About Manba Finance Limited

Manba Finance is a Non-Banking Financial Company-Base Layer (NBFC-BL) providing financial solutions for New two wheeler (2Ws,) three wheeler (3Ws), electric two wheeler (EV2Ws), electric three wheeler (EV3Ws), Used Cars, Small Business Loans and Personal Loans with an AUM size of more than ₹ 90,000 lakhs as on March 31, 2024. 

About 97.90% of their loan portfolio comprises of New Vehicle Loans with an average ticket size (ATS) of around ₹ 80,000 for two-wheeler loans and an average ticket size (ATS) of around ₹ 1,40,000 for three-wheeler loans. They provide financial solutions to their target customers who are looking for a quick turnaround time (TAT) for loan sanction and disbursement. They are based out of Mumbai, Maharashtra and operate out of 66 Locations connected to 29 branches across six (6) states in western, central and north India. They have established relationships with more than 1,100 Dealers, including more than 190 EV Dealers, across Maharashtra, Gujarat, Rajasthan, Chhattisgarh, Madhya Pradesh and Uttar Pradesh. They have recently expanded their loan portfolio to Used Car Loans, Small Business Loans and Personal Loans and they intend to leverage their existing network to further penetrate the market with their new products.

Overview of NBFC in India
Over the past decade, banking credit growth lagged systemic credit growth for several years as NBFCs grew at a much faster pace. However, the NBFCs suffered a blow after IL&FS defaulted in September 2018. NBFCs not having the advantage of size, rating and/or parentage had to grapple with a liquidity crisis and as raising funding became difficult. Initially, post the IL&FS crisis, banks were expected to fill the space left out by NBFCs. 

In the fourth quarter of Fiscal 2020 and the first quarter of Fiscal 2021, with the outbreak COVID-19 pandemic, challenges had intensified for both banks and NBFCs. NBFCs were hit harder in terms of demand, and they also turned cautious as they lend to borrowers with relatively weaker credit profile. In the second half of Fiscal 2021, the Indian economy showed signs of improvement, the effect of which was seen in the credit growth. 

In Fiscal 2022, the second wave of the COVID-19 pandemic led to weak demand for credit in the first quarter of the year. However, the pace of credit recovered, with overall credit growing by 9% and retail credit increasing by 11.3% year-on-year as of March 2022. With the effect of COVID-19 waning, vaccination coverage progressively improving, the situation and growth improved further. 

The credit growth of NBFCs which has trended above India’s GDP growth historically, is expected to continue to rise at a faster pace. NBFCs have shown remarkable resilience and gained importance in the financial sector ecosystem, reaching Rs. 412,000,000 lakhs at the end of Fiscal 2024. During fiscals 2019 to 2024, NBFC credit is estimated to have witnessed a growth at CAGR ~11%. Rapid revival in the economy is expected to drive consumer demand in Fiscal 2025, leading to healthy growth in NBFCs. 

Going forward, CRISIL MI&A expects NBFC credit to grow at 15-17% between Fiscal 2024 and Fiscal 2027 driven by growth in retail segment, and MSME loans in the wholesale segment continuing to be the primary drivers.

While banks are the primary institutions for banking in India, retail loan portfolio forms only 34% of the overall banking credit as of Fiscal 2024. Other focus areas for banks are wholesale lending to large corporates, credit to services sector and agriculture sector. Lower presence of banks in the retail space has created an opportunity for NBFCs to penetrate the segment which has also led to greater financial inclusion as NBFCs also cater to riskier customer profiles with lower income. Compared to that of banks, NBFC credit to retail segment forms more than 48% as of Fiscal 2024 of its portfolio indicating larger focus on retail customers. Rural areas, presents vast market opportunity for NBFCs. NBFCs have played a major role in meeting this need, complementing banks and other financial institutions. NBFCs help fill gaps in the availability of financial services with respect to products as well as customer and geographic segments. A strong linkage at the grassroots level makes them a critical cog in the financial machine. They cater to the unbanked and underbanked masses in rural and semi-urban India and lend to the informal sector and people without credit histories, thereby enabling the government and regulators to realize the mission of financial inclusion. 

