Manappuram Finance

(Rajesh_R) #310

In Muthoot Vs Manappuram comparision, sometimes NPA takes a back seat.

Avg. GNPA of Manappuram is around 1% with 90 DPD. Avg. GNPA of Muthoot is above 2% with 120 DPD. Muthoot GNPA will go up even higher once they move to 90 DPD in Q4FY18.

My point is, Let’s not look at Gold AUM growth in isolation. See it along with other parameters including NPA.

My take on Q1 result:

I am invested and following Manappuram for a while now and the Q1 growth slowdown seems to be a short-term blip. Some decent amount of gold was auctioned during Q4FY17 and getting that quantity back into books is going to take some time.

Some people might ask why this is not a problem for Muthoot? Answer is, they do 1 year loan (vs 3 months for Manappuram) and accounts are not so frequently up for renewal like Manappuram. This is why their NPA is high.

For a 20%+ ROE, 2%+ dividend yield company run by great management, I see lots of valuation comfort with stock trading at 2 times trailing book and under 10 times earnings.

Disc: I am long Manappuram and it is one of my top 5 holdings. Views could be biased please do your own due diligence.


My take from concall -

  • Growth - the management is slightly rattled by continued weakness in MFI and refrained from giving any portfolio level AUM growth target for this year. They maintain that long term trend of 10-15% growth in gold loan AUM will continue but this year is difficult to predict. I find this sensible since their past guidance was not met so better to keep your mouth shut till you gain confidence. Gold loan AUM declined due to sizable auctions of 500cr+. CV and Home loan will grow faster till the portfolio attains some decent size.

  • MFI - Their approach towards NPA in very good. They made extra 33cr provision vs. RBI requirement in this quarter and some of this (~10-15%) could come back too… Growth will be calibrated and selective in few states.

  • Operating costs - Security costs have gone up as they hired security guards at all locations and with guns at some places . Should remain elevated till they find a better solution.

One must see that operating leverage in their gold loan biz is substantial now. PAT growth in standalone biz is decent despite low AUM growth and high security charges. Declining cost of funds will help them cross the difficult times. Clearly, overall demand for credit is low except may be home finance/MSME segments where its presence is limited. One can not fault them for slow growth when their backyard is troublesome. They have cleaned the book and maintaining it in healthy condition for expected growth.

Disc - Invested

(Hitesh Patel) #312


Manappuram results have been a disappointment on the MFI front. While they say that they have provided 33 crores excess than what is stipulated by RBI we need to watch for next few quarters how the asset quality of the MFI business pans out. They mention about write back of 15-20% of provisions also needs to be observed.

Gold loan and other businesses seem to be doing okay.

With the correction post the results, stock is at around 2 times book which seems interesting in view of valuation of other lending businesses in the market. I think with the overhang of MFI asset quality, the stock may remain under pressure or range bound in the shorter term.

disc: invested.

(yudiagg) #313

Muthoot, in similar business, has shown excellent growth in this quarter. Macro environment is same for both.

(Saji John) #314

Edelweiss maintain buy rating with TP of 118

(Kumar Saurabh) #315

In muthut, growth comes with relatively poor business model , risk assessment framework and credit quality .in long run, everything becomes short run , we can just give reasons . I think some of forum members have highlighted the issues in detail ,so, won’t repeat .Ultimately it’s all about having conviction without developing any kind of biases . Time to go back to do numbers , talk on ground and form or revalidate unbiased analysis. Disc : invested in manappuram

(Saji John) #316

So much has been written on comparing Manappuram and Muthoot. Since both companies originated from Kerala and the public perception about both cos are different. Manappuram management in the past has put their personal wealth at stake when the company was having financial crisis. I doubt Muthoot would do that. I have put my money on Manappuram!!


