Manappuram Finance Q Earnings Call 7 Feb 13

Transcription

1 Manappuram Finance Q Earnings Call 7 Feb 13 Ladies and gentlemen, good day and welcome to the Q3 FY 2013 Earning Conference Call of Manappuram Finance, hosted by IIFL Capital Limited. As a remainder for the duration of the conference, all participants' line are in the listen only mode. And there will be an opportunity for you to ask questions at the end of today's presentation. Please note that this conference is being recorded. At this time, I would like to hand the conference over to Mr. Sampath Kumar from IIFL Capital. Thank you and over to you, sir. Sampath Kumar, Analyst Thank you, Chitrasu. Good afternoon, everybody. We have with us Mr. Nandakumar, MD and CEO of Manappuram; along with Sachin Agarwal [ph], to discuss the third quarter results. May I request Mr. Nandakumar to take us through 3Q performance in brief, and then we can open the lines for Q&A. Thank you. Over to you, sir. Good afternoon. What I feel is the year 2012 or FY 2013 had been challenging. But the good thing what I feel is, best is behind us. So I can substantiate why, yeah. The current year's balance sheet may not feel as rosy as the previous year, because of heavier constraints on the liability side, one. And two, we have some aggressive lendings prior to third quarter FY That also has resulted in some month an increased auction. And on that, there had been some under recovery of interest. One, on the liability side, since there was a pressure, we were forced to degrow our balance sheet to the extent of around 2,000 crores. But such a shrinking of our portfolio has resulted in a lower income. The second, because of auction of those items pledged before the second quarter of FY 2011, those auctions is happening now. We have those days, we have some aggressive lending, and quarterly disbursement of around 9,000 crores also on that. We have seen an under recovery of interest. And that also has to be provided for. Now, what I see now post Rao report, there is some clarity about regulatory mindset, and the attitude of all the stakeholders. The post Rao report, we approached the bank or even before approaching the bank, some of the banks have come forward with new sanctions or renewal of the proposal from that market like commercial paper market, we started getting sanctioned. And so now we have a visibility. Now, we have got sanctions to the tune of around 1,000 crores with us. And we have visibility of another 1,500 crores during the year So this will aggregate to 2,500 crores, which will ensure growth prospects to the size of around 13 crores 13,000 crores AUM. And yield will definitely improve on two counts. One, the depression in the yield is primarily because of a lower yield on account of auction amount for full year. The second thing, the banks are reducing their rate of interest. And through the borrowings from the CP market for a shorter term, our average borrowing cost will come down by 50 basis points virtually, so, and our yield will improve. So this will ensure a 12% net interest margin, which in turn, will translate into an ROA of 4% and ROE of 20% in FY That is how do I see is year ahead. And the year which we are passing, we feel like we are consolidating and the best is behind. Hello? Sir.

2 Please go ahead, sir. So if you the figures you might have gone through. So if you have any questions in this regard, yeah. If you can ask me about the figures, what I have told you is the reason for our poor performance during the current year and what we except during the coming year and the years following that. So what I can what I see, now there is a recognition by the regulator, because on gold Rao report clearly says that our gold loan NBFC play a very important role in monetizaton of gold and also in financial inclusion. So there is a recognition on the part of our stakeholders now. Shall we start the question and answer session, sir? Yeah, sure. Questions And Answers Thank you very much. We will now begin the question and answer session. ( Instructions) Now, before we start the question and answer session, we have also connected Mr. Unnikrishnan from Manappuram Finance. Thank you, sir, to join the conference. We're going to take the first question from the line of Kunal Shah from Edelweiss Securities. Please go ahead. Yes, sir. Sir, firstly the question on auction, okay. So maybe just from the quality perspective, if you can let us know exactly the LTV of those auctions, the quantum, LTV, the hit, and maybe the average ticket size of this amount, which would have been there of say, 360 crores, 370 crores, okay, that was across how many tickets, what has been the average ticket size for those loans? And the time during which this loans would have been originated, so would this be exactly like one year gold loan and at what gold price was this originated? See, quarter one FY 2013, we have auctioned 17 crores, in quarter two, we have to we had auctioned 91 crores, and quarter three we auctioned 359 crores. This is the total auction we have conducted. And the interest under recovery, on account of that, in the first quarter it was 83 lakhs, in the second quarter it was 2.83 crores, and third quarter crores. In percentage terms, all the under recovery was 4.88% during the first quarter, it's 3.11% during the second quarter, and third quarter 10.9%. So this is the under recovery of interest on the auctioned amount. So if you look at Q3, the under recovery is almost like 11 odd percent, so just wanted to know why particularly this, may be that was, say, slightly higher LTV, and when the gold prices were slightly on the higher side, or it was like higher lending rate which led to, say, more cumulative interest amount on this?

