Interview with Manappuram Group Chairman, VP Nandakumar:
MAcare, the healthcare divison of Manappuram Group is all set to unveil its flagship super-speciality diagnostic and dental clinic at Kochi on December 10th. The highpoint of the 17,000 sq ft air-conditioned clinic developed on an investment of Rs. 50 crore is that it goes beyond mere diagnostics, and will undertake Day Surgeries through keyhole and laproscopic procedures. This is just the begining for MAcare, with the full business plan being launching a 50-clinic strong medical chain across India within the next few years at an investment of Rs. 1000 crore. Meanwhile, the Group's flagship company, the listed Manappuram Finance Ltd (BSE: 531213, NSE: MANAPPURAM) has delivered yet another quarter of good results, with both income and profits more than doubling, and clearly outpacing most peers. Post results, Manappuram’s stock had resumed its upward journey, which incidentally had created many millionaires in India, especially in Kerala, during the last decade, in its equally good market-beating performance. Interestingly, many of them are not just investors, but employees at Manappuram who have been fortunate enough to be the beneficiaries of the first ESOP in this sector. Manappuram Chairman VP Nandakumar, a professional banker and noted entrepreneur, explains to Seasonal Magazine, why Manappuram Finance is all set to scale greater heights in the coming years, mainly due to a demonstrated culture of sharing, as well as professional management. Off to the interview with this business leader, who still finds time to tend to his numerous cows and goats, and his farm, and who even while touring Switzerland or Australia, admits to be more attracted by its animal farms rather than its investment banking businesses.
Our first large-format clinic is getting opened on December 10th at Kochi, and this is Kerala's largest such diagnostic facility. It will also feature a full-featured dental clinic. That combination is also rare, as nobody seems to have clubbed these two commonly in-demand healthcare services. But how this centre is going to be different from all others is entirely on different grounds, which has everything to do with offering world's very best, state-of-the-art health diagnostics. Just to provide an illustrative example, for early detection of breast diseases including cancer, the MAcare centre would provide the gold standard of triple test, which is a combination of ultrasound scan, mammogram, and fine needle aspiration cytology. MAcare Kochi will be home to Kerala's first installation of GE Healthcare's latest high-performance mammography machine.
Apart from early detection, any other specific value additions you are targeting?
Well, something that readily comes to my mind is a better user experience. Patients will be least inconvenienced here as we have invested heavily to bring in the world's latest and fastest diagnostic equipments including digital X-Ray, latest and fastest edition of various scanners, and automated microbiology, biochemistry, and pathology labs. On the dental side, MAcare Kochi will feature a full-fledged dental hospital, offering all basic services to advanced ones like latest implants, maxillofacial surgeries, and cosmetic dentistry.
Apart from early detection, any other specific value additions you are targeting?
Well, something that readily comes to my mind is a better user experience. Patients will be least inconvenienced here as we have invested heavily to bring in the world's latest and fastest diagnostic equipments including digital X-Ray, latest and fastest edition of various scanners, and automated microbiology, biochemistry, and pathology labs. On the dental side, MAcare Kochi will feature a full-fledged dental hospital, offering all basic services to advanced ones like latest implants, maxillofacial surgeries, and cosmetic dentistry.
What is this buzz we heard about MAcare entering surgical services?
Well, at the Kochi centre we are also building a keyhole and laproscopic surgery department. It will cater to the high-demand field of Day Surgeries. Today, the technology has advanced to such a stage that many common operations, especially in the abdominal and pelvic cavities, can be performed using these minimally invasive surgeries. To patients, these procedures cause less pain and the recovery is much faster without any need for overnight stay at the hospital.
But that means, MAcare will need to invest in an excellent team of doctors too, isn't it?
We have already done that. What we have created is one of the best talent pools and facilities in super-specialities like Cardiology, Neurology, Nephrology, & Gastroenterology.
You have always maintained that MACare and Manappuram's jewellery foray are separate entities from the listed Manappuram Finance. Any change in plans?
