Muthoot Finance Ltd
NSE:MUTHOOTFIN
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Muthoot Finance Ltd
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Ladies and gentlemen, good day, and welcome to the Muthoot Finance Limited Q2 FY '22 Earnings Conference Call hosted by Batlivala & Karani Securities India Pvt. Ltd. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sanket Chheda, Head of Sector, NBFC at Batlivala & Karani Securities India Pvt. Ltd. Thank you, and over to you, sir.
Yes. Hi, and good evening to all of you. We have today the entire senior management team of Muthoot with us to discuss the Q2 results followed by the Q&A. So we have: George Alexander Muthoot, who's the MD; Mr. Alexander M. George, the DMD; George M. Alexander, who's Executive Director; George M. George, who is ED; George M. Jacob, who's ED; Eapen Alexander, an ED; and Oommen Mammen, who's the CFO. I would first take this opportunity to congratulate the management for consistently delivering more than what they have been guiding. And now I hand over the call to George, sir. Over to you, sir.
Thank you. First of all, happy Diwali to all of you. Sorry that we had to conduct the meeting here at Diwali time. But anyway, now that Diwali is behind us, we are back to normal. As far as the company is concerned, the consolidated assets under management now stands at INR 60,900 crore, which it is up by about 17% and the consolidated profit after tax is also INR 981 crores, which is also up by 11%. As far as the stand-alone assets under management for Muthoot Finance, it is INR 57,187 crores, which is 17% more than the earlier one. And the stand-alone profit has increased to INR 1,965 crores, which is up by 13%. This quarter has been better -- showed better performance compared to quarter 1, which was almost a flat growth quarter. But profits were adequate in the first quarter, but the growth was not there. This time, we have been able to grow by about 5% just in this quarter. So we continue with the variance of the 15% yearly growth target. So we should -- we hope that we will be able to reach the 15%. And if things are looking better in the months to come, probably better than 15%. So that is about the guidance for the growth. Profit has been okay. And what else is there? The subsidiaries has been -- Muthoot Homefin has actually come down in its [indiscernible]. It has come down to about [ INR 640 crores ] because we have not been aggressively lending, and there is always the installments coming and the book going down because the installments being paid by the customers. The net profit here stood at a very meager profit of just INR 0.23 crores. And for the half year, it is INR 0.71 crores. Stage 3 assets stood at INR 4.73 crores as of September as compared to INR 5.94 crores in the previous year. So this is better than -- and the net after Stage 3 is INR 2.77 crores. Belstar has shown -- has started lending. And there, the book has grown from INR 2,687 crores last year to INR 3,354 crores. [indiscernible] profit after tax of INR 2 crores and INR 4 crores in the next quarter. The Stage 3 assets decreased to INR 3.61 crores as of September compared to INR 3.67 crores. And the net Stage 3 of provision is at INR 1.02 crores. Compared to other microfinance companies in this league, we feel that Belstar has done a good work. Muthoot Insurance Brokers, [indiscernible] subsidiary. It has a total premium collection of INR 98 crores, INR 159 crores for the half year, received a profit after tax of INR 5 crores for this quarter and INR 9 crores in the last quarter for half year at this time. Asia Asset, the subsidiary based in Sri Lanka. They report [indiscernible] of the share capital. The asset growth to LKR 1,457, was LKR 6,298 last year, an increase of 12%. [indiscernible] profit after tax of [ INR 2 crores ], so [ INR 300 crores]. Glad to say that the portfolio is now skewing towards [indiscernible] and [indiscernible] 160% of the portfolio is going on. And going forward, probably in the next 4, 5 quarters, we should see it also reaching 85%, 90% in respect with [indiscernible]. Muthoot Money, the whole loan subsidiary, which is doing vehicle finance, has had not a good quarter because there are still a lot of write-offs and bad collection payments there. So the portfolio is, of course, small. It is only INR 286 crores. The revenue stood at INR 13 crores, [indiscernible] profit after tax of INR 192 crores. The vehicle [indiscernible] especially is not doing well. And the Stage 3 assets net of provisions stood at INR 12.85 crores. Vehicle finance is limping back to normal. It is slowly [indiscernible] our assets. I think after this quarter, the company should start doing well. And we have started more lending. So lending has started in the Muthoot Money in the vehicle finance as well as the home finance, where we see in the next quarters, the book also growing, so always a repayment coming every month. Every month, the repayment is coming. Over and above that, the home finance is also planning to grow. In Muthoot Finance, the credit losses stood at INR 1.7 crores for this year versus INR 4 crores in the last year. That is the credit loss. But nevertheless, it is only 0.03% of the assets under management. The gold loan per branch has increased to INR 11.84 crores versus INR 10 crores last year. And the average ticket line -- ticket size, almost the same, INR 60,000 to INR 62,000. And the number of employees is also the same, 26,000 and 26,000. So I think that should take care of the major activities in this quarter. Now I think we will open for questions -- we are open for questions.
[Operator Instructions] The first question is from the line of Abhijit Tibrewal from Motilal Oswal.
Sir, just three questions here.