3 There was higher disbursal during the month of August The disbursal was 4,427. The LTV was around 90% during that month. And the normal recovery happened was only 85%. So the overdue was 15.42%, so it's we have to auction. Around 5.45%, this is our auction which was conducted. Sorry, sorry, sir. This was during August? August 2011? August The total loan disbursed was 4,427 crores, and normal recovery was around 85%, and overdue was 15%. So we conducted auction to the tune of 10% from that. And 5.45%, we have not conducted auctions, because interest are serviced there. So whatever is the balance is (inaudible). Okay. And sir, if I look at the average rates during the month of August 2011 It was approximately INR2,600 per gram, okay? Yeah, that's right. So may be like if we look at say 90% LTV on that on 2,600

4 So this would have been, say, approximately 2,350. Okay. And sir, if today or say if had auctioned it during this last quarter, okay, my see, my average rate in the last quarter has been almost like 3,100. So, in the auction, 3,100 is 24 carat. So I mean, all the prices over here which I'm referring to, may be this 2,600 that is also like 24 carat. So I think so just in terms of may be at 90% LTV, if I look at the current price, okay, then the differential is approximately 35%, okay? And which should almost be equivalent to the lending rate. So suppose if I assume like the lending rate is like 6% per quarter and this has been due for almost like, say, five say, almost like a yeah, five to six quarters, then that should also have been in 30%, 35% range. So that's the I think may be this rate of 10%, I'm not able to look at. So may be 2,350 is the LTV on 24 carat, but today the price is 3,100, which is almost an upside of 35%, which is almost equivalent to the interest accumulation which would have happened. So I'm not able to get where this under recovery actually came. Yeah, I will tell you. The average gold price, 24 carat, in August 2011 was 2,444, this is the 22 carat. And our average LTV was 2,182. So what we realize now when we conduct auction is, yeah, around 2,000 INR2,800. Yeah, 2,850, yeah. And we have to pay tax although there, no. Sorry.

5 That will attract tax, this amount will attract tax being sales. Okay. So this tax rate, so this 30% return is there from 2,180 to 2,800, that is almost like 30% which upside. So on that, you would have paid tax. That would be what some, normal rate? 1%. Sorry. 1% is the tax. So around INR30. So around INR30? Yes. Okay. Will be like that. Okay, okay. So that's hardly. So maybe that is like, almost like 30% kind of return we've made in this, and that would be almost equivalent to the interest which was due during that period? Because if I look at 6% quarterly for five quarters. No. It is one year almost 18 months now.

6 One yeah, almost 18 months. Yeah, yeah. 18 yeah. So it's 15 to 18 months, yeah. So if I consider like 6%, sir, the lending rate, what would be the lending rate at that point in time? Was it 24 or it was somewhere around 28? No. It was around 26%. It was around 26, okay. So 6.5 per quarter on an average. And that would be, say, for almost five odd quarters? Okay, okay, okay. Okay. But okay. So if I consider it to be in for almost six quarters, then it's almost like 39. Okay, okay. And sir, this would be, in tons if we look at it, what would be quantum of this?

7 It will be around two tons, 1,997 kilos of gold. Okay, 1,997. And sir, if you can just say the average ticket size of this loans? The average ticket price otherwise is around INR50,000. There may not be much change of items which are auctioned. It may be the sample maybe the same. You're not actually looked into that in the sales, but it will be around 50,000. Okay. And sir, if I look this 1,997 kilos, almost like I said, 2,000 kilo for 360 odd crores? Okay. So then maybe it comes, so this would be the value maybe the value of the loans actually? So then it comes to 1,800 actually. Sir, maybe what you mentioned of 2,182, which was the average LTV at that point in time of the gold auctioned. If I look at this, 2,000 into 2,182 would have been much higher amount, it would have been, say, almost like 440 odd crores. But 360 if I do and, say, 2,000 kilos, so that is approximately 1,800 per gram. So then maybe on 2,400 average rate, it seems like 80% LTV. So why this I know this, maybe if you can just clarify? With this anomaly? No, no. I'm saying what quantum you mentioned of 2,000 kilos and the 360 crores of auctions, okay? So average LTV on that seems to be almost 1,800 per gram. The average LTV Average lending

8 per gram seems to be 1,800. The average LTV, yeah. I'll get back to you on that, the correct amount. And sir, just last question. In terms of this auction, do we see it continuing in Q4 as well, and if so, what is the quantum? It will be continuing during the Q4 also, that's in quantity. So the profits we expect during the last quarter will be around 90 to 95 crore. Well, how much? What would that be? Profit? Yeah, profit. Okay, okay, okay. And on this auction, there would be almost similar hit? If the price remains the same, it will be of a similar hit. If the price Quality, maybe quality of loans, or say, the nature of loans which are coming for the auction in the next quarter would somewhat be similar what was there in Q3? It will be somewhat similar. Okay, okay, okay. And this would be the last quarter or we see it continuing even beyond Q4? No, it will be completed during this quarter.

