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Manappuram General Finance aims to raise Rs

1000cr via QIP

Published on Wed, Aug 25, 2010 at 16:33 | Updated at Wed, Aug 25, 2010 at 18:15 | Source : CNBC-TV18

Gold loan company,Manappuram General Finance, is looking at raising funds via a qualified institutionalplacement (QIP). To add to next year¶s growth plan, the NBFC is looking at raising Rs 1,000 crore in thethird quarter of FY11.

VP Nandakumar, the CMD of the company, spoke to CNBC-TV18¶s Lata Venkatesh and

Sonia Shenoy

about the latest happenings in his company and sector.

Excerpts from

Midcap Radar on CNBC-TV18 Watch the full show »

Below is a verbatim transcript of the interview. Also watch the accompanying video.

Q: How much do you plan to raise through the QIP and by when would this fund raising becompleted?

A: This year¶s growth was beyond our expectations. We hope our loan book will grow to a size of aroundRs 7,000-7,500 crore this year. Our regulatory capital requirement is around 15%. That calls for raisingour equity to a higher level of Rs 1,200 crore. We maybe falling short by Rs 400-500 crore this year. For next year¶s growth plan, we have to augment capital further. We plan to raise capital of Rs 1,000 crore bymost probably the last quarter of this year.

Q: All this will be largely for the gold business?

A: We are essentially a gold loan company. So the capital requirement is to fund our business growth ingold loan.

Q: Isn¶t the capital adequacy at the moment 12% and it has to be increased to 15% from the nextApril 1 or is it already 15%?

A: It is much above 15% now. Our expectation is that the current year will reach a size of Rs 7,000-7,500crore. We are planning ahead, so there will not be any shortfall in regulatory capital at any point of time.We will be well ahead of that. Even if we raise during the last quarter, we will not be falling short of our capital adequacy requirement.

Q: That would mean a huge spectacular rise in your loan book from Rs 4,000 to 8,000 crore inFY11. What would happen in FY12 and what would that do to the net interest margins as well?

A: Net interest margins that we enjoy are around 3-4%. We are hopeful that it will be maintained at thatlevel of 3-4%.

Q: If you looked at your average quarterly balances, your net interest margin looks much better. Itlooks almost 17-18%.

A: One thing, which has to be included, is the asset taken away by bilateral assignment. If that isincluded, the net interest margin is around 4-5% only. The balance sheet what you see is the asset after the bilateral assignments taken out.

Q: Does it mean that when people don¶t pay back the loan, you are able to sell off the gold and themoney made on that, is that what you are saying?

A: It is not like that. The money is raised either through onbook funding or offbook funding like bilateralassignment. When we raised money through bilateral assignments, the asset is taken out of our booksand the buyer of that asset, the assignee of that asset that is bankers-in the bankers¶ book these assetswill form part. When you take that into account also, then the net interest margin is around 4-5%.

Q: What would all of this do to your asset quality? Where do you hope that the gross non-performing asset (NPA) levels would stand at by FY11? How are the spot prices if at all affectedthe business? We understand that a major chunk of the increase in net profits is because of theincrease in spot prices as well? Can you give us more clarity on that?

A: It is not like that. Whether the price of gold increases or decreases, that doesn¶t affect our profitabilityat all. Only the value of the collateral perhaps increases. We are not merely lending against bullion, weare lending against bullion plus.

This plus is a sentimental attachment for an average borrower. Our ticket size is around Rs 25,000 only,and the average loan durations are 100 days. Whether the gold price goes up or goes down for anaverage customer whose ticket size is Rs 25,000, the average loan is for a period of three months. Theseare also household jewelry ± the price volatility is neither a cause of concern nor is it a contributor toprofits.

Q: Do you want to stick to the gold business or if and when licenses get opened up, you will wantto apply for a banking license or expand your business beyond gold?