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Manappuram Finance Stock Analysis

Stock of the Month (October 2015) – Manappuram Finance

28 September, 2015

Price: Rs. 22.55

Manappuram Finance Limited (“Manappuram Finance” or the “Company”) operates as a non banking financial company (NBFC) providing the following services:

►         Gold Loan / Loan Against Gold

►         Loan Against Property

►         Depository Services

►         Commercial Vehicle Loans

►         Microfinance

►         Money Transfer

►         Foreign Exchange

Factors below have been considered to present an equity stock analysis of Manappuram Finance Limited. For a financial report: visit here – Manappuram Finance.


Strong Financial Position

Manappuram Finance has shown consistent growth over the last five years (i.e. 2010-11 to 2014-15). It’s net revenue from operations over this period grew at an impressive CAGR of 5.69 %. For FY 2015, profit after tax increased by 19.80% % to Rs. 270.73 Cr. from Rs. 225.98 Cr.

At CMP of Rs. 22.55 (24th September, 2015), Manappuram Finance is trading at a P/E of 6.71x and has a DIVIDEND YIELD OF 7.98% at current market price.  This we believe makes Manappuram Finance an attractive stock.

Diversification of Business

Manappuram Finance is the second largest gold financing non-banking financial company (NBFC). During FY 2015, the Company has diversified its business into microfinance through the acquisition of a majority stake in Asirvad Microfinance; housing finance through the acquisition of Milestone Home Finance Company and commercial vehicle loans. The contribution of other businesses is expected to increase from less than 1% currently to ~13% by FY 2017.

How this diversification will help?

First, this will help the Company to diversify its revenue mix and mitigate the risk of being a single product (gold loan) NBFC;

Second, it will enable the Company to cater to existing and new customers with new products and services – large customer acquisition.

Asset Quality to Remain Stable

Over the past few months, the Company was making continuous efforts to improve its collection process as the asset quality came under pressure. The Company has started sending regular reminders for payment of interest, repayment of loans, etc. The improvement in the collection effort was evident as NPA declined from ~1.01% in FY 2014 to ~0.8% in FY 2015.

Also, the Company has taken a step to move to shorten the portfolio’s tenure to mitigate gold price volatility risk.

The Company has been increasing the proportion of shorter-tenure loans, which now constitute ~65% of the overall gold loan portfolio. Earlier Manappuram’s Loan to Value (LTV) ratio stood at 75% for typically one year loans. Now, the maximum LTV of 75% is offered on a three month tenure loan. The portfolio shift towards shorter-tenure loans is aimed at allaying the risk from long-term gold price movement.

Untapped Potential in Gold Financing Business

India has the world’s largest stock of privately held gold estimated at about 22,000 tonnes. About 65 % of the total stock is held by rural India. Penetration levels for all players combined (banks and NBFCs) remains low at ~ 25 % of the potential gold-loan market in India This provides huge untapped potential of loan against gold for the organised players in India.

Also, 75% is still pledged with local moneylenders and pawnbrokers who constitute the unorganised market charging high interest rate of 36 % p.a. These can be substituted by cheaper, gold-secured loans from NBFCs.


Intense Competition from Banks





  Loan to Value ratio   75%   75%
  Mode of disbursal   through cheques  Disbursement above ₹ 0.1 million through cheques
  NPA recognition   90 days  To gradually migrate to 90 days from 180 days until March 2018

RBI Regulation: 
In FY 2013, RBI has passed a regulation that gold loans providing NBFCs can lend up to 75 % of the collateral value of gold. Pre-regulations, NBFCs used to lend relatively higher LTVs of 80-85% which made gold loans from NBFCs attractive. However, with RBI regulations, the attractiveness has declined.

Interest Rate: NBFCs charge an average interest rate in the range of 19-24%, which is significantly higher than 12-15% charged by banks. Federal Bank charges 14% for a 75% LTV gold loan.

Rural Presence: NBFCs have better presence in rural India than the banks. While the NBFCs have enjoyed this advantage for a longer period of time but over time, increased presence of banks in rural India would lead to higher competition for NBFCs. 

Focus on One Single business – Gold Finance and large presence in South India

South India accounts for ~70% of Manappuram’s business. Though the contribution of non South India to total asset under management has increased from 15% in FY10 to 30% in FY14, the exposure to South India is still high.

Also, the Company’s gold finance business accounts for ~99 %. While the Company is diversifying to other businesses, the new businesses are currently at a very nascent stage.