal and that amount is not even more than 50 crores but the amount I am talking the overall 9,000 crores bank funding.

So what I see is that some of this may go after period may be we can see regulatory changes going forward once the industry gets back to the normal growth trajectory. And also many of the banks who have not crossed even 2% of their capital funds.

So there is still room for increasing the borrowing limits from bank.

Vinay Shah Okay, sir see as of now assignment route is going forward will not be available CP borrowing has reduced to very minimal level so are we planning to diversify the source mix by way of retail entity or some other options?

I. Unnikrishnan, Managing Director That's a continuous exercise but anyway for the this quarter or next quarter we may not have to actively do that the reason being there are other current challenges also there are challenges on growth also. So it's a function of the growth expectation.

Vinay Shah Okay, because there will be much over reliance on the banking appliance that we are going forward

I. Unnikrishnan, Managing Director We will strive to diversify the funding source to the extent possible

Having said that today what is readily available in the market is bank funding and NCD funding. CP I don't think will get back to normal in the foreseeable future. At least for the first two months or three months I don't expect that.

Given the interest rate prevailing in the country and given the facts that RBI have instructed banks not to they have reduced that gap which can go to the mutual funds.

Vinay Shah Okay. And sir you mentioned that LTV at 65% that is at the time of origination or at current market value?

I. Unnikrishnan, Managing Director No what I said is around the jewelery value, this is around 55% of the loan book currently it's around 55%. Okay.

Vinay Shah

Okay. So at current market value?


Vinay Shah Okay sir. Okay thank you very much.

I. Unnikrishnan, Managing Director Thank you.

Operator [Operator Instructions]. Our next question from the line of Ashish Sharma from Enam Asset Management. Please go ahead.

Ashish Sharma Yeah good morning sir and congratulations on a good set of numbers, excellent opening remarks. Sir just wanted to get a sense on the customer behavior post this stability changes how do you see I mean do you see now customer is bringing any additional gold or they are renewing the loans at lower LTV sir?

I. Unnikrishnan, Managing Director See when based on our past experience normally when the gold price goes down or the lendable amount goes down normally people, 50% of the people used to bring in additional gold.

Ashish Sharma Okay.

I. Unnikrishnan, Managing Director Today our last five years I have got data from 2008 onwards an average customer pledges 41 grams of gold, 40 grams of gold ‐‐ one point time it had gone up to almost 45 grams of gold ‐‐ 40 grams of gold in FY09 it was 40 grams in FY08 it was 41 grams.

So this is the range it can while at season it can go up to 50 gram not more than that.

Ashish Sharma Okay. At this moment you are not seeing any trend bringing in additional gold.

I. Unnikrishnan, Managing Director No, I haven't seen that because there are constrains on loan growth ‐‐ LTV constraints.

Ashish Sharma But the some customers I don't we will have data or not but the same customer will be holding at least 100 grams of gold with him and of which only 40% or 50% is partly pledged with the gold loan NBFCs that is something


I've not seeing that happening as of now.

Ashish Sharma Okay. And in terms of disbursement run rate you mentioned to the previous participant that you might not see 10,000 run rate in the first half but do you expect the run rate to improve from Q4 levels or in the first half?

I. Unnikrishnan, Managing Director First half yeah, there will be improvement over the Q4 of last year, in this quarter in the first quarter.

Ashish Sharma I mean there would be some improvement and eventually it will come to the normalized levels of 10,000 in second half. And in terms of borrowing, cost on borrowings, 13.73 for Q4 was sort of a quite a higher number considering the other place mentioned that there cost of borrowing was around 13%. Do you expect that to trend downwards now or where do you see the cost of borrowing for Manappuram sir?

I. Unnikrishnan, Managing Director Yeah, Ashish that's a good question actually. See why this is 13.73 is that affected we have increased our bank limits in Q4.

Ashish Sharma Okay.

I. Unnikrishnan, Managing Director That may increase normally, whenever bank sanction new limits there maybe processing fee. So, processing fee, what we do normally is we don't amortize it over a period of one year or the term of ‐. Whatever processing fee we pay, we expense in the year of borrowing itself. So the processing fee is what has increased that particular percentage. I think the normal percentage at which we borrowed is around 13%, not 13.7, 13.73 is including processing fee, which is not annualized.

Ashish Sharma Okay. So, the normalized is 13%

I. Unnikrishnan, Managing Director 13%.

Ashish Sharma And that you expect to trend down, I mean how has been..?

I. Unnikrishnan, Managing Director it remain the same. At least for this quarter, it will remain the same.

Ashish Sharma It will remain the same.


Yeah.

Ashish Sharma Okay. And I think you mentioned that at this moment it is tough to even give an outlook for '13 on growth front, but what do you see, the best case scenario assuming no further regulation and even there could be some relook post the report by the committee. Do you expect that in a best case scenario, we can grow at 15%, 20% if growth resemblance in the second half sir?

