Ladies and gentlemen, good day, and welcome to the Muthoot Finance Limited Q2 FY 2022 earnings conference call, hosted by Batlivala & Karani Securities India Private Limited. 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 star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sanket Sheth, Head of Sector NBFC at Batlivala and Karani Securities India Private Limited. Thank you, and over to you, sir.
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. We have George Alexander Muthoot, who's MD, George M. Alexander, the DMD, George M. Alexander, who's Executive Director, George M. George, who is ED, George Muthoot Jacob, who's ED, Eapen Alexander Muthoot, 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. Now, I hand over the call to George, sir. Over to you, sir.
Thank you. Thank you. First of all, happy Diwali to all of you. Sorry that we had to conduct the meeting near the Diwali time. Anyway, now that Diwali is behind us, we are back to normal. As far as the company is concerned, the consolidated assets under management is now stands at INR 60,900, which is up by about 17%. The consolidated profit after tax INR 9,981, which is also up by 11%. As far as the standalone assets under management for Muthoot Finance, it is INR 53,187, which is 17% more than the earlier one. The standalone profit has increased to INR 9,965, which is up by 13%.
This quarter has shown better performance compared to quarter one which was almost a flat growth quarter. Profits were adequate in the first quarter, but growth was not there. This time we have been able to grow by about 5% just in this quarter. We continue with our guidance of the 15% yearly growth target. We hope that we will be able to reach the 15%. If things are looking better in the months to come, probably it will be better than 15%. That is about the guidance for the growth. Profit has been okay. What else is there? The subsidiaries, Muthoot Homefin has actually come down in its AUM.
It has come down to INR 1,640 crore because we've not been aggressively lending, and there is always the installments coming and the book going down because of the installments being paid by the customers. The net profit here stood at a very meager profit of just INR 0.23 crores. For the half year, it is INR 0.71 crores. Stage three assets stood at INR 4.73 crores as of September as compared to INR 5.94 crores in the previous year. It's a little better than, and the net after stage three is INR 2.77 crores.
Belstar Microfinance has started lending, and the book has grown from INR 2,687 crores last year to INR 3,354 crores. But it has showed a profit after tax of INR 2 crores and 4 crores in the next quarter. The stage three assets decreased to 3.61% as of September as compared to 3.67%. The net stage three of provision is at 1.02%. Compared to other microfinance companies in this league, we feel that Belstar has done a good work. Muthoot Insurance Brokers, yes, it is a 100% subsidiary. It has a total premium collection of INR 98 crores, INR 159 crores for the half year.
It has received a profit after tax of INR 5 crores for this quarter and 9 crores in the last quarter. For the half year it is 9 crores. Asia Asset Finance, the subsidiary based in Sri Lanka, where we hold 72% of the share capital. The assets grow to LKR 1,457 versus 1,498 last year, an increase of 12%. Glad to say it has achieved a small profit after tax of LKR 2 crores. Glad to say that the portfolio is now skewing towards gold loan, and today it's about 60% of the portfolio is gold loan.
Going forward, probably in the next 4 or 5 quarters, we should see it also reaching 85% or 90% just like Muthoot Finance. Muthoot Money, the wholly owned subsidiary which is doing vehicle finance, has not had a good quarter because there were still a lot of write-offs and a bad collection, bad payments there. The portfolio is of course small. It is only INR 282 crores. The revenue stood at INR 13 crores when we achieved a profit after tax of INR 0.92 crores. The vehicle finance sector especially is not doing well, and the stage three assets net of provisions stood at 12.89%. The vehicle finance is limping back to normal very slowly only.
Our assets, I think after this quarter, the company should start doing well. We have started more lending. Lending has started in Muthoot Money, the vehicle finance as well as the home finance, where we see in the next quarters the book also growing. Always there is 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 crore for this year versus 4 crore in the last year. That is the credit loss. 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. The average ticket size almost the same, INR 60,000-62,000. The number of employees also same, 26,000 and 26,000. I think that should take care of the you know, the major activities in this quarter. Now, I think we are open for questions.
The first question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yes, sir. Thank you for taking my questions, and wish a very happy Deepavali. Just three questions here,
little more louder, please.
Sir, can you hear me now?
Now, yes. Yes, yes.
Yeah. Thank you so much. The first question is on the demand outlook. Sometime during Q2, you had appeared on various media channels and participated in various conferences wherein you had highlighted that the gold loan demand was not looking as great as last year, which is obviously very natural. But already 40 days in the current quarter, how is the demand outlook looking like now? That's my first question. The second question is on spreads. What we are seeing in the last two quarters, the yields are averaging around that 21% mark compared to around those 23%-24% levels that it used to be about two or three quarters back.