[indiscernible]
Can you hear me now?
Yes, yes, yes.
Yes. Sir, the first question is about demand outlook. Sometime during Q2, you had appeared on various media channels and participated in various conferences, wherein you highlighted the expected gold loan demand was not looking as great as last year, which is obviously very natural. But already 40 days since in the current quarter, how is the demand outlook looking like now? That's my first question. Sir, the second question is on spreads. What we are seeing in the last 2 quarters, the yields are averaging around that 21% mark compared to around 23%, 24% levels, what it used to be about 2 or 3 quarters back. So I mean, what are the sustainable level of spreads that we are looking for, assuming that there could be potential benefit in your cost of borrowings in the coming quarters? And sir, lastly, what proportion of our book will be to customers...
Mr. Tibrewal?
Yes.
Sir, there is an echo coming from the line of the -- from the management's line. Sir, please check. [Technical Difficulty]
So we have to [indiscernible]. Thank you.
Okay. Sir, my last question was what proportion of our AUM would be towards customers to whom you would have lent sometime maybe in August last year? Sir, the idea is to understand -- I mean, can there be a potential situation, where we could have, I mean, higher auctioning in Q3 towards these customers to whom we would have lent when gold prices were at its peak?
Okay. First of all, I did not quite understand when you said the first part of the question that there is not growth or something. I didn't understand what we had said about growth. What is that you said?
No, sir, the idea was just to ask, I mean, how is the demand outlook looking right now?
Right now? Okay. If you put it that way, yes, we see good demand now because we feel that the economic activities have started -- restarted. So we should see good demand going forward in the next 2 quarters, that is the first quarter [indiscernible]. Were you talking about yields or interest spread? The yield is 23%, 22%, 21% is what we should see that yield, 21%, 22%. 23% was just a one-off, which was 1 quarter, that's all. Otherwise, our interest spread has always been 12%, 13%. Yes, [indiscernible] 12%, 13% is what -- [indiscernible] 12%, 13%, that is continuing with that [indiscernible]. So there is always a marginal difference of 1%, et cetera, which is not substantial. And that is also sometimes seasonal, some old loans come in, we get a little more interest spread there. Otherwise, it is always -- it doesn't vary much there. We don't see much difference there also. Now your final question was about the number of loans given that same. So if there are any -- first to answer important numbers, et cetera, is that if there are any loans which needs to be auctioned, it has to be auctioned. That is part of the business. Some people who abandon the loan, they don't come back. There's no option to auction. So auctioning is not a sin. It is -- anyway, if we auction it, we'll get back our money also. Probably, we get a major part of the interest also. In some cases, probably we may not get the full interest. That's all. That has been part of the business, and we will continue to do that also. So in August, et cetera, definitely when the price is right, people would have taken more. Many of them would have repaid. Some of them would not have repaid. Those who are not repaid, they're still not repaying and the industry is not paying or renewing, we'll have no option of auctioning. That's all. Auctioning is not part of the business.
Sure, sir. And sir, what was the quantum of loss with your auction during the quarter?
This quarter.
INR 217 crores.
INR 217 crores.
The next question is from the line of Digant Haria from GreenEdge Wealth.
Congratulations on the great set of numbers. Sir, just wanted your view is that is the price intensity in the gold loan industry, which probably started sometime last year, is it coming to some sort of rationalization or there is still a price war ongoing and we are also participating in that because we may not want to lose good customers in these times? Sir, any insights from you on this thing would be okay, sir.
Sure. There's no price war, but then everybody wants to hold on to their cut of business and nobody wants to the business. That is why what you see, what you call an inverted commerce is price war, et cetera. But then we have to remain a significant player in this. And we will have to do this. We have to sometimes offer lesser rates of -- teaser rates, et cetera. Teaser rates are usually for shorter periods only. After that, it should come back to normal. So it's basically not competition. We have -- everybody needs to grow. [indiscernible] needs to grow. [indiscernible] needs to grow. And now is a time when we are actually competing with bank loans. Earlier, we are not competing with banks. Today, we have to compete with banks also. So it's not part of the business.
Sir, my second question is again linked to this [indiscernible]. See, our cost -- our operating cost to AUM is 3.5%, which is the lowest in the whole industry. So it gives us some room to offer gold loan at, say, 9%, 10%, 11% also. So [indiscernible] level that we've got down these costs. But my question is are there more levers available on the operating cost side that -- where you may maintain the same yield where you can actually deliver same ROAs or better ROAs because the costs keep -- don't go up as much as your revenue and the AUM?
No. The operating cost can only -- it can't go down drastically. It can only be maybe 10 basis points, 5 basis points. Other than that, it can't go down because some of these are -- most of it is fixed also. We cannot go down unless we double the volume from 50% -- if you reach INR 1 crore with the same number of branches, same staff, probably. But that is not -- that's only wishful thinking. But then not to worry, we will see that we maintain our NIMs and the spreads, et cetera. I think that is what you think we are there to do.
