Meanwhile Mannapuram raises 90 day paper at 6.12%.
Shapoorji is at close to 10%.
Piramal 29 day paper at 9.1%
Patanjali Ayurved 90d at 10.45%.
Unbelievable rate for Manappuram… And with their lending rate (pricing power) at 18%, it’s huge competency for a lending Co on either sides of BS although It does improve their operating margin. But more focus should be to grow business without hampering NPA numbers.
Pls compare the yields with other NBFCs -
TATA CAPITAL HOUSING FINANCE LIMITED (~180 days) ~5.6%
CHOLAMANDALAM INVESTMENT AND FIN. (~30 days) ~5.3%
LIC HOUSING FINANCE (~180 days) ~5.85%
SUNDARAM FINANCE (~120 days) ~5.75%
Source: NSE https://www1.nseindia.com/products/content/debt/corp_bonds/cbm_sett_data_archives.htm
Was researching for digital avatar of gold loan…this is backed by deep pockets and currently doing $28m /mo run rate( access to free money with zero cost)…serious competition…limited to 10 cities for now but matter of time
They are not new. They raised 1st round of funding in September 2017. They are too small and may not pose any serious competition for next few years.
Manappuram already provides online gold loan and increasing the share steadily. These fintech can undercut in interest rates though. Also, many folks in the hinterland would like to see an NBFC outlet nearby before applying for a loan. It is not easy to build the network. Finally, what stops Muthoot and Manappuram from offering the same?
i guess one of the sensible things that a person would want is not just low interest rate or convenience of “loan at door step” but a brand that they can trust to part their gold ornaments.
lets also realise that these gold loan are taken be lower-middle income group people who really dont value this ‘loan at door step’ comfort.
I might be naive here. But do Manappuram or Muthoot have access to low cost venture capital to burn through? I think that is the power of these new online ventures coming in. Is the story going to be similar to the Amazon/Flipkart vs the Brick n mortar shopping malls and Uber/Ola vs convential taxis?
Technically, venture capital is a high cost and high risk capital. This is an equity investment and you will need to raise debt to provide loans against gold.
Amazon , Flipkart or most other successful models have been able to create business models as a replacement to unorganized sector and not really as direct competition to an established player. So yes , they may take some space , but difficult to imagine them impacting Manna / Muthoot growth trajectory seriously.
Analysis of competitive intensity is important, but only real case when I would worry about a completely new player is if that new player looks anything similar to RELIANCE 
They have tie up with Federal Bank and Karur Vysya Bank for debt funding. But gold loan can’t be compared to online shopping or Ola, Uber. For gold loan, trust and branch visibility matters a lot and thus building brand will be even more difficult for new fintech companies. Also, if they grow further they will attract new customers towards gold loan and Manappuram / Muthoot can also serve door to door from their existing branches.
On similar note , one thing that struck me while listening to Bajaj Finance concall was that this is one of the businesses that Bajajs management have found difficult to master. That shows how strong the established players are on their turf.
Although I would also see that as an important risk , because Bajaj finance has rarely been unsuccessful in a product/market they have tried to capture.
Disc- Invested, but no transactions in last 1 year.
I couldn’t agree more… People won’t trust institution with loads of losses for pawning family gold… Knowing their reputation so far informed people will think twice before signing up
Based on Rupeek story. Manappuram already started this kind of service but, still working on pilot basis. Once they ramp up to each and every town they can beat Rupeek easily because of stronger penetration, brand visibility and fund raising capacity at lower prices in compared with newer players.
Some trends to observe:
Invested and evaluating.
China trade war is going on for > 2 years. What do we consider as normalcy?
Corona virus outbreak news happened just 40 days back. This quarter is not yet over; we don’t even know the gold tonnage info., Lending info etc. and we are deriving conclusions here.
Do you have data points to support your claims with regards to competition and NIM pressure?
Each biz they operate in has Fintechs for decades as well, who are trying to carve out a niche. So are those fintechs disrupting the market and causing existing businesses to close?
Points 4 and 5 don’t consider business dynamics at all.
I see all kinds of surprising claims being made in the past few days. Lack of understanding of the word disruption; no detailing of what these fintechs do differently, much better than established players and if they can sustain it.
Total non-focus on the fact that financial services biz is one with a long tail and it’s not Aum gathering (least important) exercise alone but maintenance of quality book and lending and it’s a twin side business. Brings to mind on the kind of sweeping comments made wrto PNB HF, Piramal and others where people were interested in only loan book growth and AUM.
Kotak, DCB, IDFC first bank and others are all offering at door step services, huge marketing, ad spends and have they disrupted the banking space or carving out a niche for themselves? And are people becoming customers of these banks just bcoz of better services or much higher savings rates they offer?
Also the most surprising and mind boggling claim being made is VC money labelled as free money, low cost and various other phrases. If it’s so, all biz would remain in VC stage only even if they mature. Afterall biz will boom with free money. And isn’t equity costliest form of funding in these cases? We need to study about industry dynamics, network effect and disruption.