9 Okay, sir. Okay, sir, I will come back if I have more questions, yeah. Okay, yeah. Thank you. Yeah, (inaudible). Rajiv has the figures. Mr. Gandhi, please go ahead, sir. Hi, good evening, sir. Just couple of questions. One is, could you give me some idea about how much, in value terms, gold you had auctioned in full fiscal 2011 and 2012? Fiscal 2011 and 2012? Yes, sir. I mean, two separate years, FY 2011 and FY Nine months, FY 2012, what we have auctioned is 1,408 kgs, amount of loans was 181 crores. And nine months FY 2013, it is 2,696 kgs and the loan amount was 467 crores. Okay, okay. And the second question I have is basically, can you give a broad idea of your incremental disbursements are obviously picking up and probably they are like 5,700 odd crores. Where do you see that going? And secondly, have you if you can give a broad split in terms of the usage of the gold loans based on your customer database, in terms of what kind of consumption pattern it's gearing towards? In the first quarter it was 3,968 crores was our dispersal. Sure.

10 It has increased to 5,100 crores during the second quarter, and third quarter it has come to 5,700 crores. It is increasing steadily, it would have been much better but what people say is the liquidity problem during the month of December, so had that not been there, it would have been around 7,000 crores. So that has depressed our growth during the third quarter. Okay. And any broad idea about of your AUM? The AUM, yeah. Now we have lined up around 1,000 crores during this quarter and I hope we'll grow by 500 crores during the last quarter. The AUM? The reason of lower around 500 crores is lower is because of this quarter we are cleaning up our balance sheet by auctioning the overseas clients [ph]. Sure. And sir Regarding the NDUs, we have made a study and what we understood on the study is, around 70% of our customers are from SMB sector, as well as from the agri sector, comprising marginal farmers, who are into cultivation of paddy, wheat, et cetera. So this is around 70% and around 30% maybe, we are not able to trace and deal, maybe for consumption and other purposes. Okay. And just one last final question. Your spreads have obviously come off sharply even if I look at Yeah, yeah. The reason is, one, there is an under recovery of interest, yeah. We're just depressed on the one side. And there was an increase in the cost, because we have to pay little more than we pay shortage of funds. Now, the positive thing is, with the release of Rao report, the market is looking up and we are able to borrow from other markets too, CP market even for a short term, which will result in lower in the average cost. Similarly, the bank started reducing the rate of interest, SBI has brought down the interest by 75 basis points. The other banks are also reducing their lending rate. So what I see is, during the current quarter, I see around 15 basis points reduction in the interest rate. And in another one year, I see 50 basis points reduction in growth rate. So basically your point being that probably spreads have bottom and

11 Yeah, it is bottomed out and this is improving. And on a sustainable basis, what I see is our lending, our average yield will be around 25% and our borrowing rate will be around 12.5%, ensuring net interest margin of around 12% to 12.5%, that is going to be (inaudible) sustainable in the year. Okay. Fine. Great, sir. Thank you very much. Thank you. We're going to take the next question from the line of Rohan Juneja from Seawolf Capital. Please go ahead. Rohan Juneja, Analyst Hi, Mr. Nandakumar. Can you just give us a brief, I know you spoke about 500 crore on the AUM side, in terms of growth for the fourth quarter. Can you just tell us where you think, I know you have the liquidity shortage in the last 15 days in December, but can you just give us some idea about what your full like where you're looking at originations for the fourth quarter? The fourth quarter, this fourth quarter, I see an opportunity for a disbursal of around 7,500 crores, because the last quarter, especially during the month of March, the disbursal used to be good. And we have to clean this up. The remaining part of our overdue accounts. So that will differ. So on the one side, we have possibility of a higher disbursal, at the same time on the other side, we have to clean up our balance sheet. So the net result will be 500 crores of increase in the AUM from now. Sure. Rohan Juneja, Analyst And just one last question. I know you spoke just the previous one, previous question you said, what your sustainable spread could be going into the next fiscal year. Rohan Juneja, Analyst Can you just tell us what you think your potential spread could be in the what I am trying to figure out is whether your fourth quarter margin would be on the similar lines as the previous quarter, which is close like 11% or do you think there's going to be some more compression? No. There I don't expect any more compression during the last quarter of this fiscal. And going forward, next year, what I expect is a net interest margin of around 12% to 12.5%. And the profitability to grow to grow our AUM to a size of 13,000 crores. So if we work out the single math, we can clearly estimate the ROA to be around 4% and ROE to be in the range of 20% to 22%. Rohan Juneja, Analyst Great. Thank you.