Sir, I'll ask it a little different. But if we go from, say, we are right now at 11.5 -- INR 11.8 crores per branch of gold loan AUM, if we, say, reach maybe INR 15 crores, INR 16 crores, INR 17 crores in another 2 years', 3 years' time, would the costs grow in the same proportion or they -- that is where I'm hinting at. Can that lead to some operating leverage and we go down even from this 3.5% OpEx to AUM? Is that scope real or it's unrealistic to expect that?
Yes. So cost will not go up proportionately because many of the costs are fixed. Salaries are fixed, the range are fixed. Probably, a few extra staff may be required, but then it's not [indiscernible]. If you [indiscernible] our business grows 50%, our expenses will not come down by another 35% or so, but probably at least a 10% or 15% reduction in the operating cost can happen. But I think more than the operating cost, it will be try to better the yields and the cost of funding. And that is where more flexibility can be achieved.
Right, sir. And then lastly, my last question is that can we reach a stage where with 15% growth -- has the market for gold loans expanded enough? Like are we seeing really new kind of use cases for gold or new kind of customers that maybe next 2, 3 years, we may actually end up seeing that 12%, 15% kind of growth opportunity for gold loan on an industry level as a whole?
Yes. I think industry can grow even more than 15% because there is a lot of potential. Now when everybody is talking about gold loan and gold loan be convenient and the banks and everybody offering gold loans, the market will expand, no doubt about it. Today, people who are today reluctant to take a gold loan will be interested to take a gold loan. Because definitely, if you look at it in one way, it is the smartest loan available, smartest loan. Take it for some time, once you get the -- or when you get the long-term loan from [indiscernible], you substitute it from this gold loan. That is how people generally use this gold loan.
The next question is from the line of Manan Tijoriwala from ICICI Prudential AMC.
A few questions. Sir, are the customers responding to lower pricing and hence, they're seeing the kind of growth that we have witnessed? So is this how we should interpret the present yields that we are looking at?
What is the question? What is that? I didn't understand it properly, sir.
Sir, basically, we're seeing the yields taper down by around 2 percentage. And we have seen the growth being -- coming back to the company. So is that how we should interpret the present yields that we have on the book?
No. So the average yield always varies by 100 basis points to 200 basis points. That doesn't mean that the volume of business will increase or decrease by x percentage. That is not the parameter for growth. These are all the rate fluctuations or reductions which happens. It's basically the normal situation because of collections efficiencies as well as discounts we offer to the customers and as well as the churning in the portfolio. Because as you might know, gold loans are very short term. And we give a lot of rebates to customers when they close the loans or service the loans in the [ short term ].
Right. Fair enough. Sir, you have seen guiding for a full year growth of, say, 15%. So do we see the growth rate to taper off in the second half? Or what should we interpret that at?
See, the quarter 2, we grew by about a little more than 5%. You should see the same growth. We should -- we have to grow at least 5% in the next 2 quarters, right? Do we think we have any headroom for tapering? No. We have to grow 5% in both the quarters. We are doing it.
Right. Right, sir. Fair enough. And sir, could you provide some color on what sort of LTVs should most of your -- or what sort of LTV should your portfolio be divided into, say, above 80% or above 100% or something like that?
At the time of disposal, there is nothing more than 75%. For the time of disposal, the average LTV should be in the range of every day [indiscernible] LTV should be in the range of 71%, 72%. That's every day, individual day LTV. But if you're asking the change in the price and what we gave earlier and today and adding the interest rate [indiscernible], it is different.
So if you could provide some qualitative or quantitative numbers on that, on the present portfolio?
Average LTV on the portfolio is 33 percentage.
The next question is from the line of [ Ankush Agrawal ] from [ Search Capital ].
So firstly, on the borrowing side, so can you help me understand the split between long-term and the short-term borrowings and fixed rate versus variable rate borrowings?
So right now, mainly we have three forms of -- or four types of borrowings: one, bank borrowings; second is NCD; third is the external commercial borrowings; and fourth is the commercial paper. So the bank borrowings are -- now we are mostly moved to term loans. They're all long-term loans. Secured NCD, second is the long-term installment. And the third one is the external commercial bond, which is also a long-term loan. So purely, short-term borrowing will be the commercial paper, which is roughly about INR 4,000 crores to INR 5,000 crores at any point of time.
Right. And these bank loans, et cetera, are like fixed rate in nature or these are variable term?
No. Bank loans are all floating rate linked to MCLR. Usually, the reset happens whenever there is a rollover of the loan or a reset on an annual basis. If it is a term loan, the reset is on an annual basis.
Right. So sir, do you think we, as a company, based on our past experience and based on the dynamics of business that we are in, there are further room to optimize this borrowing between long-term, short-term and fixed and variable?
So I think we have currently improved in terms of the proportion of the long-term borrowings. Pure long-term borrowings, we have now restricted to only -- to the commercial paper -- yes, short term. So in terms of the floating rate interest, bank loans mostly are linked to -- they don't give fixed rate instruments, except for the period for which it is drawn. Otherwise, all the bank loans are to be linked to the MCLR. Secured NCD [indiscernible] the nature of fixed rate nature. So we have the right mix in terms of proportion between fixed and floating.
