See reduction in cost of funds; good growth: Manappuram Fin

Detailing the company’s first quarter performance, Kapil Krishan CFO, Manappuram Finance told CNBC-TV18 that the company saw a sequential growth of 5.3 percent and reduction in cost of funds. The cost of funds was down 35 basis points sequentially, and 99 basis points year-on-year, he said. They currently stood at 11.6%, said Krishan.Talking about the two new subsidiaries that is micro finance and housing finance were now gaining traction and are expected to perform better going forward. The micro finance business has added five new states to its portfolio already besides Kerala and Karnataka, he said.The current assets under management had crossed the Rs 10000 crore market, said Krishan.Gold loan finance company Manappuram Finance first quarter consolidated net profit rose 34.3 percent to Rs 59.30 crore helped by healthy growth in assets under management.. The company had reported a profit after tax of Rs 44.15 crore in the year-ago quarter.Below is the transcript of Kapil Krishan's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.Latha: Can you take us through the way the performance panned out. Did you see your assets under management (AUM) increase and if that was the case in which categories? How much did gold increase, how much did non gold increase?A: We had a good sequential growth in the quarter of almost 5.3 percent. Our total AUM crossed the Rs 10,000 crore mark and stood at Rs 10,104 crore. Year-on-year basis our profit was up 30 percent, from Rs 44 crore it is now Rs 59.3 crore. However, the new businesses that we setup late last year, they have also started gaining traction. We setup two subsidiaries last year. One was a microfinance company called Asirvad Microfinance which we took over in February and we also have setup a housing finance company. These two subsidiaries also have started gaining traction. Sonia: As of now your new businesses which are your microfinance, commercial vehicle (CV) lending and mortgage will contribute about 20-25 percent in next three years. Can you give us a sense of what took place in this quarter in terms of CV lending and mortgage and what could the growth look like in the quarters to come?A: The main new businesses that we setup is the microfinance business which is the largest contributor to the non-gold loan portfolio and there we had a sequential growth of almost 30 percent and the microfinance subsidiary reported closing AUM of Rs 420 crore. It has return on asset (RoA) of 4.36 percent. However, when we took it over, it was mainly based in the state of Tamil Nadu and little bit in Kerala and in Karnataka. After we have taken it over in one quarter, they have expanded their presence in Karnataka and Kerala significantly and we have also added around five new states like Madhya Pradesh, Rajasthan, Punjab, Haryana and in the next couple of months we will be taking them further to Uttar Pradesh and to Jharkhand etc. So the growth traction is very good in the microfinance business and the synergy we have is that both microfinance and the gold loan business are at the bottom of the pyramid. So that is also one reason why our microfinance company is growing well.We have also started housing finance company subsidiary which is still in early stage. We just have around 15 branches and around 20 crore AUM but that will grow significantly once the branches mature and somewhere in the later part of this year and especially next financial year we will expect much faster growth from the housing finance company (HFC) as well. Latha: What are your spreads? How much money do you make; cost of money and return on money?A: Our cost of funds has been coming down significantly every quarter and even in Q1 sequentially the cost of fund came down by 35 bps. On a year-on-year basis it is down almost 99 bps. We have been upgraded to AA minus long-term rating as well, and we are increasing the proportion of commercial paper in our overall borrowing mix plus all the banks have also been lowering their cost of funds to us. This is in response to lowering risk profile of the gold loan business, now that we know we have got a fair amount of regulatory stability and our fundamental strengths are significant.Latha: Could you give us exact cost?A: 11.6 percent now and it will keep coming down significantly.Latha: What is the return?A: Our gross yield is almost 21-22 percent.Latha: You expect that will also come down?A: The yields may remain stable. We do not expect yields to decline. So we earn a healthy number of 11-12 percent and that should continue.Latha: Any issue of bad loans with the way gold prices fell?A: Our gross NPA was 1.2 percent in Q4 and even now it is 1.2 percent in Q1. This is even after shifting to 150 day norm. The total provisioning went up by 4.8 crore because we move to 30 bps standard provisioning norm in Q1.