12 Thank you. We're going to take the next question from the line of Karthik Chellappan [ph] from Saga Tree Capital. Please go ahead. Good evening, sir. Good evening. Two questions from my side. Can you please let me know what is the amount of Mr. Karthik, I'm sorry to interrupt you. If you can speak up a little louder, sir? Yeah, sure. Sir, can you please let me know what is your expected income reversal amount in the fourth quarter? Hello? It is the expected reversal will be the same as this quarter, which will be around 35 crores, 40 crores. And these will also be in the 90% loan to value ratio bucket, sir? Yeah, you are right. And after the fourth quarter, the portion of say the 80% or 90% LTV AUM will be fully cleaned up? Yeah, it will be fully cleaned up. Okay, okay. And sir, you mentioned that your target NIM for next year will range somewhere between to 12 to 12.5? Right.

13 Okay, okay. And you are comfortable growing at about say 20% or 25% next year, so you are confident that you have tied up the funding for that? 1,000 crores is already lined up. But another 1,500 crores, we have a visibility from different routes. One, the enhancement from other banks, which we are already discussing. Second, we may approach the market with a public offer of NPD to the tune of some 500 crores during that year, and the balance will come from CP market, as well as placing our NPVs, and subordinates that with institutions and banks. So we have a visibility of around 2,500 crores for the next for FY Okay. And sir, lastly from my side. We are looking at a sustainable NIM of 12 to Now the Rao committee report has also made a mention of potential interest rate caps by RBI, so do we have any thought or view on that? We had discussed with Rao committee members on the part of our members of association of gold loan company. What we have told them, yeah, there is an indicative rate to vulnerable sections of society as in the case of MFI, which is 26%. Whereas this MFIs are priority sector lending, because they have to the most vulnerable sections of the society. And RBI status policy is not to regulate rate and leaving that to the market to decide. We are out of the priority sector now. So why there could be a restriction, regulation with regarding to this. So what the Rao committee have given us reply was, our intention may not be to regulate, but to standardize somewhat interest living in practices being adopted by various gold loan companies. So if the what they have suggested the association themselves select as SRO and come out with a standardized procedure of charging the rate of interest, et cetera. So what we felt was, even though, there as I mentioned about some reference, say, linked to the base rate or maximal lending rate obviously, et cetera, et cetera. From the discussion, the comfort we had was the Rao committee or the regulators may not be unhappy if it if we ourself put a cap of around 24%. Okay. So you believe that you can sustainably maintain your yield at around the 22%, 24%? Yeah, yield will be more than 24%. The reason is, these loans are short term. Around 25% of the loans get preclosed during the last [ph] month itself. And we charge a monthly compounding rate. All this will definitely enhance our yield by another 150 basis points. The yield could be around 26%, that's what I expect. Okay. Thank you very much sir. And all the best. Most welcome.

14 Thank you. We're going to take our next question from the line of Jiten Doshi from Enam Asset Management Company. Please go ahead. Mr. Nandakumar, good afternoon. Good afternoon. Yeah, yeah. I just wanted to get two data points from you. Number one, do you think that is a year of consolidation and you see as a year of high growth for the company? Definitely. The current fiscal is a year of consolidation. We are cleaning up our balance sheet, so what we have been doing during the last two quarters. And the New Year that is FY 2014, we want to enter a year with all confidence. And we have post our report, there is no. Some unanimity about regulation is seem positive now for gold loan companies. Now there is some clarity about 20%, 25% growth on the liability side, which will consulate into a growth a size of around 13,000 crores on the other side. And since we are cleaning up our balance sheet and since we are on a regulated LTV, our price list is much down. So the sustainability of a margin of around 12.5% is there. So definitely, the year the next year will be a year of growth and something we said as a sustainable performance in the years to come. My second question to you is that whatever your profit was in , little short of 600 crores. And ROE in the higher 20% range. 28%.

15 Right. So in , do you see yourself reaching your profitability and the ROE? ? Yeah, Yeah, , I see we reach the same level of 600 crores. And what about the ROE? ROE will be in the region of 20%. 20%. This year's 12 that will be there. Okay. And what is the ROA you can expect in the business? It will be the NIM expected is around 12% to 12.5%. So around 4% ROA is achievable. So you think that the worst is behind you? Can we say it's Yes, definitely. The worst is behind. What we do now is totally clean thing up. And what are the other challenges you are seeing now in the environment?