Yes. Okay. And secondly, in terms of the leverage [indiscernible] last 5, 6 years, the overall level of the company has fallen from around 4x to 2.5x now. Even though I understand that, as a business, wherein our ROE is more than our growth, obviously there's a devaluing effect. But how do you see your overall leverage that can make them to long term? Do you think you would increase from here or stay over here?
So that is ultimate focus, to improve the leverage at least to a reasonable extent. Maybe we should target 4, 5x. But at least, for the time being, reaching the 5x, it is going to take some time. We don't have a view in terms of what point we are going to reach 5x. But always, the endeavor and focus is on to improve the leverage.
To improve the leverage, you need to know the gold loan book. And gold loan book is not individual loan, retail loans only. So you can't just improve by x crores, et cetera, overnight. It has to be built brick-by-brick. So as the gold loans is improving, I think leverage also will improve, provided it is more than the -- our retail earnings.
Correct. Great. And sir, lastly, just one final one, so over time as the cost of borrowings reduces, so do you think you will be looking to pass on some of these benefits to the customer that you're using the yields and maintaining the spreads or you would look to increase your spreads?
No, sir. Exactly what you said, we would like to maintain a spread, spread and therefore pass it on to the customers. That's what we have been doing always, always maintaining of net spreads and passing on the difference to the customer.
The next question is from the line of Piran Engineer from CLSA.
Congrats on the results. I just have a couple of questions. Firstly, our number of inactive customers is like 3x the number of active customers we have. Have you done any analytics on how many of our past customers now have gold loans with other banks and India's [indiscernible]? And if so, what are we doing to get them back? That's my first question. And the second one is what is our Stage 2 loans ratio? So yes, these are the two questions.
Okay. So see, inactive customers are customers who come to the company, take a gold loan. Afterwards, when they've got the gold loan, they go and take back [indiscernible]. The [indiscernible] are in their [indiscernible]. They'll come back only when they need the second loan. So almost, always, 80% of our customers are repeat customers. So they would have done the transaction with us maybe 1 month back, 6 months back, 8 months back. Only whenever they need the loan, they'll come back. So that is our concern. What we do constantly is always reminding them that we are still there and giving better service to the customer. They will prefer to come back to us. We cannot force them to come back to us. To answer your question on whether we -- generally, we feel that they take a [indiscernible], they will come to us only. That's what -- but we have not done a study of all these customers, whether they have taken a gold loan and from elsewhere. We can only understand from what our managers and [ fee staff ] tell. If they see that they're the first choice for them, even our old customers will need to come back to us.
Sir, would that be very difficult to do, given that we have the KYC done at the time of the loan and we have the credit bureau? So would that be a very difficult thing to do?
I think it may be possible, we are not trying [indiscernible]
Okay. So because just wanted to understand the sense of whether a customer first picks a loan from you and then later on, he goes to a bank. I'm just trying to understand the progression of the customers like that, sir. So that is why I was asking.
It happens with very big loans, maybe INR 50 lakhs, INR 20 lakhs, et cetera, where the interest differential will be substantial, et cetera. But still, it is not simply just the consideration for shifting from Muthoot to somewhere else but some other considerations also. Definitely, there will definitely be some people going from Muthoot to a bank or maybe to sometimes an NBFC also. But generally, it may be only to a bank.
Okay. Sir, on the Stage 2 loans ratio?
Stage 2 will be INR 6,153 crores, around 11%.
The next question is from the line of Shubhranshu Mishra from Systematix.
A couple of questions. One is that are we really cheaper than the banks and sub-INR 50,000 ticket sizes, if we add up all the fee that is levied to the customer by the bank? That's the first question. Sir, the second question is on the cash [indiscernible] percentage of balance sheet. It's almost up from 12-odd percent, which is a decadal-high, sir. And with so much of liquidity, why are we carrying so much of cash on the balance sheet? And the third question is, sir, if I look at the loans that's getting processed per branch and on a quarterly basis, it would be around INR 1,800-odd levels. How do we increase this? What is our strategy to increase this from the new customers? Three questions, sir. And my fourth question is on a data-keeping question, what is the interest accrued for this quarter?
Yes. Comparing [indiscernible] of charges, et cetera, there are several charges, which some banks charge. There are several charges which others charge for us. We try to keep it as customer-centric as possible that we don't take any upfront charges. We don't take any appraisal charge. We don't take any [indiscernible] charges, et cetera, and the interest on that actual number, those are some of the things which we offer our customers. So probably, everything cannot be combined apple-to-apple from one company to other company. But generally, the customers have the feeling that other than banks, which give a very low rate, we have the most reasonable [indiscernible] NBFC with regard to not only the interest rate but many other charges, customer-centric activities, et cetera, which we do for them. Your second question was about the...
Interest accrued, it is INR 2,384 crores.
Can you repeat the number, sir?
INR 2,384 crores, interest accrued.
Sure. And cash, why are we carrying so much of cash?
Liquid cash.
