Recovery of note ban-induced slippages to take time: Muthoot Cap

Muthoot Capital Services has been able to maintain disbursement growth rate despite demonetisation impact, according to Chief Executive R Manomohanan. The two-wheeler finance company reported a 6 percent growth (YoY) in net profit at Rs 6.44 crore in the quarter ended December 2016. The company's net profit, however, slipped 20.9 percent sequentially.Muthoot's slippages, however, increased to Rs 20.1 crore in December quarter against Rs 11.8 crore in the second quarter. Manomohanan attributed the increase to demonetisation drive which came into effect on November 8. While Manomohanan alluded to a dent in the company's collections and recovery during the quarter, he said the slippage will be healed over a period of time.Speaking to CNBC-TV18, he said the company does not see any concern in the fourth quarter on disbursement front. During the third quarter, the financier disbursed Rs 271 crore worth loans as compared to Rs 273 crore in the quarter ended September 2016. The company disburses 90 percent loans in the two-wheeler segment. And, Manomohanan said there was a 17 percent boost in the number of units sold in the two-wheeler segment up to second half of FY17. Below is the verbatim transcript of R Manomohanan’s interview to Anuj Singhal and Latha Venkatesh on CNBC-TV18.Latha: Can you tell us what was the impact of demonetisation?A: As you rightly mentioned, we are in the two-wheeler financing segment and being in this small ticket retail financing segment we were really afraid that the demonetisation could affect us pretty bad. However, after closing the quarter in which the demonetisation took place we find that the things are not as bad as we feared. As you are aware of we posted decent figures for the quarter, we made a profit of Rs 6.4 crore compared to Rs 6.1 crore in the corresponding quarter last year. On the disbursement side, we did a disbursement of Rs 271 crore and in hypothecation loans this quarter compared to Rs 273 crore immediately previous quarter that is the quarter ended September which means we are able to maintain the growth trend in disbursements. For comparison the disbursements in the first quarter was only Rs 233 crore, so we are able to maintain growth in disbursements.On collection and as was rightly mentioned there has been some impact as we are in the cash mode the demonetisation affected our collections. However, when we take stock of the figures for the quarter, we find that even though there was an impact in the month of November, the collection figures are back to normal comparable to that of October in the month of December. This is the picture. There has been an affect in collection and recovery, there has been a slip back in collection and recovery on account of demonetisation, but if case the collections figures are back to figures comparable to October in the month of December. However, the slippages which has happened in the month of November it will have to be recovered over a period of time.Anuj: Do you think quarter four can be back to quarter level or maybe even better if there is still latent demand or will we have some spill over impact in quarter four also?A: Disbursements, we don’t anticipate any problem. In fact two-wheeler sales has been doing pretty well this financial year and in fact up to the half year there was an increase of 17 percent in the number of units sold in the country compared to the corresponding immediate last year. We were also getting boost on the increased numbers of sales. Even if number of units sold has come down in the month of November, compared to November 2015 the figures is still 6 percent short fall. In the month of December it was about 30 percent growth but on the one hand the number of units sold is coming down, but on the other hand the percentage of finance sales in increasing.The percentage of finance was about 40 percent in the first half year which we find is going up to about 50 percent now.Latha: You lend only to two-wheelers or largely to two-wheelers?A: We are doing mostly two-wheelers about 90 percent of our disbursement is in two-wheelers. Latha: Did you in the first two weeks of January see an improvement in loan demand from that sector?A: Yes, there is an improvement in the loan demand. Latha: Will you be able to lend more profitably because bank loans have fallen or will that be actually a problem that you will have to cut your lending rates more than your borrowing rates? A: We have reduced our lending rates in the last quarter mostly to boost the demand. We were not sure of the scenario after the demonetisation, we have reduced our lending rates slightly in the last quarter. The net interest margin (NIM) has come down slightly because of that.Latha: Will it go further down?A: When we go further down the banks have also reduced their lending rates to us.Latha: So your spread will remain at 13 plus?A: Yes, our spread will remain more or less around 13 percent. We don’t anticipate any problems in that.