Not at all. They are different entities, distinct from Manappuram Finance, and independently funded. They are being built from the ground up as standalone entities, already proven fit for major private equity deals, and will be developed with the distinct aim of sectoral domination as well as for going public. I expect MAcare and our jewellery chain to go for their IPOs by FY’15.
What about management structure? Will they too be different?
Of course. MAcare is separately and professionally managed with Dr. PD Prasannan as the Managing Director. Both the Director Board and top management structure of Manappuram Healthcare Ltd, which is how the company is titled, already have enough highly experienced doctors and management professionals.
Manappuram Finance has again delivered a good set of numbers, with both income and profits more than doubling. But the share price performance, though good, was not matching. What could be the overhang on the stock?
We don’t think there is any overhang as such, other than the general uncertainty in the markets. The stock has gained reasonably post results, and one thing you should take into note is that Manappuram stock’s volumes have shot up during the past few weeks. In NSE alone we see that per day volumes have crossed 25 or 30 lakhs. Evidently, there is good demand as well as churn in our scrip. But we don’t keep a tab on a day-to-day basis, and our belief has always been that our duty is only to focus on fundamental performance, and that the markets will take care of itself.
Recently, a noted FII had exited the Manappuram counter. Do you see any further exits or entries?
If you are familiar with our shareholding pattern, you will know that around 32% of the shares are held by FIIs or international PE funds. All are noted players. You can verify it by checking the biggest investors who hold more than 1% in Manappuram. Be it CLSA, Merrill Lynch, Wellington, Hudson, or the around 15 such investors. So one player exiting or two others entering are not big issues. As I mentioned just now, it is something that the market takes care of. We are not overly bothered with such movements.
But why the high churn, really? Have you thought about it?
Well, we think it is largely due to the internal dynamics of these PE funds. After all, these are done by individual fund managers, who have their own personal objectives like incentives or bonuses. It is a highly competitive field, with a high percentage of performance-linked pay, as well as high attrition. Most managers don’t stick with a fund for more than 3 years. So that is one of the main reasons for this kind of churn.
There are numerous NBFCs in the fray now, some bigger and many smaller than you. Since last several months, the market also has another listed player in gold loans, Muthoot Finance. In other words, there are lot of investment opportunities before investors. What according to you is the main attraction of Manappuram counter now?
Well, if you meant pure financial attractions for our stock, the main factor that will play to our investors’ advantage is that we have a very high capital adequacy ratio, and what that means is that there is no need to raise further funds for a long time. In other words, no urgent necessity for an equity dilution for the next one-and-a-half years. Looking at the financials of some of our peers, we see that they will soon require urgent and significant Tier-1 funds to go forward. That will entail significant dilution for their investors.
Why should it necessitate significant dilution? That kind of a dilution was for Manappuram too isn’t it, during the last QIP for Rs. 1000 crore?
No, our equity was not significantly diluted. The dilution you see is due to the last bonus and not the QIP, which amounted to only a 22.5% dilution. The same may not be applicable for any of our peers going in for fund raising now, as the valuations are relatively very low now than when we went for QIP. Due to this precise reason our stock may be positively re-rated than our peers, soon.
You mentioned this as the pure financial factor. Are there any other fundamental reason?
Well, there are many reasons favouring a counter like ours among the NBFC pack, and I personally think it is not decent on my part to talk about it. It is the job of analysts or financial journalists. But one thing I would like to underline is that it is difficult to find as ardent a wealth creator as Manappuram Finance in not only this sector, but in the entire midcap space. It comes directly from our culture of sharing wealth.
Can you elaborate this sharing culture?
There are lots to say on this front, but the core point is that we have a specific track-record in sharing prosperity. The promoting family led by me, has kept only around one-third of the wealth, and has shared around two-thirds of it with our stakeholders. By stakeholders we don’t mean just our investors, but also our employees. We were the first in this sector to provide substantial Employee Stock Option Plans. Due to our ESOP, many of our senior employees are today millionaires. Among retail investors, we have virtually lost count on how many we have made millionaires.