16 The challenge is, going forward definitely, to grow beyond 20%, 25% beyond 25%. Why I say this is, we have been witnessing a growth of 50% to 100%, even more than that. That will be challenging. But a substandard growth of 20%, 25%, at least for the next five years is maintainable. The reason is, now, the everyone was everyone in the industry was talking about entering into gold loan, I'm talking about NBFC sector. And the banks also suddenly turn overactive about gold loan. Now I see a slowing down with brand, established brand network of 3,200 branches and around 20,000 employees, who are trained and will be more trained in the coming years. And the technology and platform in place and group [ph] management practices. I feel like for established gold loan companies, whatever we have passed through will be a learning process, a consolidation process and, which would be good for the industry. So you believe that 20% to 25% from FY onwards is a sustainable growth rate? It's very much sustainable. With a NIM of 12% to 12.5% and ROA of 4% and an ROE of 20 plus percent? Absolutely right. So you don't see any reason why that will not happen? I see all possibilities that to happen. Okay, okay, right. Thank you very much. You are welcome. Thank you. We're going to take our next question from the line of Jaiprakash Toshniwal from IndiaFirst Life Insurance. Please go ahead. Good afternoon, sir. Most of my questions got answered. Just wanted to know this auction which have done the large amount. Is this related to certain reason or it's a pan India thing?

17 No, it is a pan India basis, because the LTV fixation is on a pan India basis. So it is not related to a particular area. So there was some delay in conducting auction, because RBI has some out with a fair practice code of some three, four months back. And it took some time to comply with all the entered and reasons laid out in fair practices code, that has actually delayed the auction process, resulted in some more under recovery of interest. Okay. My second question is on how much of your AUM is more than 80% of the LTV? Any absolute number? Now, see, more than 80%, yeah. I'll tell you the exact figure, but I will tell you, it is coming down, because now more than five months, we are on a regulated LTV. Yes, sir. Which is regulated LTV, which is around 60%. So since the life is for a short period of 150 days, already almost. So almost it might be recycled, but what is pending, it is over 80% now, in our book is around 8%. 8%. That's right. Okay. My third question sir, in the price, in the SEBI release format that depreciation and amortization, which is higher, 150 crores in the current quarter versus 104 crore last quarter. So, I mean, sorry, 15 crore versus 10 crore. I guess that's the number. So what is the why this sharp jump?

18 In depreciation? On that expense heading, second heading, depreciation and amortization. See, in Q1 we had made some excess provision, which was reversed in Q2. Okay. So that's why the Q2 figure is suppressed. Okay. And this is the depreciation figure of around 15 crore is the bigger, which we have actually charged. Okay. So that's why the graph is (inaudible). Okay, okay, okay. So my last question is, is there any credited I mean, is there any rating agencies' crediting is due for this next three to four months? I mean, are we on watchlist? We have brought the rating from CRISIL. Okay. After the review the same was confirmed. Yeah, we have just received in this week around 400 crore in CD rating at the same rating.

19 Okay. That is rough rating, reaffirmed by CRISIL in this week itself. This week itself? Okay. Fair enough, sir. Thank you. Thanks a lot for this. You are welcome. You are welcome. Thank you. We're going to take our next question from the line of Abhay Modi [ph] from Artemis Advisors. Please go ahead. Just three data points. You mentioned that you have auctioned 1,997 kgs of gold last quarter. I just need three data parts on this. What was the amount lent in absolute numbers, amount lent against this volume, what was the interest that you had booked in whatever periods cumulative, and what was the effective realization when you auctioned the gold? Just these three data points for this amount. The 1,997 kg, you want the data of amount lent, then interest realized, isn't it? Interest, yeah, that you had booked, not realized. The interest that you have booked and how much did you realize when you auctioned it? Okay, okay. Yeah, we will give you the details, yeah. In Okay, you can give me later. And all these 1,997 kgs which you had auctioned, they are all originated in the loans were originated in August 2011?

20 That's right. Okay. And all these were auctioned in last quarter? Not only that, even prior to that, even before prior to that, up to that. And also some loss in November, October and September. Major was all this. Okay, okay, okay. So but yeah, fine. If you can give me the three values later onwards, that should be fine. I'm done. The details I can give you. Okay, fine. Okay. I'm done. Fine. Thank you. We're going to take the next question from the line of Sri Shankar from (inaudible). Please go ahead. I've got one quick question, probably you must have mentioned it, I've missed it. In Q3, your cost of borrowing was around 13.03, up from the Q2 borrowings. You were actually raising and the interest rates or the yields of these sorry, the cost of borrowings were coming down. Why did we see a sudden pick up, spike actually? See, I will answer this question. Seen, in last Q3, there are two things which actually happened. Some of the debentures which came for maturity, even on the public issue debenture, which were raised for 400 day in August 2011 also fell for maturity. So you understand that the debenture which fell in maturity in Q3 will have a lower cost of borrowing, because they were raised at the start of the interest rate cycle. And easier to repay by the bank borrowing or fresh issue of debentures, where they have other differential cost of borrowing. That was the one reason. So the debenture which was fixed cost instrument, which came for maturity in Q3 interest by higher cost of fund. Okay.