Exactly, I have a feeling that some of the riskier gold loan borrowers are gravitating towards Muthoot and that has led to slightly higher AUM growth vs. MFS. It is said that lax norms attract risk like bees in the lending business. Muthoot provides much longer credit period exposing itself to gold price movements compared to MFS. From a client’s perspective I would certainly be sad if my gold ornaments got auctioned just after 6 months in case of MFS. I will certainly go to Muthoot which might give me longer rope for repayments.

(Sunil) #318

Basic question

I have seen that many unorganized players (small jewellery shops mostly) in Bangalore, Hyderabad and Chennai are offering loan against gold at interest rate of (12%-16%) whereas manappuram is 18%-24%. So why would anyone go to manappuram to get loan instead of these small shops?

(Vijay) #319

How secure is it with the small jeweller? If he closes shop or relocates or denies getting the jewel? Why do we use Nestle products for kids instead of no name brands. There is always a premium for brands and organized sector. How much is the debate.

(zulfiqar) #320

My 2 cent on it is that lending is commoditized business, right now every Tom Dick wants to be in the retail lending,


These small time jewelers are best avoided. Heard many stories how folks in the bottom of the pyramid are cheated. These shops employ a simple chemical solution to siphon gold by dipping for less than 30sec. Don’t think they can ever become alternative to Manappuram and Muthoot on a larger scale.

(yudiagg) #322

Why should a good business house make an excess provision of 33 Crs. It is
not a small sum.

(Kumar Saurabh) #323

RBI provides a guideline or set of rules . How conservative or how aggressive one is against that is personal call. There were companies who have not yet shifted from 120 day to 90 day thing and there are companies who have done it proactively . Ultimately , the nature and quality of management has to be judged on multiple historic foot prints he or she has left when situation demanded a unique action . This does not mean that there may not be surprise . But as per my understanding most of NPA has been factored in if really they r back to 100 percent collection from December .though some more surprised could be on component where only 50 percent of NPAs has been recognized as per RBI rule,however, this additional 33k provides cushion there. Key question is political system has proven again credit beuro kept aside , unsecured lending is a big risk . So if MFI share keeps increasing , how to factor this long term risk which can play out again n again into valuation. Is 2 price to book sufficient to capture 15 percent of AUM risk which will be unsecured in next 2-3 years. Assuming they will reach 75:25 good vs others n MFI will be 60 percent of the 25 percent . Growth numbers going forward is second part to look into valuation

(yudiagg) #324

Thanks for sharing the Edelweiss report. However it is interesting to note
that the future estimates are the same as in the report issued by them
after bullish Q4. Low actual numbers for Q1 have no impact on the estimate
of annual numbers ?

(yudiagg) #327

Thanks. I have just now downloaded the enclosed data from BSE site. Dolly
Khanna’s name is not there.

Manappuram Shareholding Pattern Public ShareHolder June 17 as on 13 8 17 .pdf (72.2 KB)

(Vivek) #328

@yudiagg check page 25

many time bse websites updates are wrong

(yudiagg) #329

Many thanks. Pl see that some of the top investors have been reducing stake every quarter. Do they know something that we do not - or is it just a co incidence

(Learner79) #332

CARE has upgraded long term rating to CARE AA stable. Announcement below. This may reduce the cost of funds further.

As per the report

the share of gold loan portfolio with less than 3 month tenure increased from 34.91% in March 2015 to 99.87% as on March 31, 2017

I think above reduces the risk of NPAs considerably in their gold loan portfolio. Please go through the CARE rating, it is very informative.

Disclosure : Invested hence my views could be biased

(Gary) #333

Just wondering (very new to this particular thread) - is this space becoming crowded now? I live in Gurgaon and I see gold loan hoardings here as well. And while brand does have a value as pointed by Vijay but to the target audience, does this carry a lot of weight. [ I mean how many people would buy a Ramdev product for ayurveda reasons and how many buy because they are cheaper than Nestle ! ]

An immediate corollary I see is with the diagnostic business where likes of Dr. Lal are now feeling the heat because others have entered after seeing how lucrative this business was.