Manappuram Finance


In India, gold is considered to be a sign of social status, financial security and cultural legacy. As of 2019, households in India assembled about 25,000 tons of gold, making the country the largest holder of the yellow metal in the world. Rural communities account for ~65% of the total gold demand in the country. Owing to the sentimental value that Indians associate with this indispensable item, people seldom sell it to meet financial emergencies. They prefer to pledge gold as collateral to secure short-term loans. Gold loans enjoy a relatively low interest rate that varies between 9.5% and 24%, and have a flexible tenure (ranging from a few days to 5 years).

The gold loan market in India was valued at ~INR 2,921.42 Bn in 2019 and is expected to reach ~INR 6,275.40 Bn by 2025, expanding at a compound annual growth rate (CAGR) of ~12.75% during the 2020-2025 period.

Segment insights:
The Indian gold loan market is segmented into organized gold loan market, also known as formal gold loan market and unorganized gold loan market or the informal gold loan market. The organized gold loan segment includes public banks, private banks, small finance banks, co-operative banks, NBFCs and Nidhi companies. In contrast, the unorganized sector is dominated by money lenders and pawnbrokers.
The unorganized segment accounts for more than 60% of the gold loan market in the country. Nevertheless, the organized sector is anticipated to expand exponentially during the forecast period.

NBFCs constitute the largest share of the organized market. Customers residing in rural parts of the country are gradually switching to these NBFCs, owing to quick loan processing, systematic gold valuation, auctioning and safe-keeping. Banks also offer gold loans, but they primarily consider these as their priority sector lending (PSL) requirements. Further, small finance and Nidhi companies represent the co-operative segment in the Indian gold loan industry, and account for ~12.98% of the organized gold loan market. Private sector banks are gradually entering the Indian gold loan market with tech-driven offerings like online gold loan services.

Impact of COVID-19:
The Indian gold loan market has witnessed a positive impact on business during the nationwide lockdown due to the Coronavirus pandemic. Gold loan products have experienced rapid growth than other retail banking products during this period. Due to economic distress and job losses, gold is acting as an insurance policy, as well as a retirement plan across India. People are availing gold loans to fulfill their immediate fund requirements.

Moreover, demand for gold loan is further expected to expand as risk profiles of borrowers have depreciated considerably and lenders are becoming risk-averse. Many NBFCs are facing liquidity crisis, which is deteriorating their liquidity capacity. Therefore, gold loans are becoming a fallback plan for borrowers who are denied loan through regular channels.

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As an observation note - many Gold NBFCs are coming up these days. For instance - In Kerala- KLM Axiva, Kosammattam Finance etc. Also I hear CSB is capturing a fair share here. Muthoot started, Manappuram followed. With many new imitators coming to picture and growing, competition increases. Would this be a worry for Manappuram/Muthoot?

Disc: Invested. Reduced allocation.

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Market is treating it as a borderline value trap given its experience in deploying excess funds from the gold loan biz. There has been no valuation pick up over the last 3-4 yrs and it remains a den of arbitrage funds doing entry and exit at different points of time. Secondly, high free float prevents any favorable supply-demand scenario for speculators to jump in. Thirdly, the current MD and others are perceived to be lacking vision like Sundaram Fin or aggression like Bajaj Fin. I can’t imagine it getting any big rerating anytime soon. It will continue to get 8-12x fwd as gold loan is supposed to grow @8-12% pa. I am not saying this is justified but the market has resigned to this fate untill it changes its character dramatically.

Disc: Exited last year but bought back half the quantity during the last crash. waiting for a last hurrah to exit and not look back again. It has imposed considerable opportunity cost on my PF.


PE re-rating can happen in Manappuram only when market gets convinced that the last 5 year sales growth is sustainable for next 10 years and company can leverage its brand in other credit segments successfully. Right now there are lot of concerns around such as gold business future growth, micro finance recovery, gold business competition, and government regulations so unless there is a big bull market, it going to take few more quarters for Manappuram to buy market confidence. If profit growth sustains, even without a PE re-rating it should compound at decent rate in near to mid term.