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? Sir, lastly, what proportion of our book would be to customers-
Excuse me, Mr. Abhijit Tibrewal.
Yeah, please tell me.
Sir, there is an echo coming from the management's line. So please check.
Echo from what side?
Yes, sir.
Is it better now?
No, still there is an echo coming from the management line.
Is it okay now?
Better, sir. Thank you.
We had to switch off our AC. 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? The idea is to understand, I mean, can there be a potential situation where we could have 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 no growth or something. I did not understand what we had said about growth. What is that you said there is-
No, sir. The idea was just to ask, I mean, how is the demand outlook looking like now?
Demand outlook. Okay. Yeah, okay. If you put it that way, yes, we see good demand now because we feel that the economic activities have started restarting, so we should see good demand going forward in the next two quarters. That is the first part of your question.
Okay. There is a yield.
Were you talking about yields or interest spread? The yield is 23%, 22%, 21% is what we should see the yield.
Twenty-one.
21%, 22%. The 23% was just a one-off, which was a one quarter, that's all. Otherwise, our interest spread has always been 12%-13%.
It means.
Yeah. It means. It just means 12%, 13% is what?
Yeah.
This has been 12%-13%, that is continuing with that only. There is always a marginal difference of 1%, et cetera, which is not substantial. 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 is about the number of loans given that time. If there are any, first, to answer without any number et cetera, is that, if there are any loans which needs to be auctioned, it has to be auctioned. That is part of this business. Some people who abandon the loan or they don't come back, there's no option other than to auction. Auctioning is not a sin.
This, anyway, when we auction it, we 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. In August, et cetera, definitely when the price was high, people would have taken more. Many of them would have repaid, some of them would not have repaid. Those who have not repaid, if they're still not repaying and the interest is not paying or renewing, we'll have no option other than to auction it. That's all. Auctioning is not, it's now part of the business only.
Sir, and sir, what was the quantum of loans which were auctioned during the quarter?
This quarter.
Two, uh, two hundred and seventeen crores.
Two hundred and seventeen crores.
All right, sir. Thank you so much. Wish you the very best.
Thank you.
The next question is from the line of Vighnesh Arya from GreenEdge Wealth. Please go ahead.
Yeah. Hi, sir. Congratulations on the great set of numbers. So just wanted your views that, you know, 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 going in? You know, we are also participating in that because we may not want to lose good customers in these times. So any insights from you on this thing would be appreciated.
There's no price war, but then, everybody wants to hold on to their turf of business, and nobody wants to lose business. That is why, what you see, what you call an inverted commas is price war, et cetera. 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. Intensity of competition, not competition. Everybody needs to grow.
This also needs to grow, other also needs to grow. Now is a time when we are actually competing with banks also. Earlier, we are not competing with banks. Today, we have to compete with banks also. It's all part of the business only.
Right, sir. My second question is again, you know, linked with this only that, see our cost, our operating cost to AUM is 3.5%, you know, which is the lowest in the whole industry. It gives us some room to offer, you know, gold loan let's say 9%, 10%, 11% also. You know, it's commendable that, you know, we have got down these costs. My question is, are there more levers available on the operating cost side that you know, you may maintain the same yields, but you can actually deliver, you know, same ROAs or better ROAs because the costs don't go up as much as your revenue and the AUM.
No, 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 most of it is fixed also. It cannot go down unless we double the volume from 50,000, if we reach 1 crore with the same number of branches, same staff, probably it will. That's only wishful thinking. Not to worry, we will see that we maintain our NIMs and the spreads, etc. I think that is the only thing we are there to do.
Right, sir. I'll ask this a little differently, that, you know, if we go from, say, you know, we are right now at INR 11.8 crores per branch of gold loan AUM. If we, say, reach maybe INR 15, 16, 17 crores in another two years, three years' time, you know, would the costs grow in the same proportion or, then, you know, that is where I'm hinting at that. You know, 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?
Yeah, the cost will not go up proportionately because many of the costs are fixed. Salaries are fixed, the rents are fixed. Probably a few extra staff may be required, but then it will not go proportionate to that. If to answer your question, if our business grows, per branch 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, trying to better the yields and the cost of funding. That is where, more flexibility can be achieved.
Right, sir. Lastly, you know, my last question is that, you know, can we reach a stage where, you know, with 15% growth, you know, has the market for gold loans expanded enough? Like, you know, are we seeing really new kind of use cases for gold loan or new kind of customers that-
You know, maybe next two-three years, we may actually end up seeing that, you know, 12%-15% kind of growth opportunity for gold loan as an industry level as a whole.
