Dear Shareowners,

I am delighted to share with you our 29th Annual Report for the financial year ending March 31, 2021. The trust of our customers and the dedication of our employees helped us achieve profitable growth in an especially turbulent year. Our consolidated AUM grew by 7.92% to ₹ 272.24 billion, and net profit improved by 16.53% to ₹ 17,249.5 million, the highest ever.

FY 2021 witnessed a once-in-a-century crisis in form of the COVID-19 pandemic. The lockdowns that followed disrupted almost every economic activity. Economies around the world went into a tailspin and economic activity contracted sharply. Authorities responded to the crisis with large monetary and fiscal stimulus plans to safeguard lives and livelihoods. Globally, the fiscal stimulus to combat the pandemic has topped trillions of dollars and expansionary monetary policy has supported growth to a large extent. As a result, the world economy is gradually heading towards revival. IMF revised its forecast for the global economy, which is estimated to contract by about 3.5% in 2020, an upgrade from its previous prediction of -4.5% made in June 2020.

The lockdowns imposed to combat the spread of the virus had a devastating impact on the Indian economy at a time when it was already facing a slowdown. COVID-19 exacerbated the situation with the economy’s growth rate tipping over into negative territory. Since then, there were signs of a sharp recovery as well, driven by a significant uptick in the manufacturing and construction sectors. Investment demand grew by 2.6% in Q3 FY 2021 after showing lacklustre performance for several quarters. Government spending went up sizably with a focus on capital expenditure to hasten long-term growth. Moreover, many high-frequency indicators show improvement, reinforcing the view that the economy will bounce back.

Performance during the year
Your Company was able to withstand the strong headwinds and reported profitability even in the non-gold verticals viz. microfinance, affordable housing, MSME and commercial vehicles segments. We were able to bear the shocks due to our investments in advanced technologies which allowed us to offer customers the best-in-class products and services, even when our branches were closed by lockdowns. Our online gold loan product allowed customers to transact with us and borrow additional amounts even during the lockdown period. Many of our customers were in acute need of funds and we could provide timely service to them with the aid of technology. Our gold loan portfolio showed significant growth during the lockdown phase because, for a while, this was the only credit product readily available to customers as risk aversion spread through the financial sector. Of course, the environment was also supportive as gold prices happened to increase sharply during this time, creating the headroom for borrowers to borrow more.

While the momentum in the gold loan business continued, our new business verticals showed their resilience. Nongold verticals now account for 30% of our consolidated AUM and contribute 21% of consolidated net profit. We recorded good growth in consolidated AUM during FY 2021,which, at ₹ 272.24 billion is an increase of 7.92% over the preceding year. Along with the growth in AUM and the highest ever net profit of ₹ 17,249.5 million, we have delivered attractive returns to our investors with ROA of 5.61% and ROE of 26.17%. Our net worth stands at over ₹ 73.07 billion, and our standalone capital adequacy ratio is at a healthy 29.02%. The overall picture conveys growth and profitability, and the confidence that we can further improve our performance in the times to come.

Fluctuating gold prices and risk management in gold loans
Over the past few months, after the first announcement of a successful vaccine, gold prices have corrected significantly in the expectation that the worst of the pandemic is behind us. From the peak of US$ 2,000 per troy ounce in August 2020, the price has fallen to levels of US$ 1,700. The good news is that our gold loan business has also evolved to become more resilient to such price fluctuations. The change is most apparent in our risk management where the old thinking has given way to new. In 2014, looking at the increasing volatility in gold prices, your company had put in place a well-thoughtout strategy to reduce its exposure to gold price volatility. Learning from previous episodes of gold price volatility, we realised that a short-term gold loan product is the best way to manage the gold price risk. Accordingly, we shifted almost the entire gold loan portfolio to a tenure of 3 months, a departure from the industry practice of granting gold loans for a tenure of 12 months.

The short-term product offers benefits both to the customer and to the company. The company can manage the price risk and asset quality prudently, without taking away flexibility from the customer in terms of his credit requirements. The periodic renewal of the loan and the regular servicing of interest by the customer enforces credit discipline and it also lowers the interest burden on the customer. The customer can also renew the loan indefinitely by periodically settling the interest and resetting the principal to the prevailing gold price.

Adapting to the new normal
Ever since the outbreak of COVID-19, we have been engaged in a race against time to become ready for the ‘new normal’. Within a few days of the lockdown announcement, we succeeded in extending work from home facilities to almost all our employees. This became possible only because of the technology initiatives we have been implementing over the last four or five years. We started our green office project by implementing the paperless system of moving files to make the operations of the head office completely paperless. We conduct all our review meetings online through digital platforms with considerable savings in time and travel cost. Your company was the first gold loan NBFC to launch the online gold loan (OGL) application, which is today the most successful application of its kind in the industry. Launched five years ago, adoption was relatively slow but after the pandemic struck, there was a marked pick-up. Along with OGL, we now offer ‘Doorstep gold loans” where the customer need not visit our branch at all. Our executives call on them at their homes and complete all the formalities and disburse the loan on-the-spot. Summing up, if things have changed because of the pandemic, we are changing too.

Thank you
I am grateful to regulators and policymakers for having fostered a conducive environment, which has allowed us to perform to the best of our potential. I want to thank our senior management team for demonstrating the ability to execute the vision of the management and for displaying resilience under difficult circumstances in recent months. I also want to thank all our employees for their efforts, and our customers for continuing their longstanding relationships. Also, I want to thank our Board members for their unwavering support and guidance during the past year. While we are constantly focused on our customers, employees, and shareholders, we have continued to support our communities all around. The Manappuram Foundation has made a tangible difference to communities across India.

I am grateful to all our stakeholders and partners for their resolute faith in the Company over the past three decades. I seek your continued support so that we consistently improve our performance and fulfil our vision to become a preferred multi-product NBFC for our customers.

With best wishes
V.P. Nandakumar
MD & CEO