Yes. So okay. See, I think, we have been maintaining a higher level of liquid cash. I think since COVID has started, we are conscious about the fact that we are [indiscernible] but the time to record a higher level of cash. I think once now, since we are upgraded to AA+, I think gradually, we will think about reducing the level of cash holding. But still at least for some more time, we'll have to maintain that higher level of cash flows. But over a period, we would like to bring it to a reasonable level.
Right, sir. And one question remains unanswered, sir. The number of loans, how do they increase per branch from new customers?
I think new customer, the numbers we have probably in the presentation, that's about 3 lakhs.
3.5 lakhs, new customers, all put together.
The next question is from the line of Amit Mantri from 2Point2 Capital.
Sir, just on a question of branch expansion, now when you look over the last 1 year, there isn't barely any branch expansion that have happened. And even when compared to 2 years back, you added only 18 gold loan branches. So what's the plan going forward? And how much approval do we have from RBI on how many branches that we can open over the next, say, 2, 3 years?
Yes. See, we would have -- in the last 2 years, we have opened 80 branches. We would have probably crossed or [indiscernible] 200 branches also. So [indiscernible] about 400. We have done maybe [indiscernible]. So that would have been -- I don't know the exact number, would have been 100, 200. So this year also, the numbers have not been -- we've not started too many branches. I think there's nothing like an approval from the RBI, whenever we require a branch, we go to the RBI and they give the permission. We don't take any approval and keep it with us. So when we require a branch, we go and approach them and get the approval.
Okay. So I think one of your competitors had mentioned that approval from the RBI has been a little bit delayed. And because of that, the branch expansion plans are not on track.
Probably, he is right. I don't know, probably maybe right.
But that is not the reason why branch expansion has been a bit tepid.
No.
The next question is from the line of Veeral Gandhi from Ninety One Capital.
You mentioned earlier that the competition has increased somewhat. Can you just explain where the competition is coming from. Is it from banks? Or is it from NBFC?
Okay. In competition -- not competition, I think people have become aggressive. We don't call it competition. Everybody has been doing gold loans. There are banks, et cetera. Now they are also aggressively doing gold loans for reasons, when everybody knows that a good portfolio to be had in the books is a gold loan. So that is everybody -- every bank worth its name is also doing it, upping the gold loan. There are some NBFCs also now started taking up gold loans. Probably, they were also having the same thoughts about this. But here, I would like to add a word of caution. Not -- caution is that this is not as easy because as it looks outside. So probably gold loan, you may not have NPAs and the bad loans, et cetera, nonperforming loans or [indiscernible], et cetera. But operationally, it is very challenging. It's very easy to do a small 2 branch, 3 branch, 10 branch, 15 branch of gold loan. But when you start to take it up, all these operational issues and operational challenges come up and probably we have passed that. So we are aware of that. When new branch is coming, they will realize as time goes by.
And just one follow up on that is do you have any views about how long this period of competitive intensity could last?
We didn't get you properly. What is it? We didn't understand.
How long do you think that your competitors will be aggressive? Do you think that it will last for...
No, we will be aggressive. No, we don't actually need to worry too much on that. If more and more people are coming into the market is also expanding. It's not that there is only x amount and they're taking away 20% from us and 5% from -- no, no. The market is also expanding with banks and everybody is advertising and doing gold loan business. More and more people -- more and more customers may think of taking gold loan as option. So that is what we should see. How long they we will -- for them, probably, if the economic activity or their core business comes back to normal, usually, that is what we have seen that the same thing happened in 2008 also when everybody jumped into the bandwagon and when there was a big problem. And afterwards, when their own sector started coming back to normal, they lost interest in this because that is not their focus. And only the focused companies remained and focused to gold loan. Others came in, they saw something. When their core business, all the core business started back, they went back to their own core business, where they had probably more strength. So it will depend on such factors also.
The next question is from the line of [ Pavan Kumar from Ratnat Capital ].
So sir, what is the incremental LTV that we are lending at? And how do we actually determine this particular LTV to lending?
Actually, we offer customers different options where we were low LTV, low interest, higher LTV, higher interest options, et cetera. But on an average, what we've seen is some people take the 35%, some people take lesser, some people take even lesser. On an average, on a day, we don't lend more than 75% LTV. But on an average, if you take everybody taking loan and if you find out the LTV -- average LTV, it should be in the 70%, 71% rate, sir.
Okay. Okay. And since there has been a sharp -- if we compare it, say, with 1 year back, your LTV on an average used to be somewhere around 63%, and now it is around 73%. So -- I mean, I'm just trying to understand what has been the change exactly, in a sense?
It's simply just if today, the price of gold goes up by 10%, our LTV from 73%, it will come on 61%. Simple as that. So at that time, the price subsides, so the LTV is lower. So when the price is stable, it will be in the 70%, 71% range. When the price goes up, LTV will come down. If the price goes down, the LTV will go up.
But sir, at that point of time, again, you would have lended only 70%, 75% LTV only, or else you were landing lower at a higher price. Was that the strategy? That is what I'm...
The LTV will be much lesser. The incremental rating is what I said, 70%, 71%. That's always 70%, 71%.