Yeah, 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 being convenient, and the banks and everybody offering gold loans, the market will expand. No doubt about it. No doubt about it. Today, people who are today reluctant to take a gold loan will be encouraged 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, when you get the long-term loan from somewhere else, you substitute it from the gold, this gold loan. That is how people generally use this gold loan.
Right. Okay, sir. Thank you so much for all your responses and all the best to the team.
Thank you. The next question is from the line of Manan Tijoriwala from ICICI Prudential AMC. Please go ahead.
Hi, sir. A few questions. Sir, are the customers responding to lower pricing and hence we're seeing the kind of growth that we have witnessed? Is this how we should interpret the present yield that we are looking at?
Number one question. Could you please? What is that? Please understand it properly, sir.
Basically, we've seen the yields taper down by around 2%, and we've seen the growth coming back for the company. Is that how we should interpret the present yield that we have on the books?
No, the average yield you know always varies by 100 basis points to 200 basis points. That doesn't mean that you know the volume of business will you know increase or decrease by X%. You know that is not the parameter for growth. You know these are all the rate fluctuations or reductions which happens. It's you know basically the normal fluctuations because of collections efficiencies as well as you know discounts we offer to the customers and as well as the churning in the portfolio because as you might know you know gold loans are very short-term and we give lot of rebates to customers when they you know close the loans or service the loans in the short run.
Right. Fair enough. Sir, we are still guiding for a full year growth of, say, 15%. Do we see the growth rate to taper off in the second half, or what should we interpret that as?
Quarter two, we grew by a little more than 5%. You should see the same growth. We have to grow at least 5% in the next two quarters. I don't think we have any headroom for tapering now. We have to do the 5% in both the quarters. We'll do it.
Right, sir. Fair enough. Sir, could you provide some color on what sort of LTV should your portfolio be divided into? Say above 80% or above 100% or something like that?
No. At the time of dispersal, there is nothing more than 75%. At the time of dispersal, the average LTV should be in the range of 70-75 every day. Yesterday's LTV should be in the range of 71%-72%. That's every day. Individual day LTV. If you're asking with the change in the price and what we gave earlier and today and adding the interest, et cetera, it is different.
Yes, sir. If you could provide some qualitative or quantitative numbers on that, on the present portfolio.
Average LTV on the portfolio is 73%.
Sure. Fair enough. Thank you.
Thank you. The next question is from the line of Ankush Agarwal from Surge Capital. Please go ahead.
Yeah. Hi, sir. Thanks for taking the question. Firstly on a borrowing side, so can you help me understand the split between long-term versus short-term borrowings and fixed rate versus variable rate, borrowings?
You know, right now, you know, see, mainly we have three forms of or four types of borrowings. One, bank borrowings. Second is the NCDs. Third is the external commercial borrowings. Fourth is the commercial paper. No, bank borrowings are now we are mostly more to term loans. These are all long-term loans. Secured NCDs, again, it is a long-term instrument. Third one is the external commercial borrowing, which is again also a long-term loan. Purely a short-term borrowing will be the commercial paper, which is roughly about, you know, INR 4,000 crore-INR 5,000 crore at any point of time.
Right. These bank loans, et cetera, are like fixed rate in nature or these are variable some?
You know, bank loans are all, you know, floating rate, you know, linked to MCLR. Usually the reset happens whenever there is a rollover of the loan or, you know, or a reset on an annual basis. If it is a term loans, the reset is on an annual basis.
Annual basis. Right. Sir, do you think we as a company based on our past experience and based on the dynamics of business that we are in, are there further room to optimize this borrowing between long-term, short-term and fixed and variable?
I think we have fairly improved in terms of the proportion of the long-term borrowings. Pure long-term borrowings, we have now restricted only to the commercial paper.
Okay.
Yeah, short-term. In terms of floating rate interest, bank loans mostly, you know, are linked to. They don't give fixed rate instruments except for that period for which it is drawn. Otherwise, all the bank loans are to be linked to the MCLR. Secured NCDs almost entire, you know, borrowings is in the nature of fixed rate nature. We have the right mix in terms of proportion between fixed and floating.
Yes. Secondly, in terms of the leverage, right, if we see last five, six years, the overall leverage the company has fallen from around four times to two and a half times now, right? Even though I understand that as a business wherein our ROE is more than our growth, obviously there's a de-leveraging effect. How do you see your overall leverage, like in medium to long term? Do you think you would increase from here or you stay over here?
No. That is the ultimate focus to improve the leverage at least to a reasonable, like, you know, extent. Maybe we should target for five times. You know, at least for the time being, reaching the five times, it is going to take some time. We don't have a view in terms of what point we are going to reach five times. Always the endeavor and focus is on to improve the leverage.