I. Unnikrishnan, Managing Director See this is a very simple Ashish. The reason is we do not have any debt of demand for this product.

Ashish Sharma Yes, sir.

I. Unnikrishnan, Managing Director Te growth is getting affected on account of regulatory changes.

Ashish Sharma Yes, sir.

I. Unnikrishnan, Managing Director As this change because the industry have grown too fast and also import of gold into the country has gone up. The country is having foreign exchange challenges et cetera. So the government or the Reserve Bank is examining area by area where this happening, why gold import is not coming down, why this is so much, whether NBFCs is contributing to the gold importing. We all are aware as I said, this 40 gram of gold is something which not changed at the cost of our last eight 10 years that I have bought with me. It has been 40 grams, if we are contributing to the import of gold, our customer would have, I'm sure would have ‐‐ gold would have gone up. The same customer is borrowing more and, the more customer exposure in terms of gram would have gone up.

So, in our case, that has been constant.

In fact that has slightly come down over the last one year. From FY'11, FY'11 it was around 45 grams almost 44.6 that has come down to 39.93 now. What I'm saying is from a regulatory studying, one the study is over, what we believe is that at least on gold import, our on regulatory structure we mentioned, I don't think it can get the coverage that we have contributed that. So one that particular concerning address, I think there is a lot of relief for gold loan companies, number one.

Number two on bank funding, the constraints of bank funding again has happened on account of regulatory changes. It does not happen on account of any concerned expressway banks or any concerns expressed by rating agencies. Again that is rapid on account of regulatory changes. So that change also has happened on account of the growth which we have seen all the last four, five years. So what I see is that once the regulator completes study and come out with surprising, I am sure that the industry will be able to grow at a rate of some 20% on a analysis basis. Having said that, the current year, all I can give you is a broad idea about we maybe able to generate some 80%, 20% ROE we maybe able to generate some ROE kind of number.

Ashish Sharma Sure sir. And just one last question you mentioned about the assignment book is around 16% of the total AUM. Do you now expect this to run down in the next how may quarters it we expect it to run down sir?

I. Unnikrishnan, Managing Director By September it should come down to some 200 crores or 300 crores.

Ashish Sharma 200, 300. And going forward, I don't think sir we'll be doing any further securitization under the current...

I. Unnikrishnan, Managing Director Not possible

Ashish Sharma Not possible. Fine sir. Thank you and all the best for the next quarter.


Operator Our next question from the line of Aditya Singhania, Enam Holdings. Please go ahead.

Aditya Singhania Thank you, sir. I just wanted to check what is the yield on the loan book this quarter sir?

I. Unnikrishnan, Managing Director It's more than 26%.

Aditya Singhania It was flat quarter‐over‐quarter 26 and half or so?

I. Unnikrishnan, Managing Director The yield was 27.96.

Aditya Singhania Sir, how does the yield go up about 150 basis points quarter‐over‐quarter?

I. Unnikrishnan, Managing Director That is because as I said see we received we withdrew all the law yielding products, we had products at 15%, 12%, 18%, 21% so in Feb and March mostly we were focusing on 24% product and 26% product.

Aditya Singhania Okay. Okay and so if I could ask what was the average growth in the AUM this quarter because you had a sort of abnormal quarter in that there was growth for the first two months but then there was a decline. So what was the average AUM and what was the same amount last quarter? The average AUM?

I. Unnikrishnan, Managing Director You are talking about Q4 versus Q1 of last year or?

Aditya Singhania Q4 versus Q3. Average assets under management?

I. Unnikrishnan, Managing Director Okay. In Q3 we were at 12,358 crores.

Aditya Singhania I know that sir. I was looking for more like a daily average or something that you might have?

I. Unnikrishnan, Managing Director It had gone up to in Jan it had gone up by 200 crores.

Aditya Singhania Okay.

I. Unnikrishnan, Managing Director Then it came down to what we are seeing 11,630 crores as of March.

Aditya Singhania Okay okay. So given the starting point of yield could you give us some kind of outlook on the yield decline that we may see also some given that you have guided ROA at about 3.5% or so?

I. Unnikrishnan, Managing Director Yield it should be somewhere in between 23, 25.

Aditya Singhania So we should tend to this 23 to 25 over the next two quarters by September quarter?

I. Unnikrishnan, Managing Director Over than next 12 months.

Aditya Singhania Okay. And just one more question if I may. Salary expenses I just wanted to check was there any one‐off in the decline by about 8 crores or 9 crores quarter‐over‐quarter?

I. Unnikrishnan, Managing Director No not exactly. This is because we had normally we used to open something 200 branches in a quarter.


I. Unnikrishnan, Managing Director So we always provide for our expenditure as and when the new branches get opened and we have kept ready as I said in the beginning of the speech itself. We have kept ready some 200 banks for operating so in Q3 in the last Q3 of FY12 we have provided for full expenditure. So that we have to reverse because we have not opened those branches.