But can’t this sharing culture be learnt by other organizations? Is there any other factor that attracts high-profile investors?
Theoretically yes, but then why every other IT company is not an Infosys, or why every other IT promoter is not Murthy? We think sharing is something in our culture, our blood. The point is we have a demonstrated track-record in sharing. And the bigger story is not about the stock making money for everyone. It is about building and sustaining a thoroughly professional organization. Though promoters now hold around 36% share, I am the only one in the Director Board. No brothers, sisters, wife, children, or that kind of hanky-panky. All other directors are thoroughbred professionals, many of them better qualified and experienced than me, and they are either Executive Directors or Independent Directors of good standing.
You mentioned ESOP. But even in companies like Infosys, what we have found is that ESOP and all has to stop after several years. Are there any other unique employee benefits?
Ok, forget ESOP for a moment then. We encourage our suitable employees to go for their MBA, if they don’t already have one, and fund their MBA program fully. That way, we are not only making the whole Manappuram team more professional, but proving to them the long-term commitment we have for them. This is definitely not an NBFC which is staffed by underpaid, and therefore grumpy, retired bankers coming to while away their time. Manappuram will always be a young, forward-looking organization.
Is Manappuram planning for a banking license?
We have not applied yet, though from the discussion papers which are ought, we seem very eligible. Let the full norms come out and then we will take a call on it. We are not too eager, but not ruling it out either.
Let me repeat an oft-repeated question at you. Are you eyeing a major risk from a potential bust in gold prices?
Not at all. I think gold has already gone through its brief and shallow technical correction, and it is set to zoom once again, and probably set to make stunning highs by March 12. In fact, I remind everyone close to me to not miss the gold rally, as it seems to be a sure-shot bet to me, as of now.
Why are you so bullish on the yellow metal?
The answer is obviously gold’s safe haven status, as you might be aware. During the last few months, I was touring UK, Switzerland, Australia, Middle East. There is still significant uncertainty in those markets, except Middle East which has started booming on oil again. The situation in US also continues to be grim. All such volatility and uncertainty revolves around major currencies, and gold is the obvious safe haven even for mid-sized funds.
Some pockets of the market is sensing a risk from the days-past-due issue facing NBFCs. Is there a significant NPA risk faced by Manappuram when RBI revises NPA classification to 90 dpd?
There will be a change in NPAs, but we don’t expect it to be significant in the case of gold loans companies like us. Currently, the NPAs are calculated at 180 days-past-due, and when it get revised to 90 there will obviously be a small change. But on the longer run this is a non-issue as we now go in for auctions after 15 months only, and now we may need to do it at 12 months. That would be the only lasting change brought by the dpd change. Anyway, most of our loans are of the shorter, 100 days duration.
What about Manappuram Group’s foray into jewellery retailing?
It is progressing satisfactorily. Jewellery business is on since the last one year, now there are 17 showrooms, with a majority of the shops in Bangalore. We have recently branded it as Riti Jewelry. Eventually, we will go in for a nationwide rollout for both the diagnostics division as well as the jewellery chain.
What all constitute Manappuram’s CSR activities?
We have adopted 7 panchayats in and around our hometown of Valappad, in Thrissur District of Kerala, for the purpose of providing free comprehensive health insurance for all BPL families. Under this unique scheme, in tie-up with Oriental Insurance, Manappuram Foundation has covered the health of more than one lakh fellow-citizens belonging to more than 20,500 families. The scheme has greatly benefited these economically challenged neighbours of Manappuram, with disbursements of over Rs. 3 crore in the past year alone. I want Manappuram to be the best practical example in not only wealth creation for its various stakeholders, but in sharing our good fortune with our less fortunate neighbours.
But that means, MAcare will need to invest in an excellent team of doctors too, isn't it?
We have already done that. What we have created is one of the best talent pools and facilities in super-specialities like Cardiology, Neurology, Nephrology, & Gastroenterology.
