Resilient performance amid challenges
I am delighted to share with you our 28th Annual Report for the financial year endingMarch 31 2020. The trust of our customers and the dedication of our employees helped usachieve extraordinary results. Our consolidated AUM grew by 30% to Rs 252 billion and netprofit improved by 56% to Rs 14803 million. The gold loan business continues to grow evenas our new business verticals grow faster. Non-gold verticals now contribute 33% of ourconsolidated AUM.
The gold loan market is expected to reach Rs 4617 billion by 2022 at a five-yearcompounded annual growth rate (FY18 to FY22) of 13.4% according to a recent KPMG report.The report highlights the fact that gold loan companies need to increasingly address therisk of gold price volatility by offering more variants of shorter tenure loan products of3-6 months. Incidentally short-term gold loan products were first introduced by yourCompany in 2014.
During the last few weeks of the FY20 we started to see the impact of COVID-19. Anunprecedented nationwide lockdown was imposed in India. Our senior management and IT teammobilised with speed offering a digital platform to our customers and enabling work fromhome for our employees. Our focus has been and remains the safety of our employees thedelivery of uninterrupted service to our customers and the financial wellbeing of theCompany.
Resilient to economic downturns
As COVID-19 continues to spread and wreak havoc the global economy has run intoserious headwinds. Stock market indices around the world plunged regaining some groundonly recently after central banks had announced vigorous stimulus measures. Most majoreconomies are now expected to head into a recession this year. In India the BSE Sensexand NIFTY lost more than a third of its value at one time. As a crisis of confidencegripped the markets banks and Non-Banking Financial Company (NBFCs) suffered even greatererosion in their share prices. However even at the height of the gloom we remainedconfident about the fundamental strength of our business model with gold loans at itscore. Our confidence was based on our experience dealing with periods of economic stress.
During an economic crisis the wider financial services sector (banks and non-banks) isalways put to severe stress and their lending activity slows down as the appetite for riskand disbursing new loans declines. With few other options available gold loans become thenatural fallback for borrowers who are denied access to their regular channels. Furtherthe tendency among governments and central banks to respond to such crises by infusingliquidity and fiscal stimulus drives international gold prices higher. Given this naturalimpetus towards higher gold prices it becomes an additional boost for the gold loansbusiness.
Earlier in late 2018 India's NBFC sector was thrown into a crisis when one of thelargest NBFCs with the highest credit rating involved in infrastructure finance went intodefault. With banks becoming wary of lending further to NBFCs liquidity dried up; and itwas soon revealed that many prominent NBFCs were facing acute Asset Liability Management(ALM) mismatches. The outlook for NBFCs suddenly darkened and share prices of NBFCs acrossthe sector suffered severe erosion. However it was not long before the market woke up tothe fact that NBFCs focused on gold loans such as Manappuram Finance Ltd. dealtpredominantly in short-term loans and were therefore comfortably placed in respect of ALM.
Once this realisation came about their share prices recovered and outperformed themarket. In fact in December 2019 your Company was named as the largest wealth creatorfor 2019 by the Economic Times in its list of ET500 companies with market capitalisationof over Rs 50 billion. In July 2019 at a time when the crisis among NBFCs was still amajor talking point your Company had its credit rating upgraded by CRISIL along withupgrades for its subsidiaries Asirvad Microfinance Ltd. and Manappuram Home Finance Ltd.As I understand there were only three NBFCs that managed a ratings upgrade in thatquarter; and they all belonged to the Manappuram group.
Partnering the aspiring classes
Your Company has made conscious efforts to provide financial services to fulfil theneeds of the aspiring classes in India. This generation of young India aspires for thebetter things in life even as they lack access to formal channels of finance. As theIndian economy rebounds on its growth trajectory we must be ready to give access tocredit for the aspirational classes. India is home to a fifth of the world's youth. Halfof its population is below the age of 25 and a quarter is below the age of 14. Over thelast five years or so your Company has invested heavily to expand its product portfolioto fulfil the demand for credit from the marginalised sections. Your Company introducedaffordable housing loans commercial vehicle and equipment finance microfinance andpersonal loan products.
Most financial institutions provide credit based on the established credit history anddocumented proof of cash flow (salary or business) which effectively leaves out the lowerstrata of households who also work for and aspire to a better life. Your Company iscommitted to bridging this gap in the credit market. At Manappuram we have devisedinnovative credit appraisal methodologies to provide credit to the deserving borrowersfrom the unorganised sector. Our target customers are mostly micro and small entrepreneursand informal employees (non-corporate) who have a regular income but not throughpermanent employment with income proof. This segment is relatively untapped and holds goodpotential.
Performance during the year
We recorded good growth in consolidated AUM during FY20 which at Rs 252 billion isan increase of 30% over the year before. Along with the growth in AUM we have deliveredattractive returns to our investors with ROA of 5.9% and ROE of 28.4%. Our net worthstands at over Rs 57.45 billion and our standalone capital adequacy ratio is at a healthy23.4%. To summarise the overall picture is one of growth and profitability grounded inlow gearing and we are well poised to improve our performance in the times to come.
Growing with resilience and optimism
I am grateful to our regulators and policy makers for having fostered a conduciveenvironment which has allowed us to perform to the best of our potential. I want to thankour senior management team for demonstrating the ability to execute the vision of themanagement and for displaying resilience under difficult circumstances in recent months. Ialso want to thank all our employees for their immense hard work and our customers forcontinuing their long standing relationships. Additionally I want to thank our Boardmembers for their unwavering support and personal guidance during the past year. While weare consistently focused on our customers employees and shareholders we have continuedto support our communities all around. The Manappuram Foundation continues to maketangible and lasting impact across areas.
While we are not out of the COVID-19 crisis yet it is clear to me that the way webehave in times of acute stress is in many ways more reflective of who we are. I am surethe actions we are taking today will find favour with our present and future stakeholders.Looking ahead I am optimistic about the opportunities arising from the work we are doingfor our customers; and the approach we have put in place with respect to digital and cloudservices.
I am grateful to all our stakeholders and partners for their resolute faith in theCompany over the past three decades. I seek your continued support so that weconsistently improve our performance and fulfil our vision to become a preferredmulti-product NBFC for our customers.
With best wishes
MD & CEO