Aditya Singhania But you still opened 170 branches.

I. Unnikrishnan, Managing Director What I'm saying the number of depending into is inventory was even more.

Aditya Singhania Okay, so is this 79 crores odd or 80 crores odd is a normalized level for employee expenses or how should we try to look at this figure for the next four quarters?

I. Unnikrishnan, Managing Director 79 crores, 80 crores may be 3 crores 4 crores additional we will have to estimate because there could be some fresh and goodwill also and kind of those things I think 80 crores, 85 crores.

Aditya Singhania But sir no wage inflation at all? I mean it's quite inflation environment so.

I. Unnikrishnan, Managing Director Okay. In inflation I think it should be around 7% to 10% we'll have to estimate over the full year.

Aditya Singhania Okay. And in the other operating expenditure any cost rationalization possible at all aside from the advertising expenditure you mentioned?

I. Unnikrishnan, Managing Director That can happen by rationalizing some of the branches maybe 100 branches or 200 branches which we may consolidate.


I. Unnikrishnan, Managing Director Okay. Yeah. Then that will happen.

Aditya Singhania So the 5% cost you mentioned as percentage of average assets is something we should look for by the end of the year for the fourth quarter?

I. Unnikrishnan, Managing Director Yeah. So 5.5% average.

Aditya Singhania Okay. Thank you so much.

Operator Our next question from the line of Rahul Bhangadia from Lucky Securities. Please go ahead.

Rahul Bhangadia Sir all my questions have been answered, but just one small thing has there been at all any effect on the credit rating side because of all the things have happened over the last two, three years? And if not yet do you expect something to happen on that side?

I. Unnikrishnan, Managing Director Yeah we are working towards that. We are in continuous discussions with the rating agencies. See when they put us on rating watch it was on account of an issue specific to the promoters and the company. Right. Now the industry is also going through difficult. I don't want to say difficult phase a different phase.

Rahul Bhangadia Okay.

I. Unnikrishnan, Managing Director Meaning after that the regulator has brought in LTV controls, it has brought in extortion norms on banks for lending to whole on NBFCs as they have done a lot of things. So the regulatory environment has changed. So I think once the regulatory environment is clear I think that may be the time I think the more clarity on the ratings right side. May be before that our rating watch will be lifted that's a different thing. What I am saying is for any further regulatory I mean rating action I think that will happen once the committee come in for support that's my feeling.

Rahul Bhangadia Okay, okay. Thank you.

Operator Next question from the line of Jyoti Kumar Spark Capital. Please go ahead.

Jyoti Kumar Sir, most of my questions have been answered. Could you just give me what is the proportion of what is the quantum of gold auctioned during the quarter?

I. Unnikrishnan, Managing Director Just a moment. No what I have nearly debt

Jyoti Kumar

No problem sir. Go ahead sir even nearly would do

I. Unnikrishnan, Managing Director Around 2.36 tonnes

Jyoti Kumar 2.36 tonnes

I. Unnikrishnan, Managing Director Half year it was 1.13.

Jyoti Kumar Okay.

I. Unnikrishnan, Managing Director You can work out I think you have ‐‐ number with you

Analyst Yeah I think I should be able to

I. Unnikrishnan, Managing Director Yeah

Jyoti Kumar Sir just to add in one of the con calls I remember you mentioned that your LTV's will more or less converge on the

I. Unnikrishnan, Managing Director Sorry Jyoti I have the data it is around 956 kilograms

Jyoti Kumar 956 kilograms it was in the last quarter.

I. Unnikrishnan, Managing Director Yeah you asked me another question.

Jyoti Kumar Yes sir. I just wanted to check you said in one of the con calls that going forward all your products will converge to a single LTV a product. Basically you, is that what you are hinting at even now when you are saying your loan yields will be 23% 25% in the sense that most of your lending should happen


Yes I understand. You see that was yes I remember that. I think going forward instead of the single LTV I mean given our experience for last three months I think this will be, there will some three to five products.

So, five product range will be I think that is what is worth

Jyoti Kumar Okay. So, okay sir. Okay, that's it from my side. Thanks a lot.

Operator Thank you. The next question is from the lien of Pankaj Agarwal from Ambit Capital. Please go ahead.

Pankaj Agarwal Hello sir.

I. Unnikrishnan, Managing Director Hi Pankaj.

Pankaj Agarwal Sir on this LTV I mean I mean have you got any clarity from the regulator whether it could be calculated on the jewelery value? I mean, is there any indication from the regulator?

I. Unnikrishnan, Managing Director No. We have discussed this with the regulator.

Pankaj Agarwal Okay.

I. Unnikrishnan, Managing Director There have been discussions. And what we understand is they are also looking at our practice.


I. Unnikrishnan, Managing Director And, what we are doing is, we are going with the valuations of jeweler. How the jeweler values, we also value the same way.