Right. Right.
See, the question is to improve the leverage, you need to grow the gold loan book. Gold loan book is not-
Right.
It's all individual loans, retail loans only. You can't just improve it by X crores, et cetera, overnight. It has to be built brick by brick.
Right. Right.
As the gold loan is improving, the leverage also will improve, provided it is more than the what should our retail earnings.
That's right. Great. Then lastly, just one final one. Over time as the cost of borrowings reduces, do you think you would be looking to pass on some of these benefits to the customers by reducing the yields and maintaining your spreads or you would look to increase your spreads?
No, sir. Exactly what you said. We would like to maintain our industry spread and therefore pass it on to the customers. That's what we have been doing always, maintaining our net spreads and passing on the difference to the customer.
Okay. Okay, got it. That was very helpful. Thank you.
Thank you. The next question is from the line of Piran Engineer from CLSA. Please go ahead.
Yeah. Hi. Good morning, good afternoon, and congrats on the results. I just have a couple of questions. Firstly, you know, 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 NBFCs? 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 two loans ratio? Yeah, these are the two questions.
Okay. See, inactive customers are customers who come to the company, take a gold loan. Afterwards, when they close the gold loan, they go and they take back the ornaments. The ornaments are in their house. They will come back only when they need the second loan. Almost always, 80% of our customers are repeat customers. They would have done a transaction with us maybe one month back, six months back, eight months back. Only whenever they need the loan, they will come back. That is our. What we do constantly is always reminding them that we are still there and giving better and superior 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 when they take a next loan, it will come to us only. That's what. We have not done a study of all these customers whether they have taken a gold loan or from elsewhere. We can only understand from what our managers and field staff tell. They still feel that they are the first choice for them, even our old customers would be to come back to Muthoot Finance.
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 bureaus? Would that be a very difficult thing to do?
No, I think it will be possible. We have not tried it anyway.
Okay. Just wanted to understand the sense of whether a customer first takes a loan from you and then later on, you know, he goes to a bank. I'm just trying to understand the progression of the customer's life cycle. That is why I was asking.
That happens with the very big loans, maybe INR 15 lakh, INR 20 lakh, et cetera, where the interest differential will be substantial, et cetera. Still, it is not simply just the interest, the consideration for shifting from Muthoot to somewhere else, but some other considerations also. Definitely. There'll definitely be some people going from Muthoot to a bank or maybe to sometimes to an NBFC also. Generally, maybe only to a bank.
Okay. Sir, on the stage two loans ratio?
Stage two will be INR 6,153 crores, around 11%.
Okay. Yeah. Thank you so much.
Thank you. The next question is from the line of Shubhranshu Mishra from Systematix. Please go ahead.
Hi, sir. Good afternoon. Thank you for the opportunity. A couple of questions. One is that, are we really cheaper than the banks in some 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 that we are carrying as a percentage of balance sheet. It's almost around 12%. This is a decadal high, sir. With so much of liquidity, why are we carrying so much of cash on the balance sheet? The third question is, sir, if I look at the loans that's getting processed per branch on a quarterly basis, it's around 1,800 odd levels. How do we increase this?
What is our strategy to increase this from the new customers, sir? Three questions, sir. My fourth question is on our data keeping question. What is the interest accrued for this quarter? Thank you.
Yeah, comparing of interest and charges, et cetera, there are certain charges which some banks charge. There are certain 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 charges, we don't take any pre-closure charges, et cetera, and interest on the actual number of days. Those are some of the things which we offer our customers. Probably everything cannot be compared apple to apple, from one company to other company.
Generally, the customers have the feeling that, other than banks which give a very low rate, we are the most reasonable of all NBFCs with regard to not only the interest rate, but many other charges for customer centric activities, et cetera, which we do for them. Your second question was about,
Interest accrued.
Cash.
It is, uh, INR 2,384 crores.
Can you repeat the number, sir?
INR 2,384 crores, interest accrued.
Sure.
Cash, why are we carrying so much of cash?
Liquid cash. Yeah. So, okay. I think we have been maintaining a higher level of liquid cash, you know, I think, you know, ever since COVID has started. We are conscious about the fact that we are maintaining, but you know, the times require a higher level of cash. I think, you know, once now, since we are upgraded to AA+, I think, you know, gradually we will think about, you know, reducing the level of cash holding. You know, still, you know, at least for some more time, we'll have to maintain that higher level of cash flows. Over a period, you know, we would like to bring it to a reasonable level.
Right. One question remains unanswered, sir. The number of loans, how do they increase per branch from new customers?
I think new customer numbers we have provided in the presentation. That's about 3 lakh.