21 The second thing that there was in our entire bank borrowing of around 8,000 crore, we had some 3,000 crores of cash credit limit. Cash credit limit generally carry 100 basis point higher rate of interest. So in this quarter, we have high utilization of the cash credit limit, against the term loan. Okay. These two are the major reasons for the increase of cost of borrowing by 15 basis points. Okay. Now, if I may ask how is the maturity scenario of lot of your debentures from borrowings going forward in Q4 as well as for the next 12 months? See, in next 12 months, the entire public issue of debenture balance outstanding around 300 crore will get matured. And we will share the other details, maybe you can call me offline, this is what I remember exactly. But there will be other, at least 200 crore to 300 crore debenture which will again mature in the next six months. The good thing which we have seen after the reveal of Rao committee report is that strong demand from the mutual fund and the other institutional borrowers regarding our CP and NCD. We expect to raise around 250 crores of NCD in the month of Feb alone, out of which there may be 30%, 40% of the debentures already been raised, and the balance is lined up with confirmed visibility. Okay, okay. Thank you.

22 Thank you. We're going to take the next question from the line of Sameer Dalal from Natwarlal & Sons Stock Brokers. Please go ahead. Sameer Dalal, Analyst No. I have the same question. I wanted the repayment schedule if possible for the financial year FY Come again. Sameer Dalal, Analyst The repayment schedule for FY 2014, what would be the amount you have to repay to I mean, the money that you all have raised, how much of that will come up for repayment and refinancing? Generally, as I told you, out of 8,000 crore, 3,000 crore is the CC limit, which is generally perpetual limit, which gets rolled over. Balance majority of the bank borrowing is in the tenure of 12 months. And this has been the case throughout the last five to seven years that the borrowing which we take for a tenure of one year. So we generally get this rolled over the term loan along with enhancement. Sameer Dalal, Analyst Okay. Apart from that, the NCD from book, which is around 1,300 crore. Some part is more than two years, the balance, as I already said, some 400 crore, 500 crore will mature in the calendar year Sameer Dalal, Analyst Okay. Okay, fine. That's it. That's what I needed. Thank you. Thank you. We're going to take the next question from the line of Digant Haria from ICICI Securities. Please go ahead. Digant Haria, Analyst Hello, sir. Yes. Digant Haria, Analyst Sir, in your call, you have said that 20%, 25% of AUM growth will be sustainable from FY 2014, that's the next fiscal year. And especially for the next fiscal year, we said that, we are looking at AUMs of around 13,000 crores, so that's 30%, almost 26%, 27%

23 growth. So sir, what are the steps that you have been taking at the branch level to ensure that such a growth takes place after a period of one year where we had to drive away customers a lot of times, because we did not have adequate funds available. So if you can just throw light on what will drive that sustainable growth in the branches? We were growing at a rate of 100% or so. Yeah, some of the customers were have gone to our competitors. But data is there. And they have been with us for some time. We at the peak point of time, our customer accusation was around 4,000 new customers a day, which has come down to 800 customers, when we are not able to lend at a rate to what others were doing. So now, gradually it is going up. It is now around 2,800 new customers a day and it is steadily increasing, almost 200 customers a week. So I think that level of more than 4,000 will be achieved in another six months time. So the dispersal also will go up accordingly. And with a increased disbursal loan account of new customers, as well as existing our old customers coming back, this will be this is possible. Digant Haria, Analyst Okay, okay. Sir, I will slightly reframe my question here. Sir, if so would it be fair to assume that the latent demand is so high that even without doing additional marketing or any sort of branch level promotional activities, if we are able to arrange funds, we can still grow at 20%, 25% without any sort of additional marketing. So is that what Yeah, you are very right. The thing is, before capping up this LTV, there was a severe competition on account of starting by starting a higher LTV asset by the players in the industry. Now, it is stabilized. And now, the entry of new players in the to the gold loan market, that prospect also has come down at least in the medium term. So with 20,000 tons of gold with the families in the country. And the established players, they have established then their network more established, the acquisition may not be difficult and it will happen without much marketing effort. Digant Haria, Analyst Okay, okay. Okay, sir. And lastly, sir, now it's almost like 1.5 to 2 years that we have started growing in North India, West India, and East India. So what has been the experience especially in the branches in areas like the metros, the non south metros, may be the Mumbai, the Baroda, the Ahmedabad, the Jaipur and Delhi and so on? Our highest asset per branch is happening in metros like Mumbai, Calcutta, Delhi, Chennai, Bangalore, et cetera. So the demand in metros is generally high. And it is a general belief that the four southern states are major places for growth. So our experience shows that the states like Maharashtra, West Bengal, then Orissa, Gujarat, et cetera, are equally good. And we see a glowing market in places like the MP and UP. So in short, what I see the pan India market for gold loan is good. So what can be assumed is the southern and central states, the prospects are more in the sense that our people are already using. But in North India with an increased visibility, we created or the players created especially using film celebrities, et cetera, et cetera. What was seen as a distress product in the past, it's slowly becoming a lifestyle product. So the market is growing, which offers immense potential for the established players to grow. Even if a new player comes to establish 3,000 branches, recruiting 20,000 employees, and training them, et cetera, and hiring the right IT platform, et cetera, maybe a big challenge. So it may take at least three, four years for a new player to offer complication to the existing players. So what I feel is, for the existing players is, in the medium term it is prudent. Digant Haria, Analyst Okay, okay, right. Fair enough. Thank you sir. That was informative. Thanks and all the best.