Okay. Historically, you are saying LTV was lower?
Yes.
The next question is from the line of [ Nishant Shah ] from Point72 Asset Management.
Congrats on the results. I'm trying to understand the different types of customer bases that you have. So I take it that, like most of our customers are going to be those small-ticket rural, semi-urban kind of customers where you would not see very material bank competition. But if you could kind of split your AUM into slightly, say, higher ticket kind of like customers where banks are active and say semi-urban geographies where also banks are active, what percentage of your AUM is theoretically at risk from competition from either say, banks or large NBFCs or whatever else? That's my first question.
Okay, to answer your question on a lighter note, it is not that we are afraid of banks. And sometimes, we also give lesser rates than banks. So it is only bank...
Hello?[Technical Difficulty]
Ladies and gentlemen, the line for the management has got disconnected. Request you all to please stay on line while we reconnect them. Thank you. Ladies and gentlemen, thank you for patiently waiting. The line for the management is reconnected. Thank you, and over to you, sir. [ Mr. Nishant Shah ]?
Yes.
So what I was saying was it's not that we are -- we will not, at any point of time, be able to compete with bank. If necessary, we can even compete with banks on rate. That's not a question. So your question is whether we have bigger portfolios, which are bigger sized portfolios, which are likely to go to banks. I think that is your question.
Yes. It's not likely to go, but at least like face some competition where you'll have to kind of like work a little to retain those customers. Yes.
There is whole -- the whole thing is dependent on what is the option this borrower has that we have an alternative. If he has an alternative, there is always a risk that customers might or can move to an alternative lender. Not necessarily it should be for gold loans. It could be an alternative loan product. That business is always there. But given the flexibilities of the gold loan, given the fact that it is -- it could be disbursed in a very short period of time and customers can easily meet this requirement for a shorter term. But if this customer's basic requirement is for a longer-term product, certainly, he might actively look for an alternative ways. And if we have an alternative availability, certainly, he can move over.So being a large book, there is always a possibility that some customers can move. But another way we have consistently managed to grow our book and maintain our yields shows that there is a large customer base, which is willing to come and take a gold loan. So we don't consider that as a significant risk.
Yes. No, I'm particularly kind of like asking about competition from banks in a gold loan product. I fully agree with you regarding like the other competitive products, they're not as value add but not as flexible at least as a gold loan. But banks are rolling out a lot more gold loans as well, we see it with HDFC or SBI or anyone. So that was the sole kind of like thought of trying to understand what percentage of the AUM could potentially be at risk?
So that kind of a portfolio being identified that this kind of customers can move on to another lender. So the way we look at this, look, all these banks have grown in the last 6 to 9 months, but we have not been still. We have been able to grow the book. So there is a market which is available. And again, we are repeating that we are not concerned about customers moving to an alternative player or a bank because there is a market available, niche market available for us. And certainly, we'll be able to grow in spite of the competition exists.
The next question is from the line of [ Harshvardhan Agarwal from IDFC AMC ].
Sir, just wanted to understand the option that we do, is it like bunched more towards the end of the year? Or it's evenly spread out during the whole year?
Yes, it is spread out during the whole year. We will do it weekly, monthly, depending on rates in some regions. Today, every day, some auctions are happening somewhere. Every day, something is happening somewhere.
All right. So the reason I asked is because if I were to look at some of the data that we published in the annual report regarding the amount of auctions that we do, I see that between FY '17 to FY '19, our annual average is somewhere around INR 1,500 crores of worth of auctions is what we do. But in the first half, same date, we have done somewhere around INR 250 crores, INR 300 crores of auctions. So should we assume that this historical average number is what we would be at for -- in the second half, like we'll catch up with that number? Or the auction will be way less this year?
No, I think the historical average, I don't know from where you got it. Last year, our auctions are...
INR 385 crore -- for FY '21, auctions are very less, INR 385 crores.
Absolutely, INR 400 crores, right? That year, it was INR 800 crores. And that is -- I think that's all. Even if we need to auction INR 800 crores or INR 1,000 crores in a year, the book is also growing. 2-year stack, our book was only 25% less than what we see today. Even then, we did INR 800 crores of auction. Last year, because the prices are actually good, we did not have to do with auctions. So this year, probably we may have to do more auctions. But it is part of the business. Auctions is part of the business. You see, we don't lose any money because of auctions. Only that customer has abandoned the gold is not coming back and taking it, then we have no other way other than to auction it.
The next question is from the line of Manan Tijoriwala from ICICI Prudential AMC.
Sir, one forward question on what was asked earlier. So when you mentioned there are around 11% Stage 2 assets as at end of September '21, could you provide a corresponding number for the previous quarter? And what sort of rollback of power flows should we expect from that book?
No. I think previous quarter, I think the number was less. So this quarter, and as of September 30, Stage 2 asset is about 11 percentage. And I think your question was how much of this rollback will happen out of this state right now? 11%, right?
Yes.