3.5 lakh new customers.
All put together.
Right. It's okay. Thank you.
Thank you. The next question is from the line of Amit Mantri from 2Point2 Capital. Please go ahead.
Yes. Hi. Thank you. Just on the question of branch expansion, now when you look over the last one year, there isn't barely any branch expansion that has happened. Even when compared to two years back, we've added only 80 gold branches. What's the plan going forward? How much approval do we have from RBI for how many branches that we can open over the next, say, two, three years?
See, we would have opened 80 branches in the last year. We would have probably closed or rationalized another 200 branches or so. About 400, we would have maybe merged or rationalized another 300 branches. The net would have been under 200. I don't know the exact number. This year also, the numbers have not been high. We've not started too many branches. I think there is nothing like an approval from the RBI. Whenever we require a branch, we go to the RBI and they give the permission for that. We don't take any approval and keep it with us. When we require a branch, we go and approach them and get the approval for that.
Okay. I think one of your competitors had mentioned that, you know, approval from RBI has been little bit delayed, and because of that, their branch expansion plans are not on track.
Probably he's right. I don't know. Probably he may be right.
That is not a reason why branch expansion has been a bit tepid.
No.
Okay. Thank you very much.
Thank you. The next question is from the line of Viral Gandhi from Ninety One. Please go ahead.
Hi. You mentioned earlier that competition has increased somewhat. Can you just explain where the competition is coming from? Is it from banks or is it from NBFCs?
I think people have become aggressive. I don't call it competition. Everybody has been doing gold loan, the 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 why every bank worth its name is also doing it, upping the gold loan. There are some NBFCs also who have now started thinking of gold loan. Probably they might have also been having the same thoughts about this. Here I would like to add a word of caution. Caution is that this is not as easy as it looks outside.
Probably gold loan you may not have NPAs and bad loans, et cetera, or non-performing loans or non-loss, et cetera. Operationally it is very challenging. It's very easy to do a small two branch, three branch, 10 branch, 15 branch gold loan. 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 players are coming, they will realize it as time goes by.
Okay. Thank you very much. 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 that? We didn't understand.
How long do you think your competitors will be aggressive? Do you think that it will last for?
How long they will be aggressive? No, we don't actually need to worry too much on that. When more and more people are coming into the market, it is also expanding. It is not that there is only fixed amount that they are taking away 20% from and 5% from. No, no. The market is also expanding. When 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 an option. So that is what we should see. How long they will, it is 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. Afterwards, when their own sectors started coming back to normal, they lost interest in this because that is not their focus. Only the focused companies remained and focused to gold loan. Others came in, they saw something when their core business started back, they went back to their own core business, where they had probably more strength. It will depend on such factors also.
Okay, thank you very much.
Thank you. The next question is from the line of Pavan Kumar from RatnaTraya Capital. Please go ahead.
What is the incremental LTV that we are lending at? How do we actually determine this particular LTV to lend?
Actually, we offer customers different options. Maybe we have a 60% LTV, low interest, higher LTV, higher interest options, et cetera. On an average, what we have seen is some people take a 75%, some people take lesser, some people take even lesser. On an average, on a day, we don't lend more than 75% LTV. On an average, if you take everybody taking loan and if you find out LTV, average LTV, it should be in the 70%-71% range.
Okay. Since there has been a sharp, if we compare it say with one year back, your LTV on an average used to be somewhere around 63%, and now it is around 73%. I mean, I'm just trying to understand what has been the change exactly in that sense?
It's as simple as this. If today the price of gold goes up by 10%, our LTV from 73, it will come to 61. Simple as that. At that time the price was high, so the LTV was lower. When the price is stable, it will be in the 70-71 range. When the price goes up, the LTV will come down. If the price goes down, the LTV will go up.
Sir, at that point of time, again, you would have lent at only 75% LTV only, or else you were lending lower at a higher price. Was that the strategy? That is what-
No, the LTV will be much lesser. The incremental lending is what I said, 70%-71%. That's always 70%-71%.
Okay. Historically, you are saying LTV was lower.
Yeah.
Okay. Okay, sir. Fine. Thank you. I'm done.
The next question is from the line of Nishant Shah from Point72 Asset Management. Please go ahead.
Hi, sir. Congrats on the results. I'm trying to understand the different types of customer bases that you have. I take it that, like, you know, 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. If you could kind of like split your AUM into slightly, say, higher ticket kind of like customers where banks are active and say semi-urban or urban geographies where also banks are active, what percentage of your AUM is it 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. It is only banks.
Hello? Ladies and gentlemen, the line for the management has got disconnected. Request you all to please stay online 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?
