MANAPPURAM FINANCE
Manappuram Finance is one of the largest gold loan companies in India. It is the second largest listed player in the gold loan segment with an AUM of Rs.10,080.63 crore (FY2016). It has a strong pan-India presence through its strong branch network, spread across 23 states and four Union territories. Apart from the traditional business, the company now has diversified its business into micro-financing, housing finance and commercial vehicles loans business.
INTRODUCTION
The business operation of Manappuram Finance is largely based on gold. The company provides instant loan against gold, as the commodity can easily be accepted as a collateral. The year 2016 has been a good year for gold as compared with the last couple of years. The prices of gold are extremely important for the company as it gives loan against gold. The prices of gold corrected significantly after falling from Rs.31,000 per 10 grams at the end of 2013 to less than Rs.25,000 in mid-2015, and began rising since then. As on December 4, the gold has gained 14 per cent since the mid-September 2015 level. However, the company has delinked its business from the global gold prices which is one of its strategies of derisking. However, the gold prices still remain important to determine the LTV ratio (loan to value).
PEER GROUP PERFORMANCE: Although banks such as SBI, ICICI Bank do provide loans against gold, with Mahindra Finance also foraying into the business. Muthoot Finance is the only major competitor of Manappuram Finance enjoying largest market share in the industry with more than 4,265 branches across India.
The non-banking finance companies (NBFCs) grew better than banks in FY2016. However, the NPL phenomenon in NBFCs was the same as that of NPAs of banks. NBFCs predominantly operating in rural areas such as tractor financiers and commercial vehicle financiers faced more challenges as compared to the overall industry. Housing finance companies (HFCs) and microfinance companies were relative outperformers. HFCs continued to witness healthy growth rates, while loan book growth and earnings growth continued to be robust in the microfinance segment. In terms of financial assets, NBFCs recorded healthy growth—CAGR of 19 per cent over the past few years and now account for 13 per cent of the total credit,which is further expected to reach nearly 18 per cent by 2018–19.
DEMONETISATION WILL NOT AFFECT THE BUSINESS
Demonetisation will not affect Manappuram Finance adversely. Although the company has diversified its business operations, more than 90 per cent of the income of the company is still derived from gold loans. Manappuram Finance non-gold business is just 15 per cent and hence the impact of demonetisation on the company will be negligible. Although the volatile gold prices are a risk, however the gold prices have surged significantly after Trump's win in the US presidential election.
FINANCIALS
On the financial front, gross sales of Manappurram Finance in the financial year ended March 2016 stood at Rs.2360.23 crore, an increase of 19 per cent YoY. PBIDT increased 15 per cent and stood at Rs.1551.55 crore. The company's PAT was Rs.355.16 crore, an increase of 31 per cent as compared with the financial year ended March 2015. The net worth increased by five per cent and reserves and surplus too increased five per cent in this fiscal. In Q2FY17, Manappurram Finance posted strong results. Its net sales stood at Rs.751.50 crore, showing an increase of 45.87 per cent YoY. The PBIDT increased 65.19 per cent and stood at Rs.546.93 crore, while the PAT stood at Rs.179.70 crore, a whopping increase of 203.44 per cent.
VALUATION
Manappuram Finance has a market cap of Rs.6084.86 crore. The stock is providing a good dividend yield of 3.11 per cent and the company maintains a healthy dividend payout ratio of 54.47 per cent. The trailing 12-month P/E stands at 11.06 which is low as compared with the industry P/E of 21.47. The ROE of the company in the last three years was 10.81 per cent. Its ROA stood at 2.91 per cent whereas ROCE was 12.64 per cent. The company's EPS stood at Rs.4.01 per share. In the last six months, the share price has surged 46 per cent. In the last one year, the scrip has been more than a multibagger, surging 2.92 times. The stock's 52-two week high/low stands at Rs.106.75/24.60.
CONCLUSION
The financials of Manappuram Finance are strong and are expected to remain strong in the upcoming quarters. On the other hand, the company is not dependent on gold loans as it has diversified its operation. The company has been graceful in adopting technology in its business. The company has launched the Online Gold Loan (OGL) service, wherein taking gold loans has been made as simple as using a credit card. The service has been enabled through web, smartphone and SMS platforms. Customers depositing gold automatically become eligible for gold loan to the extent of Loan to Value (LTV) limit. Meanwhile, the RBI increased the LTV ratio for gold loans by NBFCs to 75 per cent from 60 per cent and this is bound to increase the demand for gold loans further. Delinking the global business from gold prices, which is one of the current business strategies of the company, has helped Manappuram Finance in maintaining a stable asset quality.
In Feb 2015, Manappuram Finance acquired Asirvad Microfinance Pvt. Ltd. with AUM a little short of Rs.300 crore. Just in a year the company's AUM has tripled to Rs.1000 crore, which is an example that the company can churn a non-gold business into profits. Overall, the fundamentals of Manappuram Finance are strong and hence we recommend are reader-investors to BUY the stock.
More will update soon!!