The NBFC sector has, over the years, evolved considerably in terms of size, operations, technological sophistication, and entry into newer areas of financial services and products. The number of NBFCs as well as the size of the sector have grown significantly, with a number of players with heterogeneous business models starting operations. The increasing penetration of neo-banking, digital authentication, and mobile phone usage as well as mobile internet has resulted in the modularization of financial services, particularly credit. Overall NBFC credit during fiscals 2019 to 2024, is estimated to have witnessed a CAGR of ~11% which was majorly led by retail segment which is estimated to have witnessed a CAGR of ~14%, while NBFC non-retail credit is estimated to have witnessed a growth of ~9% during the same time period. 

Going forward, growth in the NBFC retail segment is expected at 14-16% from Fiscal 2024 to Fiscal 2027 which will support overall NBFC credit growth, with continued focus on the retail segment and multiple players announcing plans to reduce wholesale exposure.

Two-Wheeler Loans
In fiscal 2020, sales fell sharply by 18% as the decline in economic growth hurt demand. In fiscal 2021 and 2022, sales continued to be under pressure due to the debilitating impact of Covid-19 on consumer incomes, especially in the lower middle-class segment, and emergence of work from home model. In rural India as well, the decline in manufacturing and service sector activity in the immediate aftermath of Covid-19 hurt demand, albeit lesser than in urban areas. The continued closure of key demand segments such as students in educational institutes also impacted demand. In fiscal 2023, two-wheeler sales witnessed significant growth of 19% in fiscal 2023 on a very low base due to improving demand sentiments and normalization of economic activities and mobility. Two-wheeler sales witnessed double-digit growth of 14% on-year in fiscal 2024 owing to increase in scooter sales as urban income sentiments improved and EV penetration increased. Under two-wheeler segment, scooters grew at a faster pace than motorcycles as urban sentiments recovered faster. Moreover, electric two-wheeler also witnessed record-high sales in Fiscal 2024. However, overall sales volume is still below the pre-pandemic levels due to significant price hikes witnessed by two-wheeler segment in last three fiscals thereby affecting consumer sentiments.

Two-wheeler volumes are projected to improve by ~9-10% in fiscal 2025 after robust growth of 14% in fiscal 2024. This improvement in sales is expected to be driven by the recovery of motorcycle sales as rural and semi urban markets improve supported by healthy crop prices and incomes finally catching up with hike in vehicle prices and pent-up replacement demand. Scooter sales to be supported by robust urban incomes. Furthermore, premiumization to also aid volumes across both scooters and motorcycles. As fiscal 2025 is an election year, there is an anticipation of a rise in financial activity, particularly in rural areas, starting from the third quarter of fiscal 2024. This surge is projected to boost the demand for two-wheelers. Furthermore, the introduction of electric scooter models by OEMs is playing a significant role in driving up the demand even further. 

However, despite the projected growth, the volumes in fiscal year 2025 are still expected to remain around 10% lower than the peak achieved in fiscal year 2019. The reason for this decline is attributed to significant price hikes recorded in the two-wheeler segment over the past few fiscal years, affecting both ownership and acquisition costs and subsequently dampening consumer sentiment. The acquisition price for an entry-level two-wheeler has surged by approximately 40-45% between fiscals 2019 and 2023 due to the implementation of safety norms, BS-VI compliance, and higher input costs.

Used Car Loans
The used car market primarily serves new buyers looking for cost-effective entry-level vehicles. Over the past few years, the used car market in India has witnessed an unprecedented surge with the luxury segment emerging the major contributor of growth. This has led to the rise of the thriving luxury used car market, which we believe can continue to grow in coming years. The increase in demand for used cars will be primarily driven by the sale of new cars, which perpetuates more used vehicles to be available, to cater to the needs of the customer. 

