Few more pointers from what I observe in my family/friends who pawn gold
People take gold loans to pay off other loans which they might also do now because of delay or cuts in salary.
I’m not sure how BFL is going to proceed on digital lending. In the recent quarterly comments, Manappuram had substantial lending through its digital channel. This is a big plus
BFL may get business from its customers in select places, but it is gonna be very difficult to get new customers during this time of distress.
I don’t know about appraisal quality and the speed at which loans are disbursed from BFL. Both of these are crucial when it comes to gold loans.
Would be great if any of the members could share their scuttlebutt to BFL and their gold loans process! TIA
As per my understanding moats Manappuram has over here are
Trust: Key factor when it comes to lending against gold, it’ll take a substantial period of time for Bajaj to build that trust or on the contrary it can be that the trust comes along with the name Bajaj (the probability is not high)
Security and storage costs are high: Manappuram has been constantly reducing them
From concall on 14th May, 2020
Customer Loyalty: The amount of interest is not significant , the avg ticket size for Manappuram’s gold loan is 38500 and the tenure is 2 months(as per concall on 14/05/2020) , even if you consider 25% interest its around 1,600 and 15% as per Bajaj Fin would be around 1,000 so there’s not much difference in amount in small ticket size. You’d not mortgage your family jewel to a new lender for an amount upto 2,000-3,000
Physically moving from one locker to another is highly unlikely too
We shall also wait for what management has to say about rival entering the business
@yash_goenka
Exactly, in most cases, the interest cost is lesser than the processing fee of PL or HL. Hardly very few customers would consider interest rate when they select a new credit card and the same applies to gold loan. Credibility, branch network (nearby availablity), and speed is more considered than interest in this segment.
Jotted down some points from Manappuram’s Annual Reports during GFC.
Revenue for the company grew 6x from 80 crores to ~480 crores in two years (FY08-FY10), but that is at a much lower base (company grew 4x in previous two years to that - FY06-FY08) and run by a much younger Respected Vallapuzha Padmanabhan Nandakumar.
AR FY08:
The spurt in the gold prices further brightened the profitable operations of your Company.
The recent spurt in the price of gold has provided impetus to our plan which we plan to christen and launch as “Mission Rs2.K Crore-9”.
Another noteworthy development was the infusion of equity into the Company by two internationally renowned private equity players viz; Hudson Equity Holdings, Sequoia Capital India Growth Investments I.
AR FY09:
In the recessionary conditions the Gold prices shot up due to Haven effect and the oil prices witnessed both extremes between USD 147 and USD 30 per barrel.
The spurt in the gold prices on the haven effect will provide the necessary fillip to our plan.
Another noteworthy development was the infusion of equity into the Company by four internationally renowned private equity players viz; Hudson Equity Holdings, Sequoia Capital, AA Development Capital India and GHIOF Mauritius.
AR FY10:
The year 2009-10 was marked by recovery and revival. After plunging into the steepest economic contraction since the Great Depression, the global economy witnessed significant improvement. Contrary to expectations of a prolonged turmoil, the turnaround was much quicker than what was expected.
The stability of gold prices provided an additional impetus to the profitable operations of the Company.
The Company was largely immune to problems of recovery and NPAs as most of its lending is in the gold loans segment. This encouraged commercial banks to liberally extend financial assistance to the Company thereby taking care of its working capital requirements.
Discl: I’m not invested in Manappuram, but invested in Muthoot Finance and this post is not a recommendation to buy / sell Manappuram or Muthoot. Just noting down points on how Gold Financing Companies behaved during GFC. Please consult your Investment Advisor before buying / selling these companies.
I am doing some deep dive in gold finance companies. I am not able to understand even with the sound fundamental business (secured lending, gold prices going up, high growth in past), both muthoot and manappuram haven’t traded at high valuations at any point historically (median P/E is 11-12x).
If this is the case then the stock price multiple will not rerate and only follow the earnings growth which makes these businesses not an attractive investments versus other businesses.
Requesting People who are tracking gold finance businesses for a long time
(@saeyons@maheshkumar@sivaramtvl…) to throw light on possible reasons behind this and what has changed now for rerating.