The e.g. quoted like Flipkart, Amazon, Ola, Uber bely this. So if tomorrow these disruptors enter gold loan lending then all these Fintech startups will cease to exist right as these disruptors can do what these startups can do, are backed by ‘free money’, ‘low cost money’?
For some of us Gold rising 20%+ (2019) in an year and then spiking on top of that recently is not normal…where is a conclusion here?
Read above with point # 1 impact and then take a look at long term view of margins, earlier spikes were in 2007-8. Again some of us think it is not sustainable. Each is entitled to their own view.
Again - we all can agree to disagree but believe constructive rebut helps each other on this forum, not ramblings or lack of civility of response.
Could you address what Rupeek does differently, or its operating model and what facet of gold loan business is being disrupted, their lending model and how gold price rise/lack thereof won’t affect Rupeek.
Manappuram’s online gold loan accounts for 43% of total gold loan book from 1% in FY 2016. Manappuram too offers door step services. Page 37 of Manappuram Q3 presentation details the technology initatives as well. So unless we know what Rupeek does better compared to other Fintechs backed by VC funding, unorganised players who still dominate the gold lending business, organized unlisted players, listed players like Manappuram, Muthoot and banks, we wouldn’t be able to identify if there is a threat.
FY 2017, 2018(on lower side), 2019 and 2020 all have similar margins. So that’s why the factors stated don’t exactly correlate with the financial results of Manappuram and mind you, the factors you stated affect all in the gold lending business.
And I still couldn’t understand why we don’t focus on lending side of the fintechs and also on the false analogy to Ola, Uber, Flipkart, Amazon when 2 of them are into sharing economy and 2 of them on marketplace and all of them are best examples of network effect and in financial services, that too NBFC, its operating leverage, book quality and not exactly network effect that decides success.
I don’t claim to have all the answers as well but to make an informed decision, we need lot more inputs than the rapid growth of certain fintechs as we won’t know who is swimming naked till the tide stops. But I know VC money is definitely neither free money nor low cost. And I just expressed my cynicism wrto fintechs disrupting the business as many of the disruptions they do successfully get adopted by the whole business over time and become the standard.
And as for your last point, I wholeheartedly agree and as Charlie says, invert invert and can only smile.
Various predictions around gold happening
No one knows but everyone predicts
Next 1-3 years will be interesting for Manappuram
Hello,
Have been studying Manappuram and Muthoot over the past month. Playing the role of devil’s advocate. I think Manappuram is a good company but there are some aspects which make me prefer Muthoot over Manappuram.
Manappuram offers 3 month gold loan while Muthoot offers its loans upto 1 year. I think this is a step which is biased towards safety over growth. Gold loans of Muthoot don’t have very high NPAs and they certainly don’t alarm me. In fact, Muthoot’s management says they never lost a single rupee in gold loans business (yet to verify this). They classify them as NPAs but give time to customer to clear their loans. Apparently lots of customers do come to pay back their loans. This actually helps Muthoot retain the customer while Manappuram is relatively harsh and immediately auctions the gold. This might also explain why Muthoot is seeing higher growth rate even though it is running business on a higher base.
As per Muthoot’s data, 60% of the customers pay back the loan in 6 months. 10% repay in first month. 32% repay in second month. From this, I roughly want to assume that 50% customers repay in first three months. This implies Manappuram is adding unnecessary barriers to 50% of the customer base of Muthoot, as the customer has to visit Manappuram again for renewing his loan and at the same time Muthoot is more customer friendly (as explained above).
On top of all this, I ask what are the chances of seeing a huge correction in Gold prices? I know people refer to the period of 2011-15, but I think this happened due to the huge bull run of Gold during GFC. I would be wary of holding Muthoot in my portfolio if it gives one year loans during the second half of a gold bull run but not during normal times.
Speaking of other aspects of business like Housing Finance business, I think Manappuram is very aggressive in this area compared not just to Muthoot, but also other HFCs.
GNPAs in housing finance business is 3.9% (have been promising to reduce to 2% / 1.5% every year but progress seems far away)
Yields are very high at 15%. Muthoot is at 13% yields. Generally, higher yields imply higher risk. Dedicated HFCs like Can Fin have even lower yields like 10%.
Only 11% of housing loans are to salaried customers (as of Q3FY19).
I don’t know much about MFI and Vehicle finance, so won’t comment anything on that. Yet to do a deep study on MFI…
Manappuram seems to be playing very safe (than it should be) in its focus area aka Gold loans but very aggressive (than it should be) in other areas. I know company is trying to diversify a lot but that doesn’t mean it should be so quick at the cost of potential deterioration in business practices. One thing in which Manappuram is very good is OGL. It already has 42% of its books through OGL while Muthoot’s management said it is a very small number.
Discl: No holdings in both the companies. I’m biased in favour of Muthoot and considering adding it to my portfolio in the current correction phase. Please do your own research. This is not a buy / sell recommendation. Another possible reason for my bias: I don’t understand MFI very well and that might have automatically induced bias for Muthoot as it has lower exposure to MFI.
