Quarterly Repoting Document

"Manappuram Finance Limited

Q2 FY2023 Earnings Conference Call"

November 14, 2022

ANALYST: MR. ANSUMAN DEB - ICICI SECURITIES

MANAGEMENT: MR. V. P. NANDAKUMAR - MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER - MANAPPURAM FINANCE LIMITED

MRS. BINDU A L - CHIEF FINANCIAL OFFICER - MANAPPURAM FINANCE LIMITED

MR. B. N. RAVEENDRABABU - MANAGING DIRECTOR - ASIRVAD MICROFINANCE

MR. RAJESH NAMBOODIRIPAD - CHIEF FINANCIAL OFFICER - ASIRVAD MICROFINANCE

MR. KAMAL PARMAR - HEAD VEHICLE & EQUIPMENT FINANCE - MANAPPURAM FINANCE LIMITED

MR. SUVEEN P. S. - CHIEF EXECUTIVE OFFICER - MANAPPURAM HOME FINANCE

MR. BIKASH KUMAR MISHRA - CHIEF FINANCIAL OFFICER - MANAPPURAM HOME FINANCE

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Manappuram Finance Limited

November 14, 2022

Moderator:Good morning, ladies and gentlemen and welcome to the Q2 FY2023 Earnings Conference Call of Manappuram Finance Limited hosted by ICICI Securities. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing "*" then "0" on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ansuman Deb. Thank you and over to you, Mr. Deb!

Ansuman Deb:Good afternoon ladies and gentlemen, we welcome you all to the Q2 FY2023 results conference call of Manappuram Finance Limited. We have with us the management of the company represented by Mr. V. P. Nandakumar, MD and CEO, Ms. Bindu A L, Chief Financial Officer, Mr. B. N. Raveendrababu, MD, Asirvad Microfinance, Mr. Rajesh Namboodiripad, Chief Financial Officer, Asirvad Microfinance, Mr. Kamal Parmar, Head Vehicle and Equipment Finance, Mr. Suveen P. S. CEO of Manappuram Home Finance, and Mr. Bikash Kumar Mishra, CFO of Manappuram Home Finance. I now hand over the call to MD, Mr. V. P. Nandakumar for his initial remarks post which we open the floor for Q&A. Over to your Sir!

V. P. Nandakumar: Thank you. Good morning ladies and gentlemen, welcome to our Q2 FY2023 performance call. As you are aware the pandemic has subsided and the Indian economy is showing clear signs of recovery. In the previous concall I have referred to the uneven nature of the recovery and its impact on our company's growth but the graph is now showing a more steady curve upwards and this ongoing revival coupled with our earnest efforts of finding traction has reflected in our Q2 results declared on Saturday. India cannot be decoupled from the rest of the world and macroeconomic developments elsewhere could resonate domestically as well. For instance, the United States, the European Union, and the United Kingdom have been tightening their monetary policies and interest rates globally remain elevated. The rupee had also weakened to Rs.83 before recovering to Rs.80.56. As the dollar strengthened, gold prices lost some sheen during the quarter. The demand for the yellow metal has reached pre-pandemic levels and witnessed an annual growth of 14% during the July and September quarter at 191.7 tonnes. Accordingly investor confidence in India remains high as evidenced by the facts that next FII inflows in November so far have touched $2 billion. IMF in its latest world economic outlook forecast India to be the fastest growing economy globally. Morgan Stanley goes a step ahead to state that this will be India's baggage. We hope to capitalize on this upbeat mood and ensure that. Our business verticals are focused to translate it into our advantage. For the quarter ended September 2022 our consolidated gold AUM was Rs.19190 Crores registering an increase of 2.1% year-on-year. Overall the consolidated AUM has reached Rs.30665 Crores in Q2

