Wednesday, August 22, 2012

Muthoot Pappachan Group Grows on Diversification and Adaptability

Muthoot Pappachan Group Directors -Thomas George Muthoot,
Thomas John Muthoot, Thomas Muthoot
Nobody disagrees that the once fast growing gold loan segment has now moderated its pace. But one of the leading players in the segment, Muthoot Pappachan Group (MPG), is one of the least affected, thanks to their adaptability and diversified nature, with significant operations in automotive, hospitality, real estate, and a few more. It has welcomed RBI tightening gold loan norms, as it expects the move to be of long-term positive impact to the sector. MPG companies are partners with international auto and hospitality brands like Jaguar, Land Rover, Honda, Yamaha, Hilton, Taj etc. On its core gold loan front, the flagship Muthoot Fincorp Ltd is at the frontline of the changes happening there like formation of Self Regulatory Organization (SRO), better KYC etc. Its instant loan product ‘Express 3 Minute Gold Loan’  has been a  hit due to its well-conceived nature. The familial ties between the brothers of the promoter family, Thomas John Muthoot (Chairman), Thomas George Muthoot (Director), & Thomas Muthoot (Executive Director) is also a plus for the group. Seasonal Magazine recently interviewed Director, Thomas George Muthoot, to get a grip on how well the company is adapting to changes in the gold loan industry, as well as diversifying into various sectors.
Gold loans are not what it used to be. Walk into any branch of Muthoot Fincorp and you would realize the positive changes sweeping across the gold loan business in the country.

All frontline gold loan companies including Muthoot Fincorp have bettered implementation of Know Your Customer (KYC) norms.

Whereas earlier identity proofs were largely driving licences and PAN cards, now the tamper-proof biometric Aadhaar Card is also allowed as a verification tool.

Muthoot Fincorp has also been in the forefront of creating a Self Regulatory Organization (SRO) for the sector viz. Association of Gold Loan Companies (AGLOC). Since the creation of AGLOC and its promotion as an SRO, it has been instrumental in campaigning at regulators like RBI for their cause.

The AGLOC guidelines are designed to serve newer entrants into the field so that the whole sector doesn’t get a bad name.

Some of the best practices followed by Fincorp and now being encouraged to follow by all players through this SRO include proper release of pledged gold, ethical recovery of interest dues, and systematic procedures for auction of pledged gold on non-repayment of dues.

Muthoot Fincorp, like the other leading players, is concerned that several recent regulatory moves by RBI would not only slow their growth rate, but push gold loan seekers once again into the vicious grip of unorganized moneylenders, known for charging high interest rates as well as unethical recovery and auction mechanisms.

Indian gold loan industry is estimated at Rs. 375 billion, of which 75% is estimated to be with unorganized moneylenders. In the remaining 25% with the organized sector, NBFCs and Commercial Banks are neck-to-neck with 50% each.

While Muthoot Fincorp is adapting itself rapidly to the dynamic changes in the gold loan market, its parent group, Muthoot Pappachan Group (MPG), is well poised to continue growth at a rapid pace due to significant diversifications into many verticals like automotive, hospitality, real estate, alternate energy, healthcare, & entertainment.

MPG group companies are leading distributors in Kerala for world renowned auto brands like Jaguar, Land Rover, Honda, & Yamaha, while its hospitality division is partners with reputed brands like Hilton, Taj etc.

Muthoot Pappachan Group is also going through minor internal re-organizations to make their companies more focused on their respective core businesses. While Fincorp will dominate the Group’s gold loan business, MPG’s listed arm Muthoot Capital Services will shed its minor focus on gold loans and focus strongly on its growing business of auto-loans , especially in two-wheeler / three-wheeler space.

Fincorp also has a growing business in the Self Help Group / Microfinance segment which is largely targeted at rural women’s groups.

On its core gold loan business, Muthoot Fincorp has spearheaded the move to transform the nature of these loans from the traditional distress loan model to an enabling tool for young executives and relatively low-income groups for buying homes, cars etc as well as for MSMEs to make the best of seasonal opportunities in their business segments.

And the real beauty of these loans - branded as Express 3 Minutes Gold Loan - is that all it takes is 3 minutes for your gold to safely turn into instantly usable cash, which is a far cry from public sectors banks.

The company is also bullish on the emerging prospects of its housing finance division that caters to the affordable segment.

The real inflexion point for Muthoot Pappachan Group will come when it will eventually go for its second public listing - for its larger Fincorp division, which will prove to be a huge value unlocking opportunity.

Thomas George Muthoot, Director, Muthoot Pappachan Group, answers Seasonal Magazine’s queries on the group’s performance and various initiatives:

You are one of the larger NBFCs offering gold based financing to MSMEs. Can you provide an overview of this business?

Muthoot Fincorp Limited, the flagship Company of the Muthoot Pappachan Group (MPG), caters to the financial needs of retail, small time traders as well as SME customers.  A large chunk of our customers are traders / SMEs who come to us for their various business needs. Also most of these customers are loyal customers who come to us on a regular basis.

Your Smart+ Gold Loan is said to act like a personal loan. Can you elaborate the main advantages for using this type of loans? 