24 Thank you. We're going to take the next question from the line of Hiren Dasani from Goldman Sachs Asset Management. Please go ahead. Thank you. Sir, any loan book which is above 90% now? No. More than 80%, what is remaining in our books is only 8%. But more than 90%? No, more than 90%, no. I mean, so you have already auctioned in the Q4 something and the expiry date Yeah, yeah. You are right, you are right. In the first one and half months of the Q4? Which is what you are referring that it will have about 35, 40 crores. Yeah, I have verified it, more than 90% is absolutely zero now. Okay. And then when you say more than 80% is based on the scrap value or based on your LTV value? It is based on the scrap value.

25 More than 80% based on scrap value, not based on the Not from market price of the metal. Okay, okay. And the third thing is that, I mean, just wanted to understand when you were lending like 90% LTV last year in August and all, with 25%, 26% interest charging, actually you were taking a view on the gold price that gold price will always go up, right? I mean, that was Definitely no. It is because average life of the loan is around 100 days, that also call. Yeah, but your loan agreements are always for one year. It is always for one year, but the product is like that. The ladies in the family, they offer this to their husbands for availing the loan for business, et cetera, etcetera. But there will be a family pressure always to return it back, because these are the ornaments which they wear when they go for occasions like marriages, et cetera, festivals, et cetera, et cetera. So historically the life of gold loan is around three to four months. We took it for only three to four months, that's why we were offering a LTV of 90% on that. Not only that, but we were reducing the may be some reduction in the rate for the joinery, et cetera, et cetera, of the ornament, but for the customer the replacement cost would be higher. See, even in this case, you have seen, even in the normal circumstances, et cetera, without putting any pressure, the redemption of 85% has happened. The challenge was only the balance 15% that also with underlying security, which is gold. So we took that calculated risk. This year's lack of perform lackluster performance was can be primarily attributed for the because of the degrowth in AUM. So these, yeah. I understand that, sir. But I also understand that there is a frequent follow up from the branches whenever the value of loan plus accumulated interest, gold closer to 100% or above 100%, in this case it was not happened? Definitely it is there, it is there. But what we do, what we were doing was, to send SMS, made calls, et cetera, et cetera, and we don't put any pressure, which is seen as a hard recovery. It is not, it is all soft recovery. Technically, you can initiate recovery only after 18 months, right, because 12 months is loan tenure. This is not like that, this is not like that. The interest recovery in a soft way is always possible. The second thing, the loan becomes overdue when it completes 12 months. So from that date onwards, we can initiate steps to for recovery, for fast recovery such as auction.

26 That I understand, sir. But I'm saying that you can auction only at the end of 18 months because that's when it's After 12 months, the procedure can start by sending the letters to our customers, then publication of the details in local newspaper, as well as in English newspaper. So after these formalities, in the presence of an auctioneer, which is who are appointed, who is appointed by the Board, we can conduct the auction, this is what is there, what is permissible even in the (inaudible). Okay. And sir, this 360 crore, 350, 360 crore worth of loans which were auctioned during the quarter, what would it be, I mean, it would be spread across, I mean, how many accounts approximately? The total number of accounts is around 1 lakh accounts, 1,01,099 accounts. Okay. So the I mean, the it's not like a large ticket value loans, et cetera. The average ticket size is still about 35,000 only. Around 50,000, around 50,000 now. No, no. I'm saying for the accounts which were auctioned. Yeah, yeah. The what is the average ticket size, that is applicable here also. Right. It was not like high value loans loss which were given to Your calculation is correct. Yeah, if you calculate like that, it is right, you are right. Okay. I mean, why not have an accounting policy where I'm just giving a feedback or a suggestion that why not have an accounting policy where rather than keep accumulating interest, you stop accumulating interest or you stop acquiring the interest when the LTV plus accrued interest goes beyond 100%? Now, we are following that policy.