With the change in shift, the unorganized used car market in India is also evolving into a more formalized one with more small dealers or brokers, semi-organised dealers and direct C2C sales, getting involved into the ecosystem. Further, market consolidation and entry of OEMs and new car dealership in the organised used car market has caused an increase in awareness and preference of certified used cars in India. These certified use car undergoes a thorough inspection, thereby ensuring reliability and quality, and hence providing the end customer a comfort to consider them as their first car. 

On account of these changes in the market and customer preference, CRISIL MI&A estimates the total size of the used car financing market to be around Rs. 10,036,000 Lakh at end of March 2024. This market size includes loans provided by banks and NBFCs for used cars, which has grown at a CAGR of ~13% between fiscals 2019 and 2024. CRISIL MI&A projects the overall industry growth to be faster at 13-15%, as compared to 11% in the past owing to an increase in the middle-class population in the country, higher disposable income, increasing formalization of the sector and the greater availability of used cars.

MSME Loans
CRISIL MI&A estimates the total size of MSME lending market across ticket sizes and various player groups (banks, NBFCs, small finance banks, and other formal lenders) to be around ₹ 350,000,000 Lakh as of March 2024. This market size includes loans taken by MSMEs across various constitution types (sole proprietorships, partnership firms, private and public limited companies, and cooperatives) and the ticket size spectrum, and includes loans extended in the name of the firm/entity/company as well as the individuals in case of micro enterprises or entrepreneurs. 

The two pandemic waves were particularly tough for the MSMEs on account of no or fewer economic activities. The pandemic led frequent lockdowns and restrictions interrupted supply chains, demand and hence profitability of the MSMEs. During fiscal 2023, the Indian economy normalised, with industrialisation and urbanisation picking up pace. As a result, revenue increased to 20% for corporate India, while SMEs revenue grew 11%. In line with the overall growth, aggregate MSME credit grew 30% in fiscal 2023. In Fiscal 2024, overall MSME credit grew by 30% on the back of higher credit demand from MSME’s, higher focus of lenders on the asset class leading to higher disbursements.

Small Business Loans
In this section, we have classified all loans with ticket size lower than Rs 100 Lakh extended to MSMEs, irrespective of the turnover of the entity, as small business loans. CRISIL MI&A estimates outstanding small business loans given out by banks and NBFCs to be around Rs 131,100,000 Lakh as of March 2024. 

Small business loans grew at a fast pace, registering a CAGR of 15% over fiscal 2019 and 2024. Over the years, more data availability and government initiatives like GST has led to increasing focus of lenders, especially the NBFCs, on the underserved segment of MSME customers as lending to this segment has become easier compared to the past. In fiscal 2019 and 2020, however, the growth was relatively muted due to the NBFC liquidity crisis as well as cautious stance being taken while lending to MSMEs due to slower economic growth. Due to liquidity constraints for NBFCs, the growth slowed in fiscal 2019. In fiscal 2020, despite the revival of flow of liquidity, access to funds was difficult in the business segments such as wholesale finance or LAP. Since LAP forms major portion in the small business loans portfolio, the growth was impacted in fiscal 2020 as well. 

In fiscal 2021, the nationwide lockdown to contain the spread of the pandemic disrupted economic activity, hit production facilities, impacted working capital needs and supply chain along with future investments and expansions. Domestic supplies and supplies from imports also suffered, affecting both, their availability and cost. Contractual and wage labour was also hit due to more layoffs. MSMEs in the sectors such as hotels, tourism, logistics, construction, textiles and gems and jewellery suffered the most during the first half of the fiscal. Hence, fiscal 2021 witnessed a sharp dip in the growth rate of small business loans. 

However, faster-than-expected revival in economic activity and pent-up demand led to the growth spurt in MSME lending since the plummet in fiscal 2021. Due to the second wave of the pandemic, growth in the segment lagged in banks and non-banks during the first quarter of fiscal 2022. CRISIL MI&A estimates outstanding small business loans given out by banks and NBFCs to be around Rs 131,100,000 Lakh as of March 2024. 