Gold collateral and current valuation of PE 10 mitigates risk to an extent, so if someone has reasonable expectations and has patience to wait for few more years for PE re-rating to happen, its a good risk-reward scenario to game on.


The latest Nirmal bang interview highlights a very important point.

  • NBFCs with >1000 branches need to take approval for opening every new branch which itself takes more than a year. This is leading to much slower growth rates of new branches in Northern India, especially in states like Bihar, Assam, etc. This maybe one of the reasons for the anemic growth in number of branches over the last 5 years.
  • According to their internal survey, about 1/3rd of their gold loans go for working capital financing of MSMEs, 1/3rd is used by farmers for income generating activities and the rest 1/3rd is used for consumption

Disclosure: Invested (position size here)


Microfinance pain never ends
Not a easy business
Always some or other issues comes
Lots of regulatory risks

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This point was addressed in the FY21Q3 conference call where management said that they have applied to RBI to open 300 branches in North India. Their FY20 branch count was 3529. Management also said that it requires ~1year for a new branch to breakeven on their operations. Other highlights are stated below:

  • CP money is available at <4%. However, they have preferred to raise long term money now (up to 7 years) which is why cost of borrowing has not decreased so much. In a longer term, they can comfortably manage 15-20% of liabilities as commercial papers

  • Looking to grow gold loan business by 10-15% in FY22 as well and will try to maintain ROA of 6-7% on gold loan business


There is a sharp fall in gold price in last few weks (approx 10 % fall & trending to fall more). This might impact the gold loan growth rates in the near future. Also a fall of another 10% means , they will start loosing interest income on the loans , if they have to liquidate the assets

I think Mannapuram Finance is facing headwinds currently but once Gold gathers pace then we will see it staging a comeback…It is a very good business with NPA challenges lesser than other sectors due to the business model of gold loan…and considering the PE multiples at which it is trading at now, it might see some PE re-rating going forward as the sector will see a re-rating going forward…

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Latest management interview (link):

  • With recent gold prices going down by 15%, tonnage has been stagnant resulting in de-growth in AUM; Will maintain gold loan growth of 15% in FY21
  • Disbursements have come back to normal for other business segments
  • Margins have improved slightly
  • Credit cost for microfinance will settle at 7-8% of portfolio
  • Long term growth: 15-20% with ROE of 20%

Disclosure: Invested (position size here)


Paid research

Hello Fellow Investors,

I have been tracking Manappuram finance for a while and being a amateur investor I have a few doubts with the recent news about hiving off it’s micro finance group,

Will the market cap and revenue of Manappuram Finance come down because Asirwad Microfinance has a portfolio of 5360 Crores?

Would existing shareholders in manapuram be given shares in Asirwad Microfinance?

Thank you in Anticipation.


Yes and No because there are a lot of scenarios in this and they haven’t mentioned on how they are going to do it. In some cases existing share holders will get new stocks if its Split type of demerger otherwise existing shareholders wont get it in case of IPO kind of listing.
I think its very early to discuss this. This kind of decisions and process usually takes a longtime and sometimes it may not happen.

Mr. VP Nandakumar latest interview

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Many regulatory charges and fines/penalties imposed on Manappuram Finanace Ltd in last 2 years.
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Hi everyone. I’m new here. Can anyone help me understand that even after posting successful quarterly results over the past few quarters, why is this still stuck at the same place for more than a year? The pe is around 7.5 whereas the eps is growing almost every quarter. My question might look very naive, but it would be great if someone can throw light on it. Is there any red flag that I’m missing?? I’m heavily invested in this stock since 3 years.

One of the reasons is their micro finance book. They are not a pure play gold loan business like muthoot.
Market is expecting a hit on their micro-finance book due to second lockdown.
I too am waiting for their results to see the hit.

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But, their micro-finance will have spin off , right. It will be listed separately & that should instill confidence in the investors… I don’t understand … Looks like , I am missing something here