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.
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?
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.
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.
Why should a good business house make an excess provision of 33 Crs. It is
not a small sum.
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
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 ?
Thanks. I have just now downloaded the enclosed data from BSE site. Dolly
Khanna’s name is not there.
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
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
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.
CARE has upgraded long-term credit rating of Manapuram Finance ratings to AA. This could be the reason
Block deals don’t happen on rating upgrade news. Also this news is a week old. May be sometimes it’s sheer undervaluation who knows anyway , hope there are good news in coming quarter to existing patient investors
This is the reason for sudden upsurge in share prices. However, one should not make his buy or sell decision based on this news.
Don’t think they will sell so cheap. Ideal course of action is to leverage the balance sheet and generate decent returns before selling it off. The current undervaluation is slightly baffling. Even if we assume there is no growth ever it deserves PE of 12+ (risk free rate of 8%) assuming their gold loan biz is not going bust given duopoly situation. Is market discounting bad management of diversification or continued contraction in gold AUM? We will know in hindsight.
The interesting aspect here would be to see who was willing to exit such substantial holdings(the bulk deals NSE and BSE together is nearly 4.5% of shares outstanding) at a price of Rs. 94 per share.
Disclosure: Invested in Manappuram.
And also take Management comments as gospel truth. Research is a fixed cost biz why should they spend in field visits when clients (MFs etc) also invest based on management commentary.