Pankaj Agarwal So, it's you have a standard, I mean mark upon the gold value or it's.‐‐.?

I. Unnikrishnan, Managing Director No. It's a jewelery value. Because, see, if you look at what we are lending is jewelery for jewelery there is a particular rate.

So that is what we're following so it is a jewelers value rather than gold value.

Pankaj Agarwal Yeah. I understand that. But simply because I mean like gold is standard but jewelery is might be of different make and different design.

So, that's what I was asking, is it a standard mark up over the gold price or?

I. Unnikrishnan, Managing Director Anyway standard mark up no, this is normally what we do is the association is doing this, association is collecting course from various jewelers on a weekly basis.


I. Unnikrishnan, Managing Director And they update the number. And the how they do that is based on the course which we collect from the jewelers.

Pankaj Agarwal Okay. And sir about do you see any further regulatory risk I mean there is lot of you can rumors or I mean that the cash transactions could be kept, so any views on that or if that happens do you have any plan B?

I. Unnikrishnan, Managing Director I'm not aware of as I said there is a committee which is already constituted they are examining all the assets of the industry gold loan industry and gold in general also not only the gold loan space they are looking at the entire space of gold, okay. So they will be coming out with their report. Once that report is out we'll have more clarity on that.

As of now I am not providing you any information on cash transaction of anything. But if you look at what we need to understand is that we have 16.05 crore customers with us, out of that 7,311 around 13 lakh customers, 14 lakh customers have borrowed less than Rs. 1 lakh. If you are saying that they need to maintain a bank account for availing a loan of Rs. 50,000 which they need for making their immediate hospital requirements at one thing it makes any sense for banking is availability of liquidity.

What we are doing is we are making liquidity available to the people in out of need so I think that is the customer business. And we are not a bank so that means if we have to depend on another vehicle for providing that liquidity. That will only increase the time taken for getting that liquidity which is something that the customer needs in a matter of one hour or so this is something if you check with any parent who is sending their children to the school in the month of May, where they will have to remit the fee or somebody whose relative is in the hospital. These are kind of situations where we are saying that you have to open a bank account on come on the other day this thing, that thing then who will meet their demand.

Pankaj Agarwal Okay. And sir finally on liability side. Let's say hypothetically let's say you have the opportunity to grow your loan book by let's say 30%. Do you think you will be able to increase your liability ways by the same amount given the current situation?

I. Unnikrishnan, Managing Director Situation will change certainly Pankaj, because of this industry has been there for hundreds of years, the only difference which we have brought in we put in the corporatized format that is only difference which we did and the people need this industry, the customers if you look at the 16.5 lakh customer it is not a small number for a company having a loan book of 11,500 crore. And as I said 14.5 around 14 lakh customers of these 16.5 more or less than Rs. 1 lakh. They are the people who need this.

Pankaj Agarwal Okay. No, but on the liability side, if there are opportunities on the asset side liabilities won't be constraint I mean it would be fair to say that?

I. Unnikrishnan, Managing Director Yeah. That will go away, that's what I'm saying. See so long as the business model is good, these challenges will go away at one point of time.

Pankaj Agarwal Okay. Okay sir, all the best and thank you very much.

Operator Next question from the line of Mitul Patel, Laburnum Capital. Please go ahead.

Mitul Patel Yes hi. My question is that what is the securitization income in FY11 and FY12?

I. Unnikrishnan, Managing Director It's there in the presentation itself. This is the...

Mitul Patel I mean those are the assignments on the balance sheet side right?

I. Unnikrishnan, Managing Director You want to know the net income?

Mitul Patel Yeah.

I. Unnikrishnan, Managing Director See, the way we have presented through the financials in the presentation that is actually nullified the effect of our securitization. You can work it out from there. Because we do not recognize any securitization income as such. We net it off against the concerned income kind of concerned securitization income. So, in the presentation we have grossed it out.

Mitul Patel Okay. And also I wanted to ask you, I just want to understand what understand the documentation advantage versus bank, I mean

after the new norms, are there any new norms given by the RBI regarding more documentation required by NBFCs?

I. Unnikrishnan, Managing Director I think you are referring to the fair practice of scores. See the fair practice of score, I talked about, basically about three four things. One is KYC, option, interest rate, then communication with the customers. Of this, on KYC we have a policy, bond approved policy on KYC which are meticulously ensuring. In fact, we did a thorough verification of our KYC in the month of March itself, we have conducted a thorough verification. Wherever, the deficiencies we are addressing in respect of some old ‐ or so.

But having said that, all new cases, all the new customers which are joining we are completely able to apply the KYC wherever there is a customer who has been there for 10 years, that KYC maybe in a mutilated form. Those things we are actually recollecting now from the customers, where process is almost over now. And also one more improvement which we are doing, all the KYCs now we are making it available on the technology platform itself. So we don't have to look at the physical records.

