Overview of the Company
Manappuram Finance Ltd. is one of India’s leading gold loan NBFCs. Promoted by Shri. V.P. Nandakumar, the current MD & CEO, its origins go back to 1949 when it was founded in the coastal village of Valapad (Thrissur District) by his late father Mr. V.C. Padmanabhan. The firm was involved in pawn broking and money lending carried out on a modest scale. Shri Nandakumar took over the reins in 1986 after his father expired.
Since then, it has been a story of unparalleled growth with many milestones crossed. Incorporated in 1992, Manappuram Finance Ltd. has grown at a rapid pace. Today, it has 3,747 branches across 28 states/UTs with assets under management (AUM) of nearly Rs.13,0140 million and a workforce of 19,372.
Soon after it commenced its operations, the company gathered several “firsts” to its credit. The first non banking financial company (NBFC) in Kerala to receive a Certificate of Registration issued by the RBI, it was also among the earliest to go for an IPO in 1995. In 2007, it became the first Kerala based NBFC to receive investment from foreign institutional investors (FIIs) when the celebrated PE fund, Sequoia Capital, invested Rs.700 million along with Hudson Equity Holdings. Sizable foreign investment was received during two QIPS in 2010 when a total of Rs.12,450 million was raised. Manappuram Finance Ltd. was the first NBFC in Kerala to obtain the highest short term credit rating of A1+ from ICRA. In 2010, it became the first Kerala-based NBFC to offer ESOPs (Employee Stock Option Plan) to its middle and senior management functionaries.
A RECORD OF INNOVATIONS
As a pioneer and trailblazer, Manappuram Finance Ltd. has always been an innovator par excellence innovations that enabled it to lead the way and stay ahead in the game.
Technology innovations: In the matter of technology, Manappuram was one of the earliest to adopt the “core banking” platform. This was no mean achievement considering that unlike the banking sector there were no ready-made software solutions for gold loans. It came about only because the company invested in developing its own proprietary solutions, and today its technology platform is one of its core strengths. The investment in technology has paid off in many ways, for instance, in streamlining procedures to reduce turnaround times in gold loan disbursal and in implementing advanced risk management practices as described below.
Critical to the success of a large scale gold loan business is the ability to weed out spurious and substandard gold at the pledge stage itself. The purity testing that is carried out essentially verifies the purity of the ornament at a particular point or two. It is not designed for 100 percent certainty. Moreover, the gold loans business emphasises speed and hassle free experience. Therefore, simplicity of procedure is also a must and a balance has to be struck. At Manappuram, advanced risk management practices were put in place that drew upon the promoter’s intimate understanding of the business. It was implemented through the IT platform which generates alerts to management upon any suspicious or abnormal transactions at the branches. For example, the gold loan business focuses on household used jewellery to which borrowers may be expected to have an emotional connect. When a branch accepts multiple numbers of the same ornament for pledge, it is more likely to be a local jeweller or pawnbroker and the system automatically flags the transaction for verification by internal auditors.
In keeping with its record of technology led innovations, the company launched its latest product “Online Gold Loans” in 2015. A customer who has completed the initial formalities can now avail a gold loan 24X7, from anywhere in the world, in fact, even as he sits at home. The loan proceeds are instantaneously transferred to his bank account. The concept is now proposed to be extended further with launch of a co-branded debit card that would allow even customers without access to bank accounts to withdraw the money from an ATM anywhere.
Product innovations: Manappuram has led the way in the matter of product innovations too,. Gold loans were for long sold as a “one-size-fits-all” product. The company was a pioneer in introducing variety to it, for instance, by offering progressively higher loan amounts at higher price points. It was also the first to come up with “one-day interest” where borrowers have the option to settle a gold loan at their earliest convenience, even within a day, at a time when the norm was to recover a minimum interest of seven days, or even a month.
The most recent innovation is the launch of short tenured gold loans. Historically, all gold loans were sanctioned for one year and bullet repayments of both interest and principal was the norm. After the fierce correction in gold prices in 2013, gold loan companies were faced with higher defaults and profitability took a hit. Manappuram Finance Ltd. launched short term gold loans of three and six month tenure and today, its entire gold loan portfolio has been shifted to the short term buckets. This has minimised price risk which otherwise is a major concern in gold loans.
Innovative approach to raising finance: For a non banking financial company (NBFC), raising funds was a big challenge in the nineties. In the aftermath of the CRB scam of 1997, raising deposits from the public was difficult and banks were not comfortable with lending to NBFCs in general. Moreover, Manappuram’s foray into gold loans was untested as a business model. Growth was slow in the initial days. The picture was to change only after the company hit upon unconventional ways to raise funds.
In the first breakthrough, Manappuram became the first gold loan company to raise finance through the securitization and assignment route in a tie up with ICICI Bank. The arrangement with ICICI Bank continued to work well for a few years and the company was put on the growth path. Buoyed by the success, the company planned a big expansion of the branch network. However, around 2006, ICICI Bank faced some regulatory hurdles regarding securitization and they could no longer fund the company. With ICICI Bank pulling out, the expansion plans were in jeopardy.
At this point, the company chanced to get its second break. Temasek, the sovereign investment fund of Singapore, was looking to expand its footprint in the Indian financial market. Mr. Nandakumar happened to be in Singapore to take part in a conference of NBFCs. Having heard Mr. Nandakumar speak about the gold loan business, Temasek expressed interested in financing Manappuram through their India arm Fullerton. Temasek’s debt participation provided the visibility, and paved the way for other international players to follow.