Yes. So we are conscious about this number, and we are looking at various methods to control this number and look at our track record in terms of managing this overdue book. And finally, just because an account is an NPA, we don't lose anything. We recognize the interest growth also once an asset becomes Stage 3. So to answer your specific question, Manan, we are taking active effort in terms of controlling this number. Let's wait until December 31.
And sir, one question, how much would have been the OpEx in this previous quarter on advertising during the IPL?
I still -- we're not sponsoring this IPL. No, no. I think it was the other offers, which is doing very good. We stepped back this year.
[indiscernible] but that doesn't -- we don't have any sponsoring towards IPL.
The next question is from the line of [ Bumishka ] from Investec.
I have a couple of questions around the interest rate. Firstly, just want to know what is the lowest interest rate offered by the Muthoot Finance on gold loan? That is my first question. And the second question is on the website, I see there's an advertisement for 57% types of loan. So just want to understand how does it commensurate with our overall yield of about 20%, 21%? So that's the second question. And third question is on the -- how do you categorize customers on different interest rates, like what category of customers -- which category of customer get lower interest rate and which category of customers get higher interest? So these are my 3 questions.
So as you said, our site advertises 57% because we need to compete with the market. So 57% is correct. That is the lowest we need to offer to our customers. These are all [indiscernible] rates. So when we give [indiscernible] rates, we see that finally, we get a reasonable or good interest rate. That is our business model. This is not nothing new. We have been offering this earlier also, lower rate, et cetera. So we have to maintain our market share. We have to maintain -- we have to be competitive in the market, come back to others when somebody is -- others are offering at low rates, we should also see that we also offer the sure rates. But it's all do to see that we maintain a reasonable margin and outcome. How we do it is actually good enough.
Okay. And on the customer categorization, I mean, which customer -- how do you categorize customer on interest rate? Which customer do you offer lower interest rate?
I think that is also a function of the branch. We leave it to the branch to offer customers lower rate, et cetera, so that their customers are kept happy.
The next question is from the line of Shweta Daptardar from Prabhudas Lilladher. As there is no response from the current participant, I have muted the line. The next question is from the line of Vikram Subramanian from Spark Capital.
So my question is a bit on the operational aspects. First, on this competition on the [indiscernible] rate and the yields that have been discussed quite a bit during the call. I would just like to know, operationally, at the branch level, what other matters can the branch or do the brand stuff follow to increase customer walk-ins, customer [indiscernible] their market share, which is especially critical during this time of slightly increased competition? And also, operationally, what do the branch staff do to control that particular branch's of NPE, when, say, for example, tomorrow, there is a, say, 5% drop in gold price. How do we react to that? These are my 2 questions.
So on branch marketing, we have a good marketing team, sales team, et cetera, who go out and do activities, all ground activities. Usually, the branch staff will not go out for that. Only occasionally, there are companies [indiscernible] otherwise, there are branch activities, but not every day there is an activity. It's just in pockets, we do these outside activities for this.The second one, your question is about the [indiscernible]. It is done at the CBS level because [indiscernible] core banking, core bank system. So any change we do, we can just do it in 1 second in the computer center, the branches cannot go beyond that. That is -- the rates are set at the end of its [indiscernible]. So there's no operational flexibility for the branch.
Sir, second question was on how to control LTV. So meaning, you said because of the core banking system, incrementally, LTV...
Certainly, I think, I guess that we set it at the maximum of 25% of the base price. It is not very day. Every day it is set. If today's gold price is X, we set to 225% of that as the maximum which a branch can do. That is set every day.
So if gold rates fall, say, maybe 5% or 10%...
No. It is -- the LTV will be falling tomorrow.
Only on the incremental loan, right? On the existing loans, that is...
You will, sir. You will see it.
Got it. Got it. And just one add-on there. I couldn't that correctly, maybe there was a problem with my line. There was some mention of branch expansion. Could you at least elaborate on that, sir. Branch expansion plan for the current target at 100 for this year and maybe the next couple of years?
Whenever we need branches, we -- of course, there are some planning function for that. So we have -- whenever we feel that there is branch expansion, first, we'll do that. We plan to open about 100, 150 branches in the next 12 months.
The next question is from the line of [ Prolen Nandu from GMO ].
I hope I'm [ allowed ] 2 questions from my side. Not related to your positioning, but what is the -- we have had in the past, we're seeing some correlation between marketing spend and loan growth. While gold loans continues to be sort of a pull sort of product, but you're not so much acquiring [indiscernible] and we have associations with some of the great branch, like China, and we have some innovative campaigns in and around home data. I just wanted to understand, is there any particular strategy or reason why we're deciding to stay from CFA and IPL this year?
No, no. We have been -- yes, we associate with IPL for so many years, because that's a huge upgrade, at least once in a while. So let us see whether we can come back into more detail after that. That's all. Nothing more than that. We still have the [indiscernible] and the other things with us. And I think it's not that [indiscernible] just because of IPL or -- we also understand, whether we thought IPL also whether we can get business [indiscernible]
Fair point, sir. Another -- second question is that we -- some time, a couple of months back, we have seen there were memorandum of association and now we can do a lot more things from our branches. Any color on that? Do we have plans to -- because we have amazing -- I mean, huge footfall right on a daily basis to our branches. Anything to monetize the footfall further? And -- I mean, any -- I mean, is this change in memorandum of association in that direction?