Yeah.
Yeah. Just go.
Yeah. Sir was asking.
What I was saying was, it's not that we will not at any point of time be able to compete with banks. If necessary, we can even compete with banks on rates. That's not the question. Your question is whether we have bigger portfolios which are likely to go to banks. I think that is your question.
Yeah. 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. Yeah.
The whole thing is dependent on what is the option which borrower has, you know? Does he have an alternative? Now, if he has an alternative, there is always a risk that, you know, that customer might or can move to an alternative lender, you know? Not necessarily it should be for gold loan. It could be an alternative loan product. That risk is always there. But given the flexibilities of the gold loan you know, given the fact that it is, you know, it could be disbursed in a very short period of time, and customer can easily meet his requirement for a shorter tenure. But if this customer's basic requirement is for a longer-term product, certainly he might actively look for an alternative source.
If he has an alternative availability, he certainly can move on. You know, being a large book, there is always a possibility that some customers can move. But, you know, the way we have consistently managed to grow our book and, you know, maintain our yield shows that there is a large customer base which is willing to come and take a gold loan. We don't consider that as a significant risk.
Yeah, no, I'm particularly kind of like asking about competition from banks in a gold loan product. I fully agree with you regarding, like, you know, the other competitive products, they are not as value add or not as flexible at least as a gold loan. Banks are doling out a lot more gold loans as well. Like, we see it with HDFC or SBI or anyone. That was the sole kind of like purpose of trying to understand what percentage of the AUM could potentially be at risk.
Without having that kind of a portfolio being identified that, you know, these kind of customers can move on to another lender. The way we look at this, you know, look, all these banks have grown in the last, you know, six to nine months, you know. We have not de-grown. We still have been able to grow the book. There is a market which is available. You know, again, we are repeating that, you know, we are not concerned about, you know, 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.
Fair enough. Yep, that's it from me. Thank you.
Thank you. The next question is from the line of Harshvardhan Agrawal from IDFC AMC. Please go ahead.
Hi, sir. Thanks for the opportunity. Just wanted to understand, the auctions that we do, is it like bunched more towards the end of the year or it evenly spread out, during the whole year?
Yeah, it is spread out during the whole year. We will do it weekly, monthly, depending on region. Some regions, today, every day some auctions are happening somewhere. Every day something is happening somewhere.
Right. The reason I ask this is because if I were to look at the data that you published in the annual report regarding the amount of auctions that we do, I see that between FY 2017 to FY 2019, our annual average is somewhere around INR 1,500 crores worth of auctions is what we do. In the first half till date, we have done somewhere roughly around INR 250-300 crores of auctions. Should we assume that this historical average number is what we would be at for the second half? Like, we'll catch up with that number or the auctions will be way less this year?
No, I think your historical average, I don't know from where you got it. Last year our auctions were,
385. Sir, FY 2021. Sir, FY 2021 auctions are very less, INR 385 crores.
Last year it was INR 400 crore. Prior to that year, it was INR 800 crore. That is, I think that's all. Even if we need to auction INR 800 crore or 1,000 crore in a year, the book is also growing. Two years back on book was only 35% less than what you see today. Even then we did INR 800 crore of auctions. Last year, because the prices were actually good, we did not have to do much auctions. 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. It is only that customers abandon the gold, it's not coming back and taking it, and we have no alternative other than to auction it.
Right. Sure. Thanks a lot.
Thank you. The next question is from the line of Manan Tijoriwala from ICICI Prudential AMC. Please go ahead.
Hi, sir. One follow-up question on what was asked earlier. When you mentioned there are around 11% stage two assets as on end of September 2021, could you provide a corresponding number for the previous quarter and what sort of rollback or forward flow should we expect from that book?
No, I think previous quarter, I think the number was less, you know. This quarter, as of September thirtieth, the stage two asset is about 11%. I think your question was how much of this rollback will happen out of this, you know, 11%, right?
Yes.
You know, we are conscious about this number, and we are looking at you know, various methods to control this number and, you know, look at our track record in terms of managing this overdue book. Finally, you know, just because an account is an NPA, we don't lose anything. We, you know, we recognize the interest portion also once the asset becomes stage three. To answer your specific question, you know, we are taking active effort in terms of, you know, controlling this number. Let's wait till December 31.
One question, how much would have been the OpEx in this previous quarter on advertising during the IPL?
IPL.
IPL.
We are not sponsoring this time IPL, sir.
Got it. Thank you.
No, no. I think it was the other group which was doing the IPL. We stayed back this year.
Okay. Got it.
No, additional expenditure is INR 29 crore, but that doesn't. No, we don't have any sponsoring towards IPL.