In December 2007, Manappuram became the first NBFC in Kerala to attract foreign institutional investment when the celebrated PE fund Sequoia Capital invested Rs.700 million together with Hudson Equity Holdings. Since then, the company has regularly received foreign investment. The second round of private equity funding in November 2008 was led by Ashmore Alchemy which, together with Sequoia and Hudson, put in another Rs.1,080 million. Sizable foreign investment was received during the two QIPS in 2010 when a total of Rs.12,450 million was raised.
Once private equity came in, the company was able to shift gears and grow much faster than before because now even the PSU banks were willing to lend to it. From this point onwards, there was no looking back.
Conventionally, companies have sought funds from foreign investors after they have tapped the domestic banks and other financial institutions. In the case of Manappuram, the order was upended. Because the domestic banks were uncomfortable lending to NBFCs, especially one with an untested business model focused on gold loans, the company went out of India and roped in the foreign players first. Once they were persuaded, the domestic players became more confident about lending to the company.
Innovative Marketing Campaign with multiple celebrity Brand Ambassadors: Despite the vast amount of gold in private hands in India, the gold loan business is yet to grow to its true potential even today. There was a continuing stigma attached to pledging gold. Rather than use their gold to raise money, many preferred to go to moneylenders and borrow at exorbitant rates.
Manappuram has been proactive in tackling this sensitive issue head-on. It followed a strategy of a big-budget advertising campaign that revolved around celebrity brand ambassadors with strong regional appeal, who talked about gold loans to the masses in their own language. When the fashion was to use one celebrity brand ambassador for a nationwide campaign, Manappuram’s campaign beginning in 2010 had a galaxy of super stars like Akshay Kumar, Mohanlal, Mithun Chakravarty, Vikram, Venkatesh etc. and they were used to target different geographies; Mohanlal for Kerala, Akshay Kumar for the Hindi speaking belt, Vikram for Tamil Nadu etc. The campaign was successful in growing the gold loan category as a whole and benefits were reaped by players across the sector.
Manppuram Finance Ltd. is a professionally run company promoted by Shri V.P. Nandakumar who controls approximately 35% of the total equity of the company. A similar share is held by various Indian and foreign private equity funds while the balance is dispersed among the public. The shares of the company are traded on both the BSE and NSE. The company is managed by a Board consisting of eleven directors headed by Shri Jagdish Capoor, Chairman. Shri Capoor is a former Deputy Governor of the RBI. Shri V.P. Nandakumar is the MD & CEO of the company. The magazine “Business Today” listed him among India’s Top 100 CEOs in its issue dated January 5, 2014. “Business World” included him in the list of India’s Most Valuable CEOs in its issue dated December 2, 2013.
Besides focus on the business, the cause of the wider community is central to the vision of the company. The Manappuram Foundation was established in October 2009 to drive the company’s initiatives in Corporate Social Responsibility (CSR).
The major project of the Foundation is an original scheme, “Janaraksha Manappuram Free Health Insurance Scheme” extending health insurance to 20,000 Below Poverty Line (BPL) families in the seven Panchayats located around the Valapad Head Office of the Company. They are now eligible for free medical care up to Rs.60,000 per year along with cashless treatment at some of the leading hospitals in Thrissur District.
The Manappuram Foundation has set up the Manappuram Academy for Professional Education to impart free coaching for Professional Courses like CA/CS/ICWA, to bright students from low income households. The company was honoured with a 'Special Commendation' at the Golden Peacock Awards for Corporate Social Responsibility for the year 2014.
As a company focused on gold loans, Manappuram was prone to the concentration risk. Financial sector regulators in India have been expressing concern over the concentration risk inherent in the mono-line business model. To assuage their concerns, the company initiated bold moves to become a multi product company.
Over the last two years, the company has diversified into new business areas like microfinance, vehicle and housing finance, and SME lending. In February 2015, the company acquired Asirvad Microfinance Pvt. Ltd. with AUM a little short of Rs.3,000 million. Today, within one year of its takeover, AUM has more than tripled to about Rs.10,000 million after the subsidiary expanded operations to new geographies like Madhya Pradesh, Chhattisgarh, Punjab, Haryana, Chandigarh, and UP. Besides microfinance, the company has also diversified into commercial vehicle loans, housing finance and SME loans with promising results. Put together, these other new businesses contribute an additional Rs. 3,400 million to the company’s consolidated AUM of Rs. 13,0140 million. Overall, non-gold businesses contributed 12 percent of the total business as of March 31, 2016. As late as December 2014, it was next to nothing.
|Rs. in Million|
(Mar 31, 2016)
(Mar 31, 2015)
|Income from operations||23,602.3||19,864.2||19%|
|Profit before tax||5,483.8||4,136.7||33%|
|Profit after tax||3,533.6||2,713.1||30%|
|Return on Assets ( percent)||2.9%||2.42%||--|
|Return on Equity ( percent)||12.32%||11.69%||--|
Over the next few years, Manappuram Finance Ltd. hopes to become a leading player in the financial services sector catering to the requirements of the mass market with a suite of products ranging from housing loans, vehicle finance, microfinance, loans against property besides its core offering of gold loans.