Arman Financial Services Concall: Key Insights and Updates
Industry Overview
The microfinance sector is currently dealing with multiple challenges. Issues like excessive borrowing, weak meeting discipline, and problems with the Joint Liability Group (JLG) model are creating financial stress. Post-COVID, many households are struggling with high debt, while real income growth remains slow. As a result, loan repayment difficulties are increasing, leading to more defaults and financial strain for lenders.
Financial Performance
As of December 31, 2024, Arman Financial Services reported total Assets Under Management (AUM) of ₹2,280 crores, showing a 6.5% decline from the previous year. The company disbursed ₹338 crores in Q3 FY25, bringing the total for the nine months to ₹1,170 crores, a 28% drop year-on-year.
Gross total income for Q3 stood at ₹164 crores, down 2.4% year-on-year. However, for the nine-month period, the income increased by 10.9% to ₹530 crores. The pre-provisioning operating profit (PPOP) for Q3 was ₹69 crores, a 4.7% decline year-on-year. Despite this, the nine-month PPOP showed a 13% increase, reaching ₹231.6 crores.
Performance by Segment
Microfinance Business
Namra Finance, Arman’s wholly owned subsidiary, reported an AUM of ₹1,768 crores, marking a 13.6% decline year-on-year. Disbursements in Q3 were ₹214 crores, a significant drop compared to ₹459 crores in the previous year. The subsidiary recorded a loss of ₹17.2 crores due to higher impairment costs amounting to ₹67 crores.
The Gross Non-Performing Assets (NPA) stood at 4.4%, while the Net NPA was 0.56%.
MSME, Two-Wheeler, and Loan Against Property (LAP) Business
Unlike the microfinance segment, this category showed positive growth. AUM in this segment increased by 30.9% year-on-year to ₹512 crores. The gross total income for Q3 was ₹44.9 crores, a 32.4% rise compared to last year.
Profit after tax (PAT) in this segment increased to ₹9.9 crores, reflecting a growth of 5.7%. The capital adequacy ratio for the standalone Arman entity stood at 39.45%.
Liquidity and Borrowings
Arman Financial Services maintained a strong liquidity position with cash reserves, bank balances, liquid investments, and undrawn credit limits totaling ₹262 crores.
The company’s total borrowings amounted to ₹1,765 crores, with a diversified funding mix:
- 34% from banks
- 11% from NBFCs
- 20% from Non-Convertible Debentures (NCDs)
- 30% from off-balance sheet liabilities
Collection Efficiency
The company reported a collection efficiency of 95.3% for December 2024, with breakdowns by segment:
- Microfinance: 95.2%
- MSME: 96.2%
- Two-Wheeler Loans: 95.7%
Strategic Initiatives
Arman Financial Services is taking key steps to improve its financial stability:
- Strengthening underwriting standards
- Expanding the collection team for better borrower engagement
- Establishing a dedicated credit department at branch levels to separate credit from sales in the microfinance business
Early indicators suggest that the company’s efforts are working. The zero Days Past Due (DPD) flow forward rate improved to 98.03% in December and 98.15% in January.
Challenges and Outlook
The company is prioritizing portfolio quality and collections over growth, which has led to lower disbursements and AUM contraction. Management has acknowledged liquidity challenges in the sector and is taking a cautious approach before scaling up again. However, they remain optimistic about long-term growth, adjusting strategies for sustainable performance.
New Developments
Arman Financial Services has introduced a new Loan Against Property (Micro LAP) segment, currently in a pilot phase in Gujarat, Telangana, and Madhya Pradesh. The product is aimed at tier 3 and tier 4 rural areas, with an average loan size of ₹4.5 lakhs.
Credit Risk Management
The company has adopted a more conservative loan write-off policy, writing off loans after 240-250 days of non-payment. Additionally, Arman Financial Services has enrolled in the Credit Guarantee Fund for Micro Finance Institutions (CGFMU), providing a 72% guarantee cover on principal amounts in default.
Future Guidance
Management has not provided specific guidance on AUM growth or credit costs for the next financial year due to ongoing uncertainties. However, they anticipate improvements in disbursements in Q4 FY25 and expect growth to stabilize in FY26.
FAQs
1. What is the current financial status of Arman Financial Services? Arman Financial Services reported AUM of ₹2,280 crores, a 6.5% decline year-on-year. Q3 FY25 disbursements stood at ₹338 crores, bringing the nine-month total to ₹1,170 crores.
2. How is the microfinance segment performing? Namra Finance, the microfinance subsidiary, saw a 13.6% decline in AUM and reported a loss of ₹17.2 crores due to high impairment costs.
3. What is the collection efficiency rate? Collection efficiency for December 2024 was 95.3%, with microfinance at 95.2%, MSME at 96.2%, and two-wheeler loans at 95.7%.
4. What are the key challenges for the company? The company is focusing on portfolio quality and collections over growth, leading to lower disbursements and a shrinking AUM. Liquidity issues are also impacting the sector.
5. What are the future expectations? The management expects disbursement improvements in Q4 FY25 and hopes for stabilized growth in FY26.
Arman Financial Services is navigating a challenging financial environment while making strategic adjustments to ensure long-term stability and growth.
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