Got it. Okay.
Thank you. The next question is from the line of Dominish Garg from Investec. Please go ahead.
Hi. Thank you for the opportunity. I have a couple of questions around the interest rate. Firstly, I just want to know what is the lowest interest rate offered by Muthoot Finance on gold loan? That is my first question. The second question is, on the website, I see there is an advertisement for 57 paisa loan. I just want to understand how does it commensurate with our overall yield of about 21%. That's the second question. Third question is on how do you categorize customers on different interest rates? Like, what category of customer, which category of customer get lower interest rate and which category of customer get higher interest rate? These are my three questions. Thank you.
Okay. As you said, our site advertises 57 paisa because we need to compete with the market. 57 paisa is correct. That is the lowest we need to offer to our customers. These are all teaser rates. When we give teaser 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 rates, et cetera. We have to maintain our market share. We have to be competitive in the market compared to others when others are offering at low rates, we should also offer the low rates. It's our job to see that we maintain a reasonable margin in our company.
How we do it is, actually within us.
On the customer categorization, I mean, which customer, how do you categorize customer on interest rate? On 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 rates, et cetera, so that customers are kept happy.
Oh. Okay, then. Fine. Thank you.
Thank you. The next question is from the line of Shweta Daptardar from Prabhudas Lilladher. Please go ahead. Shweta Daptardar, your line is in talk mode. Please go ahead with your question. 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. Please go ahead.
Hello. Thanks for taking my question, sir. My question is a bit on the operational aspects. First on this competition and the teaser rates and the yields that have been discussed quite a bit during the call. I would just like to know operationally at a branch level what are the methods can the branch staff or do the branch staff follow to increase customer walk-in customer count, basically maintain 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 LTV when, say, for example, tomorrow there is a say 5% drop in gold price, how do we react to that? These are my two questions.
On branch marketing, we have a good marketing team, sales team, et cetera, who go out and they do activities, on-ground activities. Usually, the branch staff do not go out for that. Only occasionally they accompany these people. Otherwise, there are branch activities in particular. Not that every day there is an activity. It is in pockets we do this outside activities for this. The second one, your question is about the, it is done at the CBS level because ours is all core banking system. So any change we do, we can just do it in one second in the head office, in our computer center. The branches cannot go beyond that. That is the rates are set at the head office level itself.
There is no operational flexibility for the branch.
Sir, second question was on how to control LTV. Meaning, you said, because of the core banking system, incremental LTV-
Sir, probably I think I can say. We set it as a maximum of 75% of the day's price. It is set every day. Every day it is set. If today's gold price is X, we set the 75% of that as the maximum which a branch can do. That is set every day.
Okay.
Every day it is.
If gold price falls, say maybe 5% or 10%.
No, the LTV will be falling tomorrow.
Only on the incremental loans, right? On the existing loans, there is no.
What is given is given, sir.
Okay.
What is given is given.
Got it. Just one add-on there. I couldn't get that correctly. Maybe there was a problem with my line. There was some mention on branch expansion. Could you please elaborate on that, sir? Branch expansion plans for the current targeted run rate for this year and maybe the next couple of years?
Yeah, yeah. Whenever we need branches, we approach Reserve Bank and get permission for that. Whenever we feel that there is a branch expansion required, we'll do that. We plan to open about 100-150 branches in the next 12 months.
Okay. Okay, fine. Thank you.
Thank you. The next question is from the line of Prolin Nandu from GMO. Please go ahead.
I hope I'm audible, sir. Two questions from my side. Not related to your quarterly, but one is, you know, we have had, in the past, we have seen some correlation between marketing spend and the loan growth. You know, while gold loan continues to be sort of a pull sort of a product, but you know, where customers require some sort of a touch, and we have had associations with some of the great brands like Amitabh Bachchan and we have done some innovative campaigns in and around Gold Loan Mela. Just wanted to understand, is there any particular strategic reason why we decided to stay away from CSK and IPL this year?
No. We had been associated with IPL for so many years. We thought, let us give it a break at least once. Let us see whether we can come back with a more vigor after that. That's all. Nothing more than that. We still have the Amitabh Bachchan and the other things with us. IPL is not that one that just because of IPL also. We also want to assess whether without IPL also whether we can get business. Nothing more than that, sir.
Fair point, sir. Another second question is that we sometime a couple of months back we have changed our memorandum of association, and now we can do a lot more things from our branches. Any color on that? Do we have plans, because we have amazing, I mean, huge footfalls, right, on a daily basis to our branches. Anything to monetize these footfalls further and, I mean, any, I mean, and is this change in memorandum of association in that direction?