Slower growth rate in comparison with housing loan and consumer durable loan segments.
Risk of gold price falling down
Risk of banks emerging as go-to lenders for gold loans
Risk of any Govt/RBI intervention or policy change to cap gold loan interest rate (or) to cap loan-to-value %.
What has changed now?
Other segments are facing NPA risk and gold loan companies seems to be better placed comparatively.
Rising gold price helps to achieve faster growth in terms of absolute loan disbursement numbers (GOLD AUM growth would be still less)
Speculation that people will mortgage more gold post lock down.
Will it get higher rating?
Since financials are out of favour of market PE rating seems to be a less likely scenario at the moment.
But market perception could change. Few months back, retail banker were favoured by market and now the tide seems to turning towards corporate bankers again. Same thing could happen here depending on how things (Gold loan NPA, Growth rate, gold rate) moves in the coming months.
Risk-Reward
The current valuation are very attractive, so if gold loan companies survive this crisis and even get the pre-covid PE multiples, it will be a good reward for passive investors.
1/ Slower growth: Manappuram is growing at a very high pace in last 2 years (thanks to non gold business)
2/ Have seen a chart somewhere where it was mentioned that Gold is the only consistent returns generating asset in last 30-40 years. Even if gold price falls then also the LTV ans short loan tenure will help in managing it
3/ Gold lending is such an old business and still banks are not able to capture the market from the two players because of stringent background check
4/ Govt capping the interest charged can be one of the risk. Is govt allowed to do that? Have they done it before?
Gold financing is going through some of the very strong fundamental years and still manappuram was trading at 15x pre covid which was baffling to me…
Hopefully market realize the beauty of this business
// Govt capping the interest charged can be one of the risk. Is govt allowed to do that? Have they done it before?
Yes that happened in the past, RBI capped goal loan LTV (loan to value) at 75% (60% and then revised to 75%) around 2013 and it remains same till today. Though it affected NBFCs in the medium term but acts as a guard rail now from fall in gold rate. It had a medium term impact as unorganised lenders don’t follow this norm, hence an advantage to them.
Even a cap on interest rate is possible, in-order to support micro enterprises and poor people post covid. But don’t know whether they have done it before.
I think with so much money printing all over the world ,Gold will reach new peak in 6-18 months
Non gold lenders are struggling
Gold lending has bad reputation in India but the viewpoint is changing and PE rerating might happen
Post recession gold business usually booms
Current valuations offers lot of margin of safety
Management has seen many ups and downs and is very conservative in giving growth targets
Pan India presence
No issue with liquidity
Short term loans
Manappuram has 60% online gold lending
Microfinance is a major trouble ,but they are capping at 0.5-1 % per district
So it will help in minimising the risk
Current pE of 6 with 2% dividend yield is not a bad bargain
Worst situation : severe covid 19 in India and 100% npa in non gold plus severe price correction in gold can lead to survival difficulty for Manappuram
The probability of this happening looks unlikely
At this moment market dosent want to give double digit PE
I think covid situation will be more clear in next 2 quarters
demand may pick up in q3/4
Management is expecting 16% growth in q3 plus 4
Q1and q2 May not see any growth
Till that time stock price may remain near 100 plus minus 30
I personally feel that the impact of move 1 would be very minimal for Gold loan companies like Manappuram as they too offer up to 75% but customers are availing lower value in loans. Banks have been pushing Gold loans even in the past but with minimal success. Changing LTV will not create a significant impact to the business model of banks.
Also, banks already have collateral(in Gold) for these loans, and government guarantee might not be useful in that case. It is because of some other reasons that banks are unwilling to sell these loans to customers (They have been discussed enough in this thread). As a customer, I have nothing to gain from this announcement.
Disclosure: One of the major holdings in my portfolio. Counter views are welcome!
I think it boils down to how hard they push these loans. Because even though gold loans were part to of their portfolio in the past, Banks somehow never did any marketing about it and most customers were in the dark about availability of gold loans from banks. Personally, I also share your views that gold loans are hard to sell for banks compared to gold loans companies as they’re not specialists. But, I