Competitive advantage of Manappuram gold loans over PSU and Private Banks
Please have a look at the interest rate comparison of leading gold loan companies as on Feb-2017, PSU and Private Banks in the below table. I have few questions in my mind,
a) Manappuram has higher interest rate provision (e.g. up to 26%) compare to PSUs offering at half of the interest rate (e.g. 11-12%). This may influence customers to reach PSUs instead of Manappuram. If the viewpoint is that customer might not have bank account, post demonization and digital initiatives perspective would be different and the same customer segment might have access to competitive banking products like cheaper gold loans.
b) The amount of loan sanctioned in PSUs is up to 80-90% of the Gold current market value compare to Manappuram which is offering short-term (3 months) with 65% of Gold value to de-risk. This may be resulting in lower monetization of footfalls
c) 85% of Manappuram revenue comes from gold loan which is acutely linked with physical gold price. There are rumors that gold will have to correct further before it makes another attempt to breach its previous highs. This if analysed further we can see manappuram raises and falls with gold price. Due to the short term loan strategy, there might not be NPAs but the AUM will be reduced due to this gold price fall.
d) Even though attempts are being made by the management to diversify into Housing loan and MFI, this is only 15% of total AUM. There are major new entrants in this field (like PNB Housing and Reliance Housing in HFC) or major competition in MFI like Bharat finance, Ujjivan, Equitas etc. Thus we cannot be over bullish for any growth in these sectors as well.
e) Safety factors - The other point concerns me in recent times gold loan companies like Manappuram have been in headlines for gold loots from across branches, even if branches are insured the customer preference now might be shifting to bank on PSUs for better safety of their gold ornaments
Based on the above factors how do see the Manappuram growth story in long-term (5+ years)? The current run-up only seems following overall NBFC run-up along with other factors like promoter buying shares, new positions taken by ACE investors like Dolly Khana etc.