We have got an enabling provision in the memorandum of association to do something. Some of these things now, everything is so, what should I say, changing, flexible and changing these days. We don't want to go to the shareholders for approval. We have just kept an approval. Probably something will come up. Some association will come up. We always have people coming and talking to us. Can we do that? Can we do this in the branch? We are assessing those and then we feel is beneficial to us and not a troublesome to the customer, we will start it. We just get enabling provision.
Sure, sir. Thanks a lot for this.
Thank you. The next question is from the line of Nirmal Bari from Sameeksha Capital. Please go ahead.
Yes, sir. Thanks for taking my question. It's just a clarification. This stage two asset that you mentioned of 11%. At what point do we classify a loan as at stage two?
It's more than 30 days.
Overdue for more than 30 days.
Overdue for more than 30 days.
Is it the interest overdue that is more than 30 days or when the principal becomes overdue for more than 30 days?
No. Either one of them. For gold loans because no interest is required to be paid only at the end of the tenor. Primarily it is the loan maturity date because there is no installments or an interest payment contractually required for the customer in between.
For our general loan of one year, when the loan crosses one year and 30 days, that is when it would be classified as Stage two.
Correct.
Okay. Thanks for that clarification.
Thank you. The next question is from the line of Shweta Daptardar from Prabhudas Lilladher. Please go ahead.
Thank you for the opportunity. Am I audible?
Yes, ma'am.
Yeah. It's a couple of questions. When you say fresh loans with new collateral to existing active customers and which has been consistently growing for you, am I getting it correct if I put it across like, is it that, you know, once the existing loan is completely repaid for and if the same customer comes back with the same collateral with a fresh, you know, freshly for a 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?
See, a customer brings one chain this time, he takes it back. Next time he brings a chain, actually we do not know whether it's the same chain or not. Anyway, he's bringing a new ornament, a fresh ornament. That's it.
Right. This is not like, you know, because one of your peers do that, you know, like when the loan is still going on and, you know, generally they call up the customers, you know, 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.
Renewal. Okay. They have to take back the gold and maybe take a new loan. Yeah.
Secondly, when you mentioned, you know, stage two 11%, and even if I look at overall stage three 1.85%, although you've been mentioning that the recoverability value of the underlying asset is absolutely 100% and your auction numbers are also lower. 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? What exactly has led to this kind of slippage?
It is not that we go and ask each customer. If 20,000, 30,000, 50,000, 50 customers, not worthwhile to go and ask him whether it is a COVID problem or no. But usually we don't need to do that because there are no EMI requirement in this. There is no monthly commitment for him. He has the time, all the time in the world for one year to repay the loan at any point of time. If he brings the money, he pays it. That's all. It is not worthwhile. It's not viable also to go and ask and find out from the customer what is his problem. The fact remains that if he's paying the interest properly, if he's servicing the loan, he can, he'll continue with the loan.
If he finally advances him the loan, we'll auction it. That's it.
Okay. Any loan repayment extensions, given in the period due to which this must have also happened?
Yeah. Whatever you see as a NPA in the books currently is the extensions we have given to the customer. When customer requests for some more time and the branch is also reasonably optimistic or hopeful that the fellow will pay and he says, "Don't auction my gold." We delay the auction and give him two-three months time. That is what you see as a NPA in the books. Those are the NPA that we have consciously given time to the customer. If not, we would have auctioned the gold and had nil NPA.
Okay. Sir, absolutely the last question, you mentioned about competition. You know, it's been observed that last couple of quarters, the unorganized market which has a lion's share in the gold lending business, has also kind of throwing huge competitive intensities. Would you like to comment there besides what you were talking about banks and bigger NBFCs getting into the game?
I think we have not much visibility or information about the growth of the unorganized sector. I don't know from where you have got that information. They probably may be growing also. I'm not sure about that. If they are growing, well and good. I don't think they are also definitely a competitor for us. There are a certain set of 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 unorganized sector. They 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.
Got it. Sure. That answers, sir. Thank you and congrats on good set of numbers. Thank you.
Thank you. Thank you.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.
George Alexander Muthoot here. I have with me our Chief General Manager, Vijayan, and our CFO, Mr. Oommen Mammen, and our DGM Finance, Shanthi, here on the call in this head office. The other directors, etc., have attended the meeting from their offsite. Thank you for supporting us. All of you have always been a big support for Muthoot, and we will continue to respect your views. We'll continue to grow and be of value to all our stakeholders. We assure you that and wish you all the best. Once more, a happy Diwali and a happy new year. Thank you.
Thank you. Ladies and gentlemen, on behalf of Batlivala and Karani Securities, that concludes this conference. Thank you for joining us and you may now disconnect your lines.