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Manappuram Finance Limited

November 14, 2022

representing an increase of 7.9% over the year ago quarter. Consolidated net profit of Rs.409 Crores in Q2 is an improvement of 45.2% over the preceding quarter driven by profitability in gold loan and microfinance businesses. To be sure competition is increasing with the emergence of new players in the NBFC space including Fintech companies; however, India has a huge and banked and underbanked population which provides headroom for a larger number of players to exit without sacrificing profitability. We have huge hopes on the long-term prospects of companies, microfinance subsidiary Asirvad which has an AUM of Rs.7661 Crores showing a growth of 7% year-on-year according to a CARE Edge report. NBFC and MFIs are expected to see a 30% year-on-year growth in their loan book in 2022-2023 on the back of resurgence in demand for microloans especially from Tier-3 cities. I have no doubt that we would be able to tap this sector even more in the days to come. We have seen maximum growth in the vehicle finance business recording 49% increase year-on-year with an AUM of Rs.1886 Crores followed by home loans with AUM of Rs.922 Crores registering an increase of 25.9% for the corresponding quarter in FY2022 though primarily a gold loan player. We are slowly but surely on the path to becoming an NBFC with a balanced and broad-based portfolio mix. This rebalancing is already underway and the share of non-gold verticals in our AUM now stands at 37%. For instance in the housing finance business we see a lot of potential for low ticket housing loans. On the vehicle finance business we are increasing penetration in rural and semi-urban locations apart from using the digital lending platforms and automated approval processes. Yet another focus is MSME and digital personal loan segment. The idea is to arrive at a diversified product portfolio covering secured and unsecured loans for the salaried and non-salaried employees. For a comprehensive review of our performance I hand over the floor to our CFO, Mrs. Bindu.

Bindu A L:Thank you Sir. Good morning ladies and gentlemen and thank you all for joining us today. Coming to the quarter our consolidated AUM for Q2 FY2023 was Rs.30665 Crores representing a flat growth sequential and 7.9% Y-o-Y growth. During this quarter all segment AUMs has grown except gold loan and the drop in gold loan is on the back of conscious rationalization of low yielding schemes. Consolidated profit after tax was Rs.409 Crores for Q2 FY2023 which was up by 45.2% Q-o-Q and up by 10.7% Y-o-Y. ROE on a consolidated basis was 18.6% and ROA was 4.6%. Our leverage is currently only 3 times. Our GNPA as on September 30, 2022 at 1.95% versus 1.43% during the previous quarter. The company is currently holding excess liquidity in order to meet the redemption of the 3- year secured fixed rate loan issued in the bond market which is due in January 2023. Cash and cash equivalent for a consolidated basis was Rs.5633 Crores and undrawn bank line was Rs.3368 Crores. Our CP exposure is only 2.4% of our total borrowings in the standalone entity. Our ALM is well positioned across all buckets. Standalone borrowing

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Manappuram Finance Limited

November 14, 2022

cost has gone to 7.56% in comparison with 7.47% in Q1 FY2023 after repo rate hike of 190 basis points over the period.

About the gold loan business it constitutes 62.6% of consolidated AUM and the remaining 37.4% comprises microfinance, vehicle, housing and SME finance. Gold loan AUM decreased by 6.3% Q-o-Q and up by 2.1% Y-o-Y. Gold loan yields improved to 21.9% in Q2 FY2023 versus 19.4% in Q1 FY2023. The yield improvement largely driven by rationalization of low yielding schemes rolled out in H2 FY2022. During the quarter we were able to add 4.47 lakh new customers. Average ticket size and average duration was Rs.54694 Crores and 68 days respectively. Our gold loan LTV is 65.7%. Our standalone PAT was Rs.349 Crores up by 20% Q-o-Q and marginally down by 1.8% Y-o-Y. ROE for this quarter at 16.8% versus 14.4% during June 2022.

Coming to microfinance business, Asirvad AUM stands at Rs.7661 Crores up by 9% Q-o-Q and up by 7% Y-o-Y. During this quarter our yield improved to 22.1% in comparison with 20.3% in March 2022. We are coming to the end of COVID-related provisioning cycle in Asirvad. PAT for MFI business has increased to Rs.56 Crores in Q2 FY2023 from a loss of Rs.8 Crores in Q1 FY2023. We expect a further reduction in credit cost and return to pre- COVID provisioning level over the coming quarters. Our collection efficiency also improved in MFI business during the quarter stood at 103% and disbursements during the quarter was Rs.1919 Crores. In Asirvad the gold loan AUM as on September 30, 2022 stands at Rs.500 Crores. Cumulative ECL provision in Asirvad is Rs.520 Crores. Net NPA stands at 1.64%. In September 2022 an equity infusion of Rs.250 Crores by parent, Manappuram Finance through a rights issue. Currently Asirvad's CRAR stands at 22.8%.