So on KYC, we are fully compliant and on communication with the customer even really all our customers correspondence used to be in the local language. So currently as per RBI is entrusting on local language for any communication with the customer. So we are compliant, the acceptance of except of one or two documents which we have already modified and that is getting implemented across all of our branches. Then on auction, we are changing our auction policy, so that going forward the auction will be conducted by and approved board approved auctioners. Earlier, we ourselves are conducting the auction and also we used to take part in the auctions. Now we will not be taking part in the auction, only outsiders will be taking part in the auction.

So these are the changes on the auction side.

On the interest rate side, we have put out on our website the interest rate, annualized interest rate and we are giving the due acknowledgment to customers. How we are charging the interest rates and all that. All these which are already in place. So the KYC complaints we are fully submitted and we are in the process of completing that offer.

Mitul Patel My question is that, what are the new, what is different that the bank right now?

I. Unnikrishnan, Managing Director When it comes to lending against gold, we are not a different. The only difference is, our turnover time maybe around 10 minutes.

Mitul Patel But the fee document that banks are asking, Manappuram is asking as well?

I. Unnikrishnan, Managing Director I don't any bank which is doing a field verification for lending against gold. But at least, I am in this industry for 15, more than 15 years. I've not seen any lender, not only banks any lender doing field verification. But we also do field verification for certain types of loans. One other thing is for a typical Rs. 50,000 borrowing, I've not seen any lender doing field verification.

Mitul Patel So what percentage of the loans would have field verification?

I. Unnikrishnan, Managing Director In terms of number of loans or in terms of amount?

Mitul Patel Either way.

I. Unnikrishnan, Managing Director In terms of, it all depends. There are certain cases where we do post disbursement verification.

Mitul Patel Okay.

I. Unnikrishnan, Managing Director So, I think and there are certain cases based on roughly 5%, I'll not say roughly 5% of a loan. The reason is roughly 5% of our loans are alerted, I mean we've got a responderator in selling the company where there roughly 5% of the loans are on a daily basis alerted, alerted to the field unit which they verify and reconfirm. Some of the less, may not be doing actual field verification, they maybe doing a phone verification. Some of the cases, they could be doing rechecking of the quality of the jewelery, some of the cases they maybe visiting the customer in their business premises or in there residence effacement.

Mitul Patel Okay. Just one quick one, also on, I just wanted to ask from the security systems, how is it different than other jewelers in India. How does Manappuram or other gold lenders stand out, or what are the increased security measures that Manappuram has taken?

I. Unnikrishnan, Managing Director The security measures, we have night security in all the branches in the country, night security. And daytime security there are two types of day time security, one is the unarmed security and the other one is an armed security.

Armed security is decided based on the law and order situation perceivable on the situation in the particular place. Unarmed is normal.

Then we have burglar alarms, two sets of alarms actually not one set. Out of that, one set is local. It is not centralized and the other set is actually, there's a centralized monitoring and we have cameras installed in all the branches.

So currently we are in the process of implementing a centralized ‐‐ solution, where by we will be able to see and electronically watch the function of the camera sitting in the head office that process is on it's not completed it is going on.

Mitul Patel So, each branch has gold sitting overnight or is it transferred to a centralize location or how does it work.

I. Unnikrishnan, Managing Director See, gold loan doesn't work like that, I am told that there are some new players who are toying with this idea which as per the new RBI policy is not possible.

We the old gold loan companies never use to have centralize storage platform we store the gold in the branch where it is lent there is no centralized storing or anything we don't do that. Because this is similar to when a customer comes to a branch for getting a loan he needs within 15 minutes, 20 minutes, 30 minutes or may be 1 hour maximum

But similarly when he comes back he needs his gold in two minutes. So if you tell him you go and collect it from a near by branch or near by place he won't agree. So it's very sensitive.

Mitul Patel Okay, my last question is any other regulation where you think RBI can tweak around? What are the risks do you see going forward or these all worst case scenario?


I think see regulations when it comes to regulations it could be anything. I mean rather than commenting on that I should focus more on the business. As I said there are 40 lakh customers borrowing from us for an average of four months period.

Less than 1 lakh rupees

Mitul Patel Okay and my last question is ‐‐ plan to do other than gold lending any other asset classes or any other sort of product

I. Unnikrishnan, Managing Director No we are not considering for the moment.

Mitul Patel Okay. Thank you those are my question.

Operator Our next question from the line of Amitabh Sonthalia from SKS Capital & Research. Please go ahead.

Amitabh Sonthalia Hello?

I. Unnikrishnan, Managing Director Hi Amitabh.

Amitabh Sonthalia Yes hi good morning and great set of numbers. Lot of my questions have been answered just one general observation and some thoughts of the management on that as you have mentioned that the regulators sort of eye on us and generally gold finance companies has been because of the rapid growth in the last two year.

I just put things in perspective, based on your presentation which you, the slides that you've given on the last four years growth, our gross income has grown 16x in the last four years, PAT has grown 21x in the last four years.