We have got an enabling [indiscernible] memorandum of association [indiscernible]. Obviously, we think as well our -- should we changing -- flexible and changing these deals. So we don't want to go to the shareholders approved. So we have capital approval, probably something will come up. Some of the associations will come up. We already see people coming and talking to us, can we do that, can we do this in the branch. And we are assessing those. And if we feel beneficial to us and they're not troublesome to a customer, we will start it. So it's just not [indiscernible].
The next question is from the line of Nirmal Bari from Sameeksha Capital.
It's just a clarification. This Stage 2 asset that you mentioned of 11%, so at what point do we classify a loan as Stage 2?
More than 30 days.
Already for more than 30 days.
All them for more than 30 days.
So is it the interest of [indiscernible] that it's more than 30 days? Or when the principal is -- becomes overdue for more than 30 days?
No. Either one of them for gold loans because interest is required to be paid only at [indiscernible] loan maturity date because there is no installment or interest payment contractually required for the customer in between.
Okay. So for a general loan of 1 year, when the loan crosses 1 year and 30 days, that is when it would be classified as Stage 2?
Correct. Correct.
The next question is from the line of Shweta Daptardar from Prabhudas Lilladher.
Am I audible?
Yes, yes.
So a couple of questions. Sir, when you say fresh loans with new collateral to existing active customers, and which has been consistently growing for you, am I getting it right if I put it across, like, is it that once the existing loan is completely repaid for and if the same customer comes back with the same collateral with a freshly loan, then it's counted as a new collateral and a fresh loan to the existing customer? Am I getting the contours of this correct?
The customer [indiscernible] won't change this time. He takes it back. Next time he brings a [indiscernible], we actually do not know whether it's the same chain or not. Anyway, if he's bringing a new -- fresh loan and investing.
Right. Right. So this is not like -- because one of your peers do that. Like when the loan is still going on, and gently, they call up the customers closer to the maturity period, and that's where they kind of insist that you can further go renewal and then it's counted as a new collateral.
They have to take back the gold and they renew, take a new loan. Yes.
Okay. Okay. Sir, secondly, when you mentioned Stage 2, 11%. And even if I look at overall Stage 3, 1.85%, although you've been mentioning that the recoverability value of the underlying assets is absolutely 100% and your auction numbers are also lower, but what are these category of customers? Were they victim of pandemic challenges? Was it because of your shorter loan tenure because of the high churn rate in the book? Or is it because of the underlying price fluctuations? So what exactly has led to this kind of slippage?
It is not that we go and treat customers [indiscernible] customers don't work well, you go and ask them where is the COVID [indiscernible]. No. But usually, we don't need to do that because there are no EMA requirements in this. There's no monthly commitment for this. So we have the time -- all the time in the world for 1 year to repay the loan at any point of time. So if they bring money, face it, that's all. And it is not worthwhile, it's not viable also to go at ask and find out from the customer, what is his problem. But the fact is that if we pay the interest properly, if we're servicing the note, he can continue with the loan. If he finally is advancing the loan, we're all for it. That's it.
Okay. So any loan repayment extensions given in the period due to which this must have also happened?
No. When we -- whatever you see as NPA in the books currently is the expirations we have told to the customer. So when customers request for several time and the branch is also reasonably optimistic or hopeful that they will pay and he says go and auction my gold, so we deal an auction and give them 2, 3 months' pay. That is what you see as NPA in the books. Those are NPAs that we have consciously given time to the customer. If not, we will have auctioned the gold and have [indiscernible] fee.
Okay. Okay. And sir, absolutely the last question. You mentioned about competition. But then it's been observed that last couple of quarters, the unorganized market, which has the lion's share in the gold lending business, has also kind of throwing huge competitive intensity. Sir, would you like to comment there besides what you were talking about banks and bigger NBFCs getting into the game?
We have not much visibility or information about the growth of the unorganized sector. I don't know from where you got that information. They're probably maybe growing also, I'm not sure about that. If they are growing, I don't think. Definitely, they are a competitor for us. There are such customers whom they also -- there are customers who go to them. Whatever be the rate, whatever be the company, whether it's bank or NBFC, there are still some customers who will still go to another bank. We still have their market share and their market. We will continue to do that. Whether they have increased their business. I'm not sure, madam.
Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.
Here -- George Alexander Muthoot here. I have with me our Chief General Manager, Bijimon; and our CFO, Mr. Oommen, and he'll give [indiscernible] here in the call in this head office. The others -- the other Directors, et cetera, have attended the meeting from there, off-site. So thank you for supporting us. All of you have been always been a big support for Muthoot. And we will continue to respect your views. We continue to grow and maybe be of value to all our stakeholders. We assure you that, and wish all the best. Once more, happy Diwali and a happy New Year. Thank you.
Thank you. Ladies and gentlemen, on behalf of Batlivala & Karani Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.