Manappuram Finance

(narender) #249

Please have a look at this. What is the reason for such high interest yield for Manappuram? Yield as per income statement is at 26% in FY17; which is higher than 24% it claims for gold loans and despite the fact that 20% of the loan book is of slight lower yielding housing finance and vehicles.

Also the increase in interest yields and thus income (without corresponding increase in interest expense is wierd) and explains such a dramatic jump in net income for the Company in FY17.

If Muthoot being market leader is lending at 21 odd percent, what are the chances for Manappuram to continue with 26% kind of average yields.

(Yogesh Sane) #250


Have you considered consolidated numbers for Muthoot? Here are my numbers.

Source: Capitaline

Manappurum numbers are higher than Muthoot as you pointed out but not too high. However, in 2012-14 period, Manappurum suffered larger yield erosion than Muthoot.

Also for Manapprum, less than 1% of assets are low yielding not 20% as you mentioned.

Source: Company Presentations.

(narender) #251


a few different questions this time!

  • yield of 25-26% secured by such a liquid collateral and with haircut!! dont you find it kind of a risk with increasing consumer finance, sfbs and mfis. This might pose risk to such high interest rates.

  • Second one is on increase in NIMs for Manna. What is the reason for such a significant increase in interest income. Stand alone (not consol to keep focus on gold and avoid mfi) interest income increased from 2,200 cr to 3,000 cr (+36% yoy) while interest cost just went up by 100 cr to 1,000 cr (+13% yoy) and gold aum increased by just 20% to 13.7kcrores.
    I understand they shortened the tenor, resulting in higher disbursals… but this should be the primary reason for increasing yields…

hope you are well now!!

(Yogesh Sane) #252

Yields are high because ticket size is small. It takes lot of administrative expenses to originate and collect a small loan. All these costs are built into higher yields. MFIs have the same issue.

This is driven by growth in AUM and yields,

Interest rates have been generally going down in last 2 -3 years so many lenders especially high interest lenders have seen lower borrowing costs.

Beginning 2014, Manappuram’s AUM has started growing again while its fixed costs have largely remained the same. This has resulted in net profit surging in last 2 years.

Manappuram’s customers use gold as a savings account. These are people whose income fluctuates so they park extra income during good times in gold. When income drops, they try to first borrow against the gold instead of selling gold due to emotional attachment. If their income does not go back up and they are not even able to make margin on the loan, lender will auction the gold. I think they wouldn’t mind the gold being auctioned because they would have sold that anyway. this is the reason there was a lot of auction during Q4 of FY17 when many borrowers were not able to put up the margin on the loan.

Short tenure of loans is to prevent build up of accrued interest which is just an unsecured loans which results in losses. this has helped gold loan companies manage their NPAs much more than MFIs

(madhavikkutti) #253


Gold monetisation scheme: Centre eyes allowing NBFCs, FIs to take deposits; may benefit Muthoot Finance, Manappuram Finance


I think, gold loan companies will be best poised to benefit from this, given their affinity with the customers as well as readiness with the infrastructure (collection and purity testing centres, more so in rural areas that account for massive stocks of household gold). It may take some time before this business picks up, but definitely looks promising from a long-term perspective.

Please share your views on this.

(bkasal) #254

It’s good for companies as they understand market and customers better. The monetisation scheme could be additional service option to customers and could structure different types of products like housing loan industry . Thanks

(manan1379) #255

Read on sharebazar app tht d promoters might b planning to sell stake to edelwise

(maheshkumar) #256

it will be a good move for manappuram
price difference between the two is 3x
so easily stock could triple from here

(Kumar Saurabh) #257

Had analyzed manapurram charts few days back. it did not breakout but with fall the low was higher than previous low, so, the triangular breakout story still looks like playing out. good part is after a year, distribution is less and accumulation is more more supported by volume and momentum. hoping a break out in next weeks when the horizontal and slope lines cut each other. lets see. any fundamental trigger will help. lets see which is the one. if results come bad the whole technicals can go for toss

(maheshkumar) #258

inspite of superb growth and great future why this stock is trading at such an low valuations
am i missing a big point

(Kumar Saurabh) #259

Two possibilities :1. Either we are missing something or 2. Market is not giving due importance. Point 1 I am also not aware of any new risk to be considered for a peer to peer valuation. Point 2 remind me 2009 to 2012 time when on TED thread similar kind of discussions were happening about VST tillers . Few agruiing it deserves a PE much more than 5-6 , few agruing its a comodity business so should not deserve pe of 5 and market is right. Whatever happened is history but I will leave some numbers for VST tillers to decide. Aprt from non linear growth in PAT, other metrics hve not changed much. So, ideally it should ve got same PE which it got between 2010-13 and 2013-17 but there was 100-200% difference. We do not know if 2010-13 PE was right or 2013-17 PE is right. but will answer some of questions on Mr Market

Quality of business did not change much between 2013-15 but valuations created a new normal leaving old normal. I am not telling same will happen with Manapuram ro some other stock but Mr. Market can have different yard sticks at different times in short run. It up to our ability to research and conviction to hold


Apart from perception issues, this has much bigger float and acts like super tanker in turning around. e.g. I analysed Edelweiss and Motilal. While I invested in Edel which just went 2x, MOFS went up 3X in the same time span. Earning profile is similar but MOFS has much smaller float. I find same issues here vs. Muthoot.

