Manappuram Finalizes Pan-India Forays in Healthcare, Jewellery Retailing

He transformed a 60-year old pawn shop his father founded into a Rs. 6300 crore financial empire. He is VP Nandakumar, former banker, entrepreneur extraordinaire, and one of India’s most successful wealth creators for retail investors, who have seen their investments in Manappuram  General Finance & Leasing Ltd (BSE: 531213, NSE: MANAPPURAM) zoom 35,600% within 15 years. Despite having a posh office in Bandra-Kurla Complex in India’s economic capital, and frequent overseas travels, Nandakumar calls the shots sitting at his original office in his native Valappad, a nondescript village in Thrissur District of India’s southern-most Kerala state. His former and current investors include the who-is-who of international investing like Merrill Lynch, Morgan Stanley, Nomura, Capital World, & Sequoia. Currently Nandakumar is plotting his next success saga - two stories in fact - in jewellery retailing and healthcare, sitting at ‘Manappuram’ which is a namesake for the coastal villages including Valappad. His confidence stems from his experience that Manappuram’s core values of thinking-big, finest quality, and transparency will help them succeed in their new verticals too.  

Seasonal Magazine interviews VP Nandakumar, Executive Chairman of Manappuram Finance, and main promoter of Manappuram Group.

Manappuram Group is now attempting a major diversification into two new verticals. Is this any kind of de-risking strategy for the gold loan business? 

No, this is not about de-risking at all, as the new diversifications into jewellery retailing and healthcare is not undertaken by Manappuram Finance, our listed gold loan business, but by some of our core promoters including myself. These diversifications into healthcare and jewellery retailing are led by our firm belief that Manappuram Group can add much value to these sectors, and thus create new growth avenues for the Group. The listed Manappuram Finance is doing fine by itself, with this year's profit growth expected to be around 140%, and next year also the listed arm might grow its profit by at least 75%. 

You have started the pilot projects for your healthcare foray. Can you elaborate on their functioning?

Yes, what we have done is create two centres - one dental clinic and one clinical lab - here at Valappad, which will function as our pilot projects for our dental and diagnostics divisions. The latest infrastructure and equipments have been provided, so that these centres will serve as models for all involved. Once we have fine-tuned these centres, we will replicate it across the country.

But what about the kind of doctors and dental surgeons who will be required to handle all these? Have they been roped in?

We have already identified the main doctors who will handle each division. For our dental chain, one of the most reputed dental surgeons, currently based in Thrissur has been entrusted the duty of Technical Director. Similarly, a renowned doctor, now based in Thrissur, who is also a highly successful diagnostic chain entrepreneur has been entrusted with the duty of heading our clinical labs division. They have visited our facilities and have expressed full satisfaction with our model, protocols, as well as facilities.

What kind of a business model will you be following for your healthcare expansion? Is this going to be a franchise model or are you planning to do it on your own?

Our initial plan was to expand on our own, and not follow the franchise route. But to fast-track growth, we are now planning to follow the inorganic route too. By inorganic, I mean not outright takeovers of existing dental clinics or labs, but that interested institutions will be brought into our fold on very attractive terms. Anyway, this won’t be a franchise model. Also, wherever there are opportunities to start new clinics or labs, we will start on our own. So, this is going to be a mix of organic and inorganic expansion.

Your model seems unique. Do you have any kind of role models for these healthcare chains?

Well, there are many examples lately I think, starting from Apollo. Of course, our model won’t be an exact replica of any of these, but will be a kind of mix ‘n match of these models to suit our vision. We are impressed by quite a few models, especially of Vasan Eye Care Hospital.

Building up a healthcare operation, especially on this scale that you imagine, will also be about managing large teams of doctors and other professionals. Will your institutions be doctor-led or manager-led?

Healthcare is one sector which should be ideally doctor-led, I believe. But having closely watched various medical institutions expand, I have realized the need for professional management too. So our leadership style will take good elements from both, with the medical leadership led by doctors, and the management run by finance or management professionals. The idea is to leave each one with responsibilities that they only know how to handle best. This demarcation will solve headaches for both, and achieve the needed synergy.