Coming to vehicle finance we have reported an AUM of Rs.1886 Crores which is up by 7.4% Q-o-Q and up by 49% Y-o-Y. Collection efficiencies for the quarter 101%. GNPA has come down to 3.6% from 4%. Home loan business total book of Rs.922 Crores which is up by 5.4% Q-o-Q and up by 25.9% Y-o-Y. It operates from 74 branches and reported a profit of Rs.4.2 Crores during this quarter and Rs.9.3 Crores for the half year ended September 30, 2022. Collection efficiency for the quarter 98%, GNPA reduced to 5.5%. Loan to MSME and others at Rs.1235 Crores, collection efficiency over 100% and GNPA at 1.4%. Our own lending to NBFC the AUM stands at Rs.272 Crores with a disbursal amount of Rs.252 Crores during this quarter. Provisions and write-offs in the standalone entity during the quarter stood at Rs.22.1 Crores compared to Rs.8.8 Crores in Q1 FY2023. The Board has declared an interim dividend of Rs.0.75 for the quarter. Our capital position is strong and the company is capitalized with a capital adequacy ratio of 31.9%, company's consolidated net worth stands at Rs.8957 Crores, the book value stands at Rs.105.2. Thank you. We can now go for the Q&A session.

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Manappuram Finance Limited

November 14, 2022

Moderator:Thank you very much. We will now begin the question and answer session. Ladies and gentlemen we will wait for a moment while the question queue assembles. We have the first question from the line of Dhaval from DSP Mutual Fund. Please go ahead.

Dhaval:Thank you for the opportunity and congrats on decent performance. Sir I had three questions. First is relating to margins just wanted to understand have we seen the full benefit of the teaser rate book running down and the gold book yield increase fully getting reflected this quarter and also correspondingly on the cost of fund side what is our expectation for the second half of this year so your sort of perspective on margin would be useful? The second part is relating to growth specifically in the gold loan portfolio we have seen volume decline and overall the book has been stable for quite a while now what is our outlook from here on that would be useful and the third part is on cost, it is still quite elevated compared to what our expectation was in terms of cost rationalization so some perspective around how we think about absolute opex would be useful especially for the next three to four quarters those are the three questions? Thanks.

V. P. Nandakumar: The yield rationalization by reducing the dependence on low yield products for growth it has come down low yield products has come down from 35% in Q2 it has come down to 25%. Our high yielding product has increased its share by 10% to 75% so that is the reason why there is no improvement in the yield and that is nearly 21.9% and we believe that it will remain at more or less at this level of 21% and GL growth we see it is not growing now because there is another 25% in this teaser rate it will have to go down and it takes one more quarter to get growth I think so. Regarding the cost asset term that has been mentioned already, there is going to be redemption of overseas borrowing and that will bring down the cost again. There is enough headroom as our short-term liabilities are only to 2.4%. There is some headroom there and we can use that buffer to a reasonable extent to mitigate the rising cycle of interest rate, so we believe that it will be somewhere stay around this and at the consolidated level the Asirvad's yield has gone up by nearly 2% now and it is going to further go up and currently our pricing is at around 24% so it will move to around 24% now and Asirvad collections and the NNPA is steadily coming down so this will protect our overall profitability is expected to grow and you mentioned about the cost, cost primarily is coming from the HR cost why because there was some increase in salary at our lowest level and also we are building our MSME portfolio and we are strengthening the disbursals in other non-gold vertical like CV, car, etc., so this has been split and these are showing good traction as far as growth is concerned so the results of this cost, the benefit of this cost will accrue in the coming months. These are growing very fast both the non-gold secured portfolio like MSME which are all small ticket loans. Again vehicle finance also is small ticket for us as these are growing very fast. So you will see the cost rationalization going forward, in another two to three quarters you will see the benefit out of that.

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