Growth in small business loan was supported by an increase in disbursements in the non-LAP (unsecured and secured) segment for NBFCs due to rapid industrialisation, driven by loans to the micro segment. With economic activity reviving and cash flows improving, NBFCs increased their funding in the unsecured segment while restricting lending in the LAP segment owing to the asset quality stress of the previous years. Growth was further led by improved underwriting, increasing funding to the unsecured portfolio.

Going forward, small business loans are expected to grow at 15% CAGR between fiscals 2024 and 2027 led by both LAP and Non-LAP segments aided by increasing penetration, enhanced use of technology, newer players entering the segment, and continued government support.

Personal Loans
Personal loan outstanding stood at Rs 131,974,888 Lakh in fiscal 2024 and is likely to touch ~Rs. 177,585,410 Lakh in fiscal 2026. The growth is going to be driven by healthy growth momentum in banks supported by their high base. Parallelly, NBFCs would also continue to display aggressive growth in their personal loan book. NBFCs build their retail book through lower-ticket-size personal loans and focus on growth in tier 2 and below cities. Banks focus on the salaried middle-age group borrowers and have a higher share in tier-1 cities as compared with NBFCs. The overall personal loan book, which increased at 28% compound annual growth rate (CAGR) between fiscals 2018 and 2024, is expected to grow by 19% CAGR in fiscal 2026.

Peer benchmarking
Indian NBFC sector in India in recent time has emerged as one of the leading forms in institution in providing credit to underserved and unorganized segment population of the country. Over the past few years, there has been a war between banks and non-banks for taking the lions share in the overall credit outstanding in the country. While Banks have been dominating segments such as Housing Finance, MSME Loans; NBFC players have been leading the credit share in segments such as gold finance, Vehicle finance & Micro finance loans. Non-banking player competitive strengths in form of higher rural penetration, customer centric product design etc. has helped them strengthen their share in the overall credit landscape. 

In this section, CRISIL MI&A has compared the financial and operating performances of Auto Financing NBFCs operating in various segments based on the latest available data for fiscals 2022, 2023 and 2024. For analysis, we have compared Manba Finance with Arman Financial, Baid Finserv, Berar Finance, Hero Fincorp, MAS Financial, Muthoot Fincorp and TVS Credit on standalone basis.

MANBA FINANCE LIMITED COMPETITIVE STRENGTHS
1. Established relationships with the Dealers.
2. Ability to expand to new underpenetrated geographies.
3. Access to diversified and cost-effective long-term borrowing.
4. Technology driven and scalable operating model with quick Turn Around Time (TAT) for loan processing.
5. Extensive collections infrastructure and processes leading to maintenance of the Company’s asset quality.
6. Experienced Promoters and professional management team.

MANBA FINANCE LIMITED STRATEGIES
1. Increasing penetration in existing markets and diversifying into new markets.
2. Continue focus on vehicle finance and the growing 2Ws/3Ws/EV2Ws/EV3Ws market.
3. Diversifying their portfolio into Used Car Loans, Small Business Loans and Personal Loans.
4. Leveraging their existing Branch and location setup by adding new products.
5. Continue to invest in technology and digitization initiatives to enhance their operating model and improve customer experience.
6. Enhance their brand recall to attract new customers.

MANBA FINANCE LIMITED RISK FACTORS & CONCERNS
1. The business and future prospects could get adversely affected if they are not able to maintain relationships with their Dealers from whom they derive significant portion of their New Vehicle Loans business.
2. New Vehicle Loans constitute 97.90% of their AUM. Lack of diversity in their loan products may affect their growth, prospects and financial condition.
3. Their operations are concentrated in six states in western, central and north India and any adverse developments in these regions could have an adverse effect on their business and results of operations.
4. Their business is dependent on their ability to process and approve customer loans as fast as possible.
5. Failure in leveraging their existing Branches and Locations setup for offering new products.
6. Their inability to adequately assess and recover the assessed or full value of collateral or amounts outstanding under defaulted loans in a timely manner, or at all, could adversely affect their business, results of operations and financial condition.
7. They are subject to inspection by the Reserve Bank of India.