You yourself are from a banking background. And now you have been an entrepreneur for decades in the financial sector. How difficult will it be for you to manage doctors - who are unfortunately known for their egos - or the medical business itself?

I think you are underestimating doctors when you say this. In my opinion, some of the best management experts I have seen are all doctors. By management experts what I mean is experts in their domain, especially in team-building activities concerning doctors, nurses, and other paramedical staff. The best example that readily comes to my mind is of the renowned cardiac surgeon, Dr. V V Bashi, who is now with MIOT Hospitals of Chennai. I had an opportunity to watch he and his teams perform once, and the way he has built up the different cardiac units with different kind of specialists and nurses, and how they all perform synergistically to world-class standards is quite inspiring. Again, we have the case of Fr. Dr. Francis Alappat who built up Thrissur’s Jubilee Mission Medical College quite remarkably. Similarly, there are so many examples. I think the so-called management experts have a lesson or two to learn from these remarkable team builders.

What about managing the medical business itself?

As in all Manappuram ventures, this too will be professionally managed with a qualified and experienced CEO in charge. Though I am new to this line, I have always had an above-average interest in the healthcare sector. I am also an honorary director in a medical college.

Apart from dental and diagnostics, are you planning any other activities in the healthcare sector?

Yes, we also have a couple of additional models in healthcare, one of which is a unique concept of Women’s Wellness Clinics. While diagnostic and dental chains have been attempted before by other healthcare majors, Women’s Wellness will be pioneered by Manappuram. The concept is to serve the wellness needs of women through all core stages - pre-pregnancy, pregnancy, post-childbirth, and during the baby’s growing up phase. Both physiological and psychological elements would be there in these Wellness Clinics, as well as the best elements from traditional care and world-class developments in gynaecology & obstetrics.

Now about your other diversification - into jewellery retailing - which is already on in Bangalore. How has been the performance of Manappuram Jewellery?

Considering that we are a newcomer to retailing, I think we have fared quite good until now. We have 7 showrooms now, 4 in Bangalore and 3 in Kerala. Our fifth shop in Bangalore is all set to open in the New Year. We have set a target of 50 jewellery shops initially, all over India, but mainly in the South, within the next few years. Though our pre-operative expenses have been high, we should be able to break-even and may be post a profit of Rs. 1 crore this year itself. We are facing some challenges in this business, as our margins are lower compared with competitors, as we are selling only BIS Hallmarked gold at non-hallmarked price points, and because we pay 100% of our taxes.

How do you plan to overcome this challenge?

I think this is only a matter of awareness and time. Customers are going to appreciate our real purity proposition over competitors’ claims of purity. But until that happens, we have to match the prices. In any case we will not budge from our stance of selling only BIS Hallmarked gold. Sooner rather than later, customers, especially customers who value gold’s investment value too, will make the switch to hallmarked gold, and then it will be a level playing field for us. We shouldn’t complain too much now, as our mega campaign pitching Manappuram Gold’s purity is yet to commence in the media. You will see a huge jump after that.

But anybody can sell BIS Hallmarked gold, isn’t it? And many are claiming too…

Well, there are two differences here. Though most major jewellers sell some BIS Hallmarked gold, it is not their mainstay. They still focus on plain non-hallmarked 91.6 gold because the margins are high there due to the flexibility possible in purity, if I can put it in a mild way. Secondly, we have already started on an initiative that goes beyond even BIS. Using sophisticated quality control machines, we even double check each of our hallmarked supplier samples, and reject jewellery that doesn’t live up to the standards. There is going to be no compromise on quality, and this is going to be our differentiator in the jewellery business.

Why this obsession with purity? Are the gold generally available that bad?

Yes, you should ask us, of all people, this question. Nobody knows the quality of gold jewellery available in the market better than the gold loan companies. Day in and day out, at more than 1800 branches across the country, Manappuram Finance staff are testing ornaments of all kinds for their real gold value. Often, we have been shocked by the quality of jewellery that passes off as 91.6. We are obsessed with quality because we foresee a day, not very far, when customers too will awaken to this purity consciousness.

You mentioned a tax angle. How much is it affecting your retailing business?