(Kumar Saurabh) #261

That’s an interesting observation ,not sure if it holds for long term. So, apart from growth, debt, return on capital etc etc, float can ve an impact on PE. In long run too any quantifiable experience ?By long I mean over 5+ years


It should not matter in the long run but consolidations will last longer. It is about plain demand and supply in the short term. Number of shareholders is much higher in case of MFS vs. Muthoot so much more number of folks need to get convinced for its upmove. I also suspect many global hedge funds take position in gold loan companies as a hedge against many other positions. so no option but to wait and not sell out of frustration.

(Hitesh Patel) #263

Manappuram has been consolidating slightly below its all time high range of around 106. It will need a big push or trigger to cross the hurdle. My guess is if q1 fy 18 results are good esp in terms of NPA, market can give it a thumbs up.

It was shaping up to form a cup and handle but now with such a long consolidation, the handle itself has become as long as the cup. Let see how it plays out.

disc: invested.

(Kumar Saurabh) #264

Hitesh bhai , is not it like the last attempt few months back with a cup and handle pattern did not succeed but now the its more of a ascending triangle pattern ? Last week I thought gold deposit may act catalyst but did not happen. So, ya results look next possibility. Good part is in last few days it has not gone back to 96 which reinforces ascending triangle is still playing out n wow volumes too have increased
Disc :Invested

(gautham1) #265

In the other type of NBFC’s the customer borrows for a productive purpose or for discretionary items like cars etc. Can someone tell me what do gold loan customers take loans for?
Sorry if this is already discussed.

(Hitesh Patel) #266


I have used guppy moving averages in the attached chart where the lines in blue represent short term moving avgs viz. 3, 5, 8, 10, 12, 15 and in red is longer term moving avgs viz 30, 35, 40, 45, 50, 60. This tends to reduce the effect of whipsaws and is often very useful in spotting patterns like cup and handle, flags, pennants etc.

Besides the obviously visible cup and elongated handle, there was a possibility of a flag like pattern where instead of a flag there is a slightly triangular consolidation in form of a pennant. At the time of breakout from the pennant, volume features have been as per the requirement of pattern. There is a dip in volumes within the consolidation phase and once it broke out there were a couple of big volume days.

Distance from the bottom of pennant to top is 100-60=40. Add that to breakout level of 92, we arrive at a potential target of 132.

In fact I quite like this tight consolidation in a tight range. Its like a spring coiling tightly. It would be interesting to see what kind of moves we see if and when 106 kind of level gets taken out.

(Kumar Saurabh) #267

Thanks Hitesh bhai for explaining so well with chart.

(Ronak) #268

Hello Guys,

I recently presented my work on Gold Finance Co’s to my Investment team and got some real good insights on the same. I was pitching for the idea to invest in Gold Finance Co’s - especially Manappuram and highlighted the positives for the company. You may refer to the attachment for the detailed note. My basic hypothesis was - since Gold Finance Co’s have a secured book with Gold as collateral - they deserved to valued at par or better than their Micro Finance peers - which cater to the similar target audience but run an unsecured book. While this point was accepted - they argued against it citing the following reasons.

  1. Scalability - Since the avg ticket size of the loan is 30K to 40K, scale of operations have to be high to maintain profitability. - Now, since the target audience is at the bottom of the pyramid - increased scale would happen only through incremental penetration - More branches. Repeat borrowings at rates in excess of 18% - 20% p.a. are very risky - as few business can earn ROE consistently above this level. Even if one assumes ROE are high - say 30% - the lender takes away a bigger chunk of the earnings (18%) vs owner of business who earns 12%. Not a win-win model. Importantly, Banks though with stringent norms would offer loans at much favorable rates. Net-Net, Loan are unlikely to be repetitive for the aforesaid reasons - hence loan would ideally be to new customers

  2. Credit Profile of the borrower & it’s end use - Primary target audience is at the bottom of the pyramid - very low credit profile - and end use of loan is not always to increase business - but to meet some urgent need (medical / marriage). Now think about this deeply - you are effectively giving consumption loans @ rates in excess of 18% 20% p.a. to a sub prime borrower - recipe for default. One may argue that the loans are secured by the gold - but as a lender, you want to earn income not by auctioning the collateral, but by the borrower making an regular payment.

Would appreciate more comments on these

Gold Loan Companies.pdf (936.2 KB)