27 If you are following that, then it would not have led to this kind of a interest reversal in one quarter, sir? No, no. Progressively we are following that. You started following that now? Yeah, yeah. You are right. Since which quarter, sir? From this quarter. Okay. Thank you very much. You are welcome. Thank you. We're going to take the last question from the line of Christine Rowley from Sloane Robinson. Please go ahead. Christine Rowley, Analyst Hi. I have two questions. First of all, a quick follow up on the auction schedule. It seems like the auction schedule stepped up very dramatically in the latter part of the year, rising from 17 crore to 91 crores to 359 crores. Can you explain why the auction Excuse me, can you speak a little louder, because we are not audible here. No problem. I wanted to ask why the auctions have been so clustered up in the latter half of the year. So starting off with 17 crores in the first quarter, 91 crores in the second quarter, and 359 crores in the third, and then you are guidance towards the same in the fourth quarter. Was that because of the maturation of the loans reaching the point when you could take the jewelry to auction, or was that because the RBI policy asking you to revisit the procedures associated with the auction such that you needed to settle those before you could precede with auctions. That's my first question.

28 See, the latter part of your interpretation is correct. RBI coded a fair practices code in March, and asked us to comply with certain set of procedures for auctioning. So that took us some time to comprehend within, that's what we have told in earlier con call also. So the auction for the first quarter was low, the same happened I the second quarter. But now we have streamlined the auction process, and that is streamlined from Q3 onwards. Just to life on that, in the first nine months, the auction was around 450 crores. And in the first nine months of the proceeding financial year, we have a disbursement of around 20,000 crores, the preceding 15 months. So as a percentage, if you see, it is broadly in the same line, 2%, 2.5% of my disbursement is going for auction. So there has been no change in the business prospect, there is no change in the behavior of the customer or the, two, behavior of the pool [ph], it has only been that the auction has been postponed to the last quarter that has led to that, you see a higher figure in the Q3 than in Q1 and Q2. Christine Rowley, Analyst Okay. But the consequence of the postponement, I guess is that, as Kunal was asking at the very beginning of the conference call is that you accumulate another couple of quarters of interest income, which makes the gap between what you've accrued in the accounts and what you realized at the auction margin. The comprehensive delay is a low it seems to be a lower recovery rate assuming gold prices are the same. See, now this question is part on the just can be answered in two parts. First, the entire loss seem to, not only on account of the delay in the auction, but also because of that particular period of time, we were lending at a higher LTV. So it was both of the function that the lending at that part (inaudible) coupled with its period in the auction which has resulted into the under recovery of the interest. Just to throw a light further on the FY going forward, we have reduced our LTVs from in Feb So from Feb 2012 onwards, our disbursement are maximum in the range of 70% to 72% of the scrap value. Hello. Christine Rowley, Analyst Hello. Even in the range of 70% to 72% of the scrap value. So whatever disbursement we have been doing in calendar year 2012, we don't see any under recovery of interest. 18% Lowe than 2012, earlier 19%. Christine Rowley, Analyst And was this auction outcome a surprise to you? Because from what I understand, it was seem to be a bit of a surprise to the market that your earnings dropped so much on a quarter to quarter See, we are already incurring some loss, like we have told you, it was some 5% in Q1 FY But the auction amount was less and we were growing both in the terms of AUM and the denominator was increasing and the disbursement was also going up. So it may not have been reflected in the financial in the way it reflected in this quarter. Because in this quarter we have not grown in the AUM and the disbursement is 40% less than the period provisioned auction pertains.

29 Christine Rowley, Analyst Okay. And may I ask one last question? You mentioned that you have done some NCDs this month with some of the local insurance companies and local mutual fund companies. Could you please explain what interest rate you've been able to pay on those NCDs and how that compares to what you're refinancing? See, NCD which we trailed in financial year 2012 is somewhere in the range of 12%, 12.25%. The NCD which we are raising in the financial year 2013 is in the range of 13%. Christine Rowley, Analyst Okay % to 13%. Christine Rowley, Analyst And how those interest rates on the NCDs changed at all in the wake of Rao committee report? Or is it held in the same level? It is very early to comment. But, yeah, definitely going forward, we definitively see both the Rao committee, as well as the softening normal softening on the interest rate cycle will definitely have a impact on the cost of borrowing of NCDs, because any cost of borrowing is a function of two things. One, the perception regarding the industry. So the Rao committee report is expected to change the perception regarding the industry. And second is the base rate in the economic system. So we see that both of these structures are in the favor of the company. Rao committee has sent the perception regarding the industry. Second is, the base rate also is related to come down. So these two factors combined definitely will give the rate of interest at which we are borrowing up only the bank borrowing but also the NCDs and the commercial papers. Christine Rowley, Analyst Okay, great. Thank you very much for answering those questions. You are welcome. Thank you. As that was the last question asked, at this time, I would like to handle the conference over to Mr. Sampath Kumar for closing comments. Thank you. Sampath Kumar, Analyst Thank you, everybody, for joining on the call. I'd like to thank Mr. Nandakumar and Sachin for taking the time out to answer the questions. Thank you very much, sir.

30 You are welcome. Thank you. On behalf of IIFL Capital Limited, that concludes this conference call. Thank you for joining us. You may now disconnect your lines. Thank you.