I think we shouldn’t say affecting, as in my opinion, all of us should be paying 100% of our taxes. Of course, if my competition doesn’t pay tax, relatively I am affected, but that is not going to prevent us from being 100% transparent. Sadly, the need for being transparent is the last lesson entrepreneurs learn, and often in a hard way. They don’t realize that Government is also a key stakeholder in any business. After our last QIP, by which we raised Rs. 1000 crore, a few entrepreneurs enquired with me whether they too can raise money like this, and I said why not? But when we look at their balance sheet, it is another story altogether, something that doesn’t match their publicly successful status. But with each passing year, you will see the need for transparency increasing from all stakeholders, and we are anticipating a huge advantage coming to us due to this policy of transparency.    

Do you plan to list your healthcare and jewellery retailing businesses in the future?

Yes, definitely. Both will take a few years to stabilize, and after that we will definitely go for public issues and listing. From day one they are being built up to the standards expected of public companies.

Coming back to our first question of de-risking the Manappuram Finance business, are there any plans for the same in anvil?

The conventional wisdom of banks is that the loan portfolio should be diversified for de-risking. For banks, this is true too, to an extent. But when it comes to non-banking finance companies, the reverse is seen. Niche NBFCs have proven to be the least risky due to their sharp focus on a core competence. Examples are too many, be it Sundaram Finance (BSE: 590071, NSE: SUNDARMFIN), Shriram Transport Finance (BSE: 511218, NSE: SRTRANSFIN) , or Manappuram. This is because, such NBFCs do one thing exceedingly well. In our case, this core competence is gold loans. We know this business inside out. We have kept with it through recessions, gold booms, and gold busts, and we have survived. I will tell you a small instance of how this core competence develops. Manappuram Gold Loans is more than 60 years old, and I have seen this business up-close ever since I was a six-year old kid, when my father used to bring me here during vacations so that I won’t be a nuisance at home! Now, this original core competence is what I have taught my senior colleagues, and what they have taught in turn to this organization which today has an employee strength of over 13,000. That is what enables us to serve over 5 million customers from our over 1800 branches spread across 19 states of India.

But what if the gold prices were to fall drastically?

The biggest gold price fall in Manappuram's history happened in the 90s when it fell by around 50% from $430 per ounce to $220. We were nervous at that time about our repayments falling. But none of that happened. Later, we found out the cause - customers are more interested in getting their jewellery back, even if it is only half the original value. Simply because, what we are lending against is not just the bullion, but something we call bullion plus. Household jewellery has this additional emotional value of bullion plus, as nobody wants to lose household jewellery. Ever since then, we have been very cautious in lending against only household or personal jewellery. Having seen such drastic falls, and having emerged stronger, we don't see much risk from future corrections, if at all it happens. Another point is that we are anyway insulated from long-term corrections as majority of our loans get repaid within 100 days. 

You mentioned an impressive probable growth rate of 140% for this year and 75% for next. How is such momentum possible?

The reason is nothing but the tremendous opportunity still left untapped. Even today, the organized sector including us controls only 25% of all gold loans in this country, with the rest of the business dominated by the unorganized sector comprising mainly of moneylenders. But thanks to Manappuram's awareness campaign, customers are realizing that it is easier, profitable, and safer to take gold loans from the organized sector. Also, the total gold pledged today with both the organized and unorganized sector is nowhere near the gold that is available in households for pledging. Customers are also realising this fact that gold loans are the easiest and safest of all personal or MSME loans. We, in fact, expect Manappuram Finance to grow at 60% CAGR for the next four years.

How do you view the recent stock market correction that also took down your stock from nearly Rs. 190 , which is an all-time high, to Rs. 130 levels?

Fundamentally, there was nothing warranting this correction in our scrip. But then markets often have a collective nature, and when all banking and financial sector stocks corrected, we too lost some gains. That is an unavoidable side-effect of being listed in the bourses. But capital markets have been generally very appreciative of our growth trajectory, and you should not forget that this is a stock that has appreciated by 35,600% in its 15-year old history. Anyway, stability is coming back to the markets, and as you can see, Manappuram has regained much of the lost ground.