So this is phenomenal growth that obviously which is not normal growth that any company sees in these things so something seems to be, obviously this is an eye popping type of growth. Now, my worry or rather the question that comes to my mind is, what kind of risk control measures do you have in place to sort of, obviously you have a your loans, your assets are collateralize, you have so, suddenly a company which was handling a certain volume of gold, say four years back, is handling 20x in terms of value of the collateral.

And we heard of some recent something in the press about some theft some issues at these branches of yours. So I just wanted to get a sense of how some, I guess what I'm trying to get at is sometimes one worry is that what is the kind of risk control measures one has on the collateral on any type of to handle these kind of volumes?

I. Unnikrishnan, Managing Director See basically I think that this is not a centralized service. We have a branch model where all the gold is kept in the branch. And the technology which we are using is a centralized technology. So, we know what is what. Sitting in this office we know how much customer has borrowed against today at 11'o clock and what are items he have placed and what is its gross rate, what is its ‐ what is the weight of the stones on those jewelery and what is the type of jewelery as borrowed against.

All these data we are able to see and similarly there is a strong risk monitoring sell working here. If based on certain parameters they have sensitized the branches they sensitize certain loans for reconfirmation, rechecking all these things are there and when it comes

to burglary as I said we have got a solid fool proof system let me call it a fool proof system where in the past no burglary has happened during night time.

The only instance which we saw last month or so was that was not a burglary that was a fraud and that was caught also in a matter of 24 hours. What I am saying is there is a time tested storage mechanism and also the with 65 tonnes of gold if you're having is not stored in one single place to pose a threat to the balance sheet.

That for the practical reputation, we have got a policy of returning the gold in case there is missing or when there is a theft, we'll substitute that gold we will give them back equal rate of gold or we'll ask them to buy jewelery and come back to us and we'll reimburse that. We're reimbursing means we pay that cheque to the customer and ask them to buy. So there is a policy, we can't if something is lost from our custody we can't replace the same thing. That doesn't happen any part of the world. So what we can do is we will replace it. So we have got a policy of replacement if there is a missing or anything, if some item is lost from our custody there is a clear cut policy on that. That is how we do that.

And we have all our assets are insured. All the gold is insured and as I said this is more of a reputation issue, if one particular customer comes to the branch finds that his gold is missing then say in our system it may take one or two days to replace that gold. That is there, but this doesn't happen to on a regular basis may be there could be a few hundred cases out of 30 lakh transactions in a year that can happen. And for this there is a full proof mechanism to adjust those kind of concerns.

And this is affected this is not a balance sheet risk which we need to manage because this is stored in 2,900 location so its not a balance sheet risk. No.

Amitabh Sonthalia You mentioned that the entire stock of jewelery, gold which is given to as collateral is insured. So, what kind of cost we have to pay for that? And what is your process, because you insure it like every once in a month in terms of fresh stock that you receive? Who monitors that, who are the agencies or the companies who have offered you this insurance if it's given?

I. Unnikrishnan, Managing Director It's nationalized Government of India insurance company. And it is co‐insured actually. And another thing is that, we pay 3 crores to 3.5 crores as annual premium. And on a weekly basis, we increase the limits, increase the ‐‐ hikes which you are holding goes up. Then we pay the difference in premium and we top up the insured amount.

Amitabh Sonthalia Okay. So this is basically verified by the insurance agencies who ‐‐?

I. Unnikrishnan, Managing Director Yeah. They do the due diligence on that.

Amitabh Sonthalia Okay. And sir, just to re‐clarify, you mentioned on, if I heard you correctly on, in one of the answers to the questions that, you're looking at ROE is coming down this year to 18 odd rather long‐term sustainable ROEs at 18%, 19%, is that what you've implied?

I. Unnikrishnan, Managing Director See, the long‐time it is around ‐ even in difficult place like this, we are confident of generating 18%, 20% ROE. That's what I said.

Amitabh Sonthalia Reasonable to expect a de‐growth in profits this year in FY'13?


Yeah. We have roughly 2,400 crores of net worth. When I say 18%‐20%, 20% of that will be close to 480 crores. Currently it profited 591 crores.

Amitabh Sonthalia Right.

I. Unnikrishnan, Managing Director There is reasonable expectations I said, I'm not guiding anything. But I'm saying these are reason or expectation which we're having.

Amitabh Sonthalia Okay. But you've mentioned that this year is year of consolidation and you hope to return on growth path in the following years. So, obviously given that this business model has exploded in the last four years not only your company but now, lot of the non‐gold, there are almost every NBFC, not every, but quite of few of them have got into this, India Infoline and others who where this business was not existing for lot of NBFC's. So, what kind of reasonable growth can one expect, the next four to five years from this business for the industry as a whole and your company. if you can again give a guidance for to get some sense that is it going to be...

