Mumbai: Non-banking lender Manappuram General Finance & Leasing sees profits more-than-double in FY11 as its branch expansion may offset some of the pressure from higher borrowing costs, a top official said.
India’s central bank said last week that loans against gold, Manappuram’s primary business, do not qualify as priority sector lending, wherein bank loans are obtained at concessional rates.
“We have over 2,000 branches. There is more visibility of the product of loans against gold and we could replace unorganised sector,” V.P Nandakumar, chairman of the company told Reuters over telephone on Tuesday.
The company expects profit of some Rs 280 crore in FY11, compared with Rs 120 crore in 2010, Nandakumar said. Analysts expect a net profit of Rs 260 crore , according to the Starmine data.
Lenders against gold, will probably find their costs rising 150-200 basis points, reducing their portfolio growth by 50% a year in the medium term, rating agency Crisil said in a note.
Manappuram shares lost nearly 14% since 2 February when the Reserve Bank of India (RBI) guidelines were announced, compared with a 2.7% decline of the BSE index
The company had a total Rs 7000 crore in assets under management as on 31 January, of which Rs 3200 crore were lent to the agriculture sector, he said.
Manappuram borrowed funds under priority sector at 10.5%, which will rise to 11.5% post RBI guidelines.
So, on an average the borrowing rates post the central bank’s guidelines will rise by less than half a percent, Nandakumar added.
The firm expects to maintain a net interest margin of around 15% in FY11 as it has already contracted credit at a rate around 10.5% and plans to diversify the sources of funds, Nandakumar said.
Despite the expected increase in cost of borrowing, gold loan companies’ profitability will remain strong, driven by high yields, improvement in operating efficiencies, and low credit costs, Crisil added in a note.
Shares of the firm ended down 4.12% at Rs 98.80 in the BSE.