You have always maintained that MACare and Manappuram's jewellery foray are separate entities from the listed Manappuram Finance. Any change in plans?
Not at all. They are different entities, distinct from Manappuram Finance, and independently funded. They are being built from the ground up as standalone entities, already proven fit for major private equity deals, and will be developed with the distinct aim of sectoral domination as well as for going public. I expect MAcare and our jewellery chain to go for their IPOs by FY’15.
What about management structure? Will they too be different?
Of course. MAcare is separately and professionally managed with Dr. PD Prasannan as the Managing Director. Both the Director Board and top management structure of Manappuram Healthcare Ltd, which is how the company is titled, already have enough highly experienced doctors and management professionals.
Manappuram Finance has again delivered a good set of numbers, with both income and profits more than doubling. But the share price performance, though good, was not matching. What could be the overhang on the stock?
We don’t think there is any overhang as such, other than the general uncertainty in the markets. The stock has gained reasonably post results, and one thing you should take into note is that Manappuram stock’s volumes have shot up during the past few weeks. In NSE alone we see that per day volumes have crossed 25 or 30 lakhs. Evidently, there is good demand as well as churn in our scrip. But we don’t keep a tab on a day-to-day basis, and our belief has always been that our duty is only to focus on fundamental performance, and that the markets will take care of itself.
Recently, a noted FII had exited the Manappuram counter. Do you see any further exits or entries?
If you are familiar with our shareholding pattern, you will know that around 32% of the shares are held by FIIs or international PE funds. All are noted players. You can verify it by checking the biggest investors who hold more than 1% in Manappuram. Be it CLSA, Merrill Lynch, Wellington, Hudson, or the around 15 such investors. So one player exiting or two others entering are not big issues. As I mentioned just now, it is something that the market takes care of. We are not overly bothered with such movements.
But why the high churn, really? Have you thought about it?
Well, we think it is largely due to the internal dynamics of these PE funds. After all, these are done by individual fund managers, who have their own personal objectives like incentives or bonuses. It is a highly competitive field, with a high percentage of performance-linked pay, as well as high attrition. Most managers don’t stick with a fund for more than 3 years. So that is one of the main reasons for this kind of churn.
There are numerous NBFCs in the fray now, some bigger and many smaller than you. Since last several months, the market also has another listed player in gold loans, Muthoot Finance. In other words, there are lot of investment opportunities before investors. What according to you is the main attraction of Manappuram counter now?
Well, if you meant pure financial attractions for our stock, the main factor that will play to our investors’ advantage is that we have a very high capital adequacy ratio, and what that means is that there is no need to raise further funds for a long time. In other words, no urgent necessity for an equity dilution for the next one-and-a-half years. Looking at the financials of some of our peers, we see that they will soon require urgent and significant Tier-1 funds to go forward. That will entail significant dilution for their investors.
Why should it necessitate significant dilution? That kind of a dilution was for Manappuram too isn’t it, during the last QIP for Rs. 1000 crore?
No, our equity was not significantly diluted. The dilution you see is due to the last bonus and not the QIP, which amounted to only a 22.5% dilution. The same may not be applicable for any of our peers going in for fund raising now, as the valuations are relatively very low now than when we went for QIP. Due to this precise reason our stock may be positively re-rated than our peers, soon.
You mentioned this as the pure financial factor. Are there any other fundamental reason?
Well, there are many reasons favouring a counter like ours among the NBFC pack, and I personally think it is not decent on my part to talk about it. It is the job of analysts or financial journalists. But one thing I would like to underline is that it is difficult to find as ardent a wealth creator as Manappuram Finance in not only this sector, but in the entire midcap space. It comes directly from our culture of sharing wealth.
Can you elaborate this sharing culture?
