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Manappuram Finance Equity Research

HomeCompanyManappuram Finance Equity Research

Date of Research – 19 January 2016

Price – Rs. 28.45

Manappuram Finance Limited (“Manappuram Finance” or the “Company”) was formerly known as Manappuram General Finance & Leasing, Ltd. and changed to its current name upon incorporation in the year 1992. Manappuram Finance is a Kerela based gold loan Company which provides general finance and leasing services. The Company operates as a Non-Banking Finance Company (“NBFC”). It offers gold loans, vehicle finance, insurance, foreign exchange services, distribution of mutual funds and other financial products.

As of 31 March 2016, Manappuram Finance had ~3,300 branches across 26 states and UTs with total assets under Management of over Rs.10,000 crores. The Company employs over 18,000 people and has a customer base of 1.5 million (i.e. 15 lakhs).

As part of its diversification, Manappuram Finance has ventured into the foreign exchange business. The Company has also commenced Instant Money Transfer in collaboration with UAE Xchange, Wallstreet and MoneyGram.

* MPL Issued bonus equity shares in the ratio of 1:1 on 9 June 2011. EPS and P/E figures are adjusted to give effect to the bonus issue.

* For FY 2014, the Company has reported its consolidated numbers, so figures for FY 2014 are not comparable with the previous numbers.

Key Financial Figures

Standalone (Rs. Cr)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations 2,217.31 2,100.46 1,975.73 2,213.08  3,387.69 
Expenses 706.43 678.31 641.96 761.61   1,011.34  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 1,510.88 1,422.16 1,333.77 1,451.47   2,376.36  
Depreciation 61.71 63.90 53.88 53.09   63.15  
Finance Costs 1,189.49 1,026.60 872.67 883.87   1,168.71  
Other income 46.81 11.37 5.21 4.40   21.22  
PBT 306.50 343.03 412.43 518.91   1,165.72  
Tax 98.07 117.04 141.70 181.67   407.23  
PAT (before Minority Interest and share of Associates) 208.43 225.98 270.73 337.24   758.49  

Profitability Analysis

Standalone (%)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio 68.14 67.71 67.51 65.59   70.15 
Net Profit Margin Ratio 9.40 10.76 13.70 15.24   22.39 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Share Capital 168.23 168.24 168.24 168.24 168.24
Money received against warrants 5.00
Reserves & Surplus 2,212.81 2,274.67 2,323.50 2,464.56 2,589.80
Net worth (shareholders funds) 2,381.042 2,442.91 2,491.75 2,637.80 2,758.04
Minority Interest 21.20
Long term borrowings 1,082.4 8,186.42 1,454.64 1,641.91 1,600.01
Current liabilities 8,613.40 2,098.51 6,619.52 7,211.06 8,332.94
Long term advances and other noncurrent assets 126.97
Total Liabilities 12,076.84 12,727.84 10,838.46 11,616.28 12,839.15

 

Application of Funds / Assets (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Fixed Assets 238.43 210.49 201.86 206.64 194.77
Noncurrent Investments 10.00 697.57 5.00 30.98 5.05
Current assets 11,723.75 10,905.46 10,406.61 11,068.46 11,893.05
Long term advances and other noncurrent assets 85.76 883.61 191.30 147.59 667.33
Intangible Assets 4.80 5.05 43.39
Deferred Tax Assets 18.90 28.90 157.56 35.57
Total assets 12,076.84 12,727.84 10,838.46 11,616.28 12,839.15

Efficiency Analysis

 
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
ROCE 57.18 14.07 36.04 31.05 33.14
ROE / RONW 24.84 8.53 9.07 10.26 12.23

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Standalone
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs. Cr.) 2,217.31 2,100.46 1,975.73 2,213.08  3,387.69 
Growth (%) (15.23 %) (5.27 %) (5.94 %) 12.01 %  53.08 % 
PAT (Rs. Cr.) 208.43 225.98 270.73 337.24   758.49  
Growth (%) (64.76 %) 8.42 % 19.80 % 24.57 %  124.91 % 
Earnings Per Share – Basic (Rs. ) 2.48 2.48 2.69 3.22 4.01  8.98 
Earning Per Share – Diluted (Rs. ) 2.48 2.48 2.69 3.22 4.01  8.98 
Price to Earnings 8.75 7.90 10.56 8.72  10.30 

Dividend History

The Company has maintained an average dividend yield of 5.97% over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. MFL’s average current ratio over the last 5 financial years has been 2.22 times which is satisfactory for a company which is primarily in the business of finance and lending.

Long Term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

MFL’s average long term debt to equity ratio over the last 5 financial years has been 1.05 which indicates that the Company operates with a high level of debt. A high long term debt to equity ratio is normal for a company which is primarily engaged in the business of finance and lending.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

MFL’s average interest coverage ratio over the last 5 financial years has been 1.67 times which is optimal for a Company which is in the business of finance and lending.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Manappuram Finance reported a promoter holding of 34.45 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 41.69 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

 

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