Smart+ Gold Loan scheme is an innovative Gold Loan scheme with the additional benefit of repaying the loan in equal monthly instalments. The tenure available at present for Smart+ Gold Loan scheme is 6, 12, 18, 24, 30 & 36 months. This scheme is mainly aimed at customers who have regular income / the salaried class. Unlike banks, to avail this scheme, there are no security cheques to be given. No hidden charges and no additional documents like salary certificate, bank statement etc is required. A valid photo id proof is the only document to be submitted.

Your popular product is the Express 3 Minute Gold Loan. Is it really possible for a new customer who comes in with pure gold ornaments and sufficient documents to get money within 10 minutes from any of your branches, if not 3 minutes? What are the main documents a customer should bring along? 

Everybody has to face times when quick finance is required, be it for business,  child's education, a new home or an emergency. Our Gold Loan product ‘Express 3 Minute Gold Loan’ is designed to meet the quick and easy need for liquidity. Our simple and uncomplicated procedure ensures that the  loan is disbursed quickly. Targeted at the middle to lower income segment,  the average ticket size is comparatively lower which enables disbursal in 3 minutes in such cases. We follow KYC norms as per the regulator's guidelines & any of the following documents are acceptable for availing the Gold Loan - Passport / Govt of India Election ID card with address proof / PAN card with address proof / Driver's licence / any Govt departmental ID card.

What were the highlights of Muthoot Fincorp’s FY’12 performance, and are those trends continuing in Q1 of this fiscal? 

Last year we expanded in various states of the country and recorded close to 50% growth vis-a-vis the previous  FY. Q1 in the fiscal has been slow and our growth is in line with the Industry average.

Will Muthoot Fincorp be going in for any kind of stake sale during FY’13, either to PE funds or are you planning for an IPO? 

We are in talks with multiple PE funds, but we have not yet decided or zeroed down on any of the PE funds as of now. The company ownership is currently 100 per cent within the family.

Most of the major gold loan players including Muthoot Fincorp are of the general opinion that the regulatory actions that were imposed on the sector during last fiscal will be hampering growth. While some of the players have explicitly admitted that they are slowing down significantly during this year due to this, on branch expansion etc, what is your take on this? 

Muthoot Fincorp Ltd welcomes the RBI’s move. Though it has a impact in the short term, it would definitely be beneficial in the long term. The capital adequacy (12%) and LTV (60%) norms will strengthen the long established and well managed existing companies in the gold loan industry and curb the reckless practices of recent entrants into the industry. Muthoot Fincorp already has a capital adequacy of 15% as against the requirement of 12% to be achieved by April 01, 2014.

Last time when we talked, two non gold-loan areas that you were bullish on were affordable-segment housing finance and microfinance to SHGs. How has been growth on these two fronts? 

We have launched our home loan division Muthoot Housing Finance Company Pvt Ltd (registered with NHB)  in 2011 and is operational in Maharashtra and Gujarat. It targets those customers who require only smaller loans, 6-12 lakhs, for more affordable homes, and as such doesn’t catch the fancy of mainstream home loan players. It is a fast growing segment, thanks to mass housing schemes, as well as the emergence of new players like us that are focused on this segment. Our customers are mainly in the suburbs of Tier-1 and Tier-2 cities. Our home loans are proving to be a great enabler for our segment of customers. On the microfinance front, we are engaged in proving Group lending facility through our product Muthoot Mahila Mitra (MMM). With focus on inclusive growth, the Microfinance division aims to serve the section of society which is at the bottom of the pyramid. Currently we have over 3.25 lakh clients. We are bullish on both these segments.

Apart from Fincorp, can you briefly explain the expansion plans of your other core divisions like automotive distribution, hospitality, real estate development etc? 

Muthoot Pappachan Group has diversified into other businesses including hospitality, real estate, automotive dealerships, and alternate energy.  Recently we launched our healthcare division with a Trauma Care Centre – Muthoot Lifebrigade in Kottayam. We are looking at expansion in each of these verticals.  

In Automotive, the Muthoot Pappachan Group has automotive dealerships in various locations across Kerala. It has dealerships of Jaguar, Land Rover, Honda cars, Honda and Yamaha bikes. 

Coming to our Hospitality division, Muthoot Plaza, the one of its kind star hotel in Trivandrum (Thiruvananthapuram)  is to become the Hilton Garden Inn. The hotel will reopen after renovation as Hilton Garden Inn in the 4 star business hotel category. The iconic Vivanta by Taj (previously known as Taj Green Cove) at Kovalam, is one of the internationally renowned Taj Hotels and also one of the jewels in Muthoot Pappachan Group’s (MPG) Hospitality Crown. The Muthoot Sky chef offers in-flight kitchen services, with a facility spread over 32,000 square feet, and serves airlines such as Air India, Indian Airlines and Qatar Airways. Other clients include charters and VVIP flights transiting Trivandrum. 

In Real Estate sector, MPG Hotels and Infrastructure Ventures is a real estate development company headquartered in Trivandrum. The Group is currently developing 6 hotels, to be operated by international brands, as well as commercial and residential spaces in India.  Muthoot Technopolis, located in Kochi, is an IT park, with a built-up area of 355,000 square feet wherefrom global IT Majors are operating. 

Coming to Alternate Energy, MPG has been setting up wind farms in Tamil Nadu, India since 1993. The total installed capacity in wind power is 25 mega watts. MPG has put plans in place to double its wind power generation capacity in the near future. 

And in Entertainment, the Group owns the 943 seater DTS Sound “Kripa Cinema” in Trivandrum.

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