There are lots to say on this front, but the core point is that we have a specific track-record in sharing prosperity. The promoting family led by me, has kept only around one-third of the wealth, and has shared around two-thirds of it with our stakeholders. By stakeholders we don’t mean just our investors, but also our employees. We were the first in this sector to provide substantial Employee Stock Option Plans. Due to our ESOP, many of our senior employees are today millionaires. Among retail investors, we have virtually lost count on how many we have made millionaires.
But can’t this sharing culture be learnt by other organizations? Is there any other factor that attracts high-profile investors?
Theoretically yes, but then why every other IT company is not an Infosys, or why every other IT promoter is not Murthy? We think sharing is something in our culture, our blood. The point is we have a demonstrated track-record in sharing. And the bigger story is not about the stock making money for everyone. It is about building and sustaining a thoroughly professional organization. Though promoters now hold around 36% share, I am the only one in the Director Board. No brothers, sisters, wife, children, or that kind of hanky-panky. All other directors are thoroughbred professionals, many of them better qualified and experienced than me, and they are either Executive Directors or Independent Directors of good standing.
You mentioned ESOP. But even in companies like Infosys, what we have found is that ESOP and all has to stop after several years. Are there any other unique employee benefits?
Ok, forget ESOP for a moment then. We encourage our suitable employees to go for their MBA, if they don’t already have one, and fund their MBA program fully. That way, we are not only making the whole Manappuram team more professional, but proving to them the long-term commitment we have for them. This is definitely not an NBFC which is staffed by underpaid, and therefore grumpy, retired bankers coming to while away their time. Manappuram will always be a young, forward-looking organization.
Is Manappuram planning for a banking license?
We have not applied yet, though from the discussion papers which are ought, we seem very eligible. Let the full norms come out and then we will take a call on it. We are not too eager, but not ruling it out either.
Let me repeat an oft-repeated question at you. Are you eyeing a major risk from a potential bust in gold prices?
Not at all. I think gold has already gone through its brief and shallow technical correction, and it is set to zoom once again, and probably set to make stunning highs by March 12. In fact, I remind everyone close to me to not miss the gold rally, as it seems to be a sure-shot bet to me, as of now.
Why are you so bullish on the yellow metal?
The answer is obviously gold’s safe haven status, as you might be aware. During the last few months, I was touring UK, Switzerland, Australia, Middle East. There is still significant uncertainty in those markets, except Middle East which has started booming on oil again. The situation in US also continues to be grim. All such volatility and uncertainty revolves around major currencies, and gold is the obvious safe haven even for mid-sized funds.
Some pockets of the market is sensing a risk from the days-past-due issue facing NBFCs. Is there a significant NPA risk faced by Manappuram when RBI revises NPA classification to 90 dpd?
There will be a change in NPAs, but we don’t expect it to be significant in the case of gold loans companies like us. Currently, the NPAs are calculated at 180 days-past-due, and when it get revised to 90 there will obviously be a small change. But on the longer run this is a non-issue as we now go in for auctions after 15 months only, and now we may need to do it at 12 months. That would be the only lasting change brought by the dpd change. Anyway, most of our loans are of the shorter, 100 days duration.
What about Manappuram Group’s foray into jewellery retailing?
It is progressing satisfactorily. Jewellery business is on since the last one year, now there are 17 showrooms, with a majority of the shops in Bangalore. We have recently branded it as Riti Jewelry. Eventually, we will go in for a nationwide rollout for both the diagnostics division as well as the jewellery chain.
What all constitute Manappuram’s CSR activities?
We have adopted 7 panchayats in and around our hometown of Valappad, in Thrissur District of Kerala, for the purpose of providing free comprehensive health insurance for all BPL families. Under this unique scheme, in tie-up with Oriental Insurance, Manappuram Foundation has covered the health of more than one lakh fellow-citizens belonging to more than 20,500 families. The scheme has greatly benefited these economically challenged neighbours of Manappuram, with disbursements of over Rs. 3 crore in the past year alone. I want Manappuram to be the best practical example in not only wealth creation for its various stakeholders, but in sharing our good fortune with our less fortunate neighbours.
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