I. Unnikrishnan, Managing Director See even today, around 80% of our business is still down in the South, okay. And we have lot of places where we are not present even today. So, if there is a facilitating regulatory and environment, there is a facilitating funding availability. The industry should be able to grow 20% to 25% over the next five years and also the gold price also should be holding up.

Operator Our next question is from the line from the line of Nishint Chawate from Kotak Securities. Please go ahead.

Analyst Hi, you mentioned that you're focused on high yielding product last quarter, what does that really mean, does it mean that it was a high LTV product that you focused or?

I. Unnikrishnan, Managing Director No, no. It's not high LTV product, this is not, see high LTV product is the thing of the past. Whatever we could, within that 60% norm, that is what I mentioned.

Analyst So, in a way does it effective, indirectly mean that the lending rates actually went up during the last quarter putting it differently.

I. Unnikrishnan, Managing Director No, what I mean is that we withdrew all non‐yielding product, so whatever we could lend, we could lend it a high yield.

Analyst Sure. The other thing is can you give us some outlook what could be the ticket size for the next year or next two quarters?

I. Unnikrishnan, Managing Director It is Rs. 38,000 Rs. 37,000.

Analyst No, if we look at a price of Rs. 2,000 per gram and we're talking about 40 grams, the number could be much larger. So I was just wondering whether there is some disconnect at this?

I. Unnikrishnan, Managing Director No, that's the cap actually. See, Rs. 1,950 or Rs 2,000 is the cap. When there is a cap, the actual lending will be, if the cap is 60, the actual lending will be only 50.

Analyst Okay. But still I think, I mean the difference between, if I mathematically try to work out the number, it works out to somewhere close to 78,000. And, I mean that would effectively mean that the LTV will be like 30% or 25%, it will not be 50, it would still be much, much lower. Hello.

Corporate Participant Yeah. It's actually what I said is Rs. 39,000 against what is it today, 38,000 or 38,582. What I tell is it can come down to some Rs. 37,000 to Rs. 38,000.

Analyst Sir, can you just explain it I mean in terms of per gram and the prices try to do the calculation?

I. Unnikrishnan, Managing Director One customer the 40 gram which I said is per customer. Once customer avails almost two loans 1.9 loans that is what is.

Analyst Okay, sure sir. Got it. I got it that's fine. The other thing is between the challenges that we have today one of the other side and the other is on the liability side.

Which do you think is the bigger challenge over the next two three quarter I believe that once the regulation settle down obviously things are going to be much more easier but over the next one two quarters what could be a bigger challenge? Is that the asset side or the liability side?

I. Unnikrishnan, Managing Director It is ‐‐ regulatory challenge.

Analyst Sorry.

I. Unnikrishnan, Managing Director It's a regulatory challenge.

Analyst Okay, okay. Anyway I think I will leave it that. Thanks a lot.


Operator Our next question from the line of Jyoti Kumar Spark Capital. Please go ahead.

Jyoti Kumar Sir I just missed out on one number. What would be the proportion of the loan book which is less than 1 lakh?

I. Unnikrishnan, Managing Director Jyoti, it's not a public information Jyoti.

Jyoti Kumar Okay. No problem. A broad sense.

I. Unnikrishnan, Managing Director You can work out I gave you some idea. It's not that I don't want to share with you it's not aware publicly.

Jyoti Kumar Okay, sir. Thanks a lot.

Operator Our next question is from the line of Jaymundra, Crisil. Please go ahead.

Analyst Yeah. Hi. Sir, couple of questions on the securitization book which is on the balance sheet of 19 billion. Now there would be no fresh securitization as I understand.

So, can you please give some sense on this book running down, how can we see this book of 19 billion which is outstanding?

I. Unnikrishnan, Managing Director No this will run down to something like 200 crores to 300 crores by the end of September.

Analyst Sir 200 crores and 300 crores

I. Unnikrishnan, Managing Director No. By the end of September.

Analyst Okay. By September end it would be around from 200 to 300 crores only

I. Unnikrishnan, Managing Director Yeah

Jyoti Kumar Okay sir. And sir, you mentioned your yield on advance for the quarter is around 27.5% was that did I hear it correctly or

I. Unnikrishnan, Managing Director Yeah. You're heard it correctly

Jyoti Kumar Okay. 27.5% and what was it last quarter of last year I mean fourth quarter 2011?


Jyoti Kumar 24.7 okay. And sir, is it possible to give the break up of LTV like last year you've said some loans between 80% to 90% is around some 24% of your loans I mean the LTV in 80% to 90% is around 24%

I. Unnikrishnan, Managing Director No. It's not readily available.

Jyoti Kumar Okay that's fine. Okay sir.

Operator Next question from Suruchi Chaudhary, Edelweiss. Please go ahead.

Kunal Shah Yes sir Kunal once again. Sir, what would be the average time for auction? What would be fair assumption 14 months or so is the time when we give out the loans

I. Unnikrishnan, Managing Director It get's completed in the 15th month. So, it starts in 30 days between 14 and 15 yes.

Kunal Shah Yes sir and just if I look at last one year the auction data which you had given I would say 2.4 tonnes okay. So, one year back our AUM was 650 odd tonnes

I. Unnikrishnan, Managing Director Don't look at based on AUM look at it based on disbursement.

Which has been around 1.9% of the disbursement of the corresponding period.

Kunal Shah 1.9%

I. Unnikrishnan, Managing Director 1.9% of the corresponding period I'll give the exact number exactly 1.9% of the corresponding month.

Kunal Shah Of the corresponding month how much so you are taking last 14 months disbursements and just comparing it with that?

I. Unnikrishnan, Managing Director No, no that is for 12 months. In a year, we can have only 12, no not 14.

Kunal Shah Yeah.

I. Unnikrishnan, Managing Director 14 month is the period on a 17,150 crore disbursement.

Kunal Shah Yeah.


Kunal Shah Okay. And sir, considering may be at that point in time, the gold was moving up, when the LTV was just keep on moving. But still customers preferred to I think there have been some delinquencies where in you had to auction.

So some stress on the customer part. So how do you see it now, with gold prices have almost stabilized it? So from 1.9%, how do we see the auction moving going forward?

I. Unnikrishnan, Managing Director I mean it used to be in the range of 1% to 2% always.

Kunal Shah Okay.

I. Unnikrishnan, Managing Director I don't think there will be an change in that number, it can I don't think there will be any change.

Kunal Shah Okay. And sir, gold loan AUM per brand which currently stands at 4 crores. So, once we say go slow on the branch expansion side so the denominator would also be on the lower side so where do you see it should stabilize over next one year?

I. Unnikrishnan, Managing Director Continue with the loan number not the essence of the year Kunal.

Kunal Shah Sorry.

I. Unnikrishnan, Managing Director Then you get the loan number of that of the year by give that number, that's why I've not guided you on that number.

Kunal Shah No, sir in the sense like if you have the sense that suppose if last I say the branches which are older than two years they normally do the AUM of say 6 crores, 7 crores. Then once the branch which we have opened in last one year they also say that there is a time which has passed over that then we should say so just based on the trends which we have seen in terms of how our older branches have matured. Okay so...

I. Unnikrishnan, Managing Director Kunal this thing has happened only in an ideal situation okay. As I said we have constraints on funding and growth on account of LTV cash, okay. Funding on account of new loans or bank exposure to NBFC. And I've changed this year will be year of consolidation, that means the as of today, I'm not guiding any loan number as of now, okay. So, what is the best scenario? You presume that, loan book will continue as it is now then 2009 so that's what I say. So we can't state a number there as of now. Maybe after three months you ask me, I'll be able to give you an idea to what is what.

Kunal Shah Okay. And sir one last question in terms of the lending grades what I think everyone was expecting was like lower LTV the lending rates would also come off because customers would say like, if I am getting lower per gram rate, you should charge on the lower side. But that has not been the trend. So, do we see it this as a stable state scenario or we are just evaluating the market for next two years in terms of ‐‐ next two quarters in terms of customer behavior and then we will tend to take a call whether to lower the lending rates or no?

I. Unnikrishnan, Managing Director See Q4 is not a facility of the new regime. The new regime actually started at on the new front.

Kunal Shah There last one and half months.


So that is not reflected in Q4 results. Q4 was a it was it happened on account of a company specific issue and on account of the city related challenges which we had. So what I'm saying is that the yield should be around 23, 24 in a matter of 12 months.

Kunal Shah Okay but have we lowered it may be post these regulatory changes have it with the lending rate?

I. Unnikrishnan, Managing Director That will happen disbursement is going up.

Kunal Shah Okay. So

I. Unnikrishnan, Managing Director See what I'm saying is this business does not have any issue from in terms of potential for new loans from market opportunities perspective, there is no challenge.

Kunal Shah That's understood, that's what so should we say should we presume that there may not be much decline in lending rates with lower LTV because of the strong genuine...

I. Unnikrishnan, Managing Director I completely leave it to you, I have actually this is my number 23 to 24 is there it should settle down in a period of one year.

Kunal Shah Okay. No issues sir. Thanks a lot sir.


Operator Participants that was the last question. I would now like to hand the conference over to Mr. Abhishek Murarka for closing comments.

Abhishek Murarka Yeah thanks. Just would like to thank Mr. Unnikrishnan for coming on to the call and giving us all the updates about the company and how it is moving with regard to RBI regulations. And also I would like to thank all the participants for taking out time and attending this call. Thanks a lot sir and all the best for the next year.

I. Unnikrishnan, Managing Director Thank you. Thank you Abhishek.

Abhishek Murarka

Thanks sir.

Operator On behalf of ICICI Securities Limited that concludes this conference. Thank you for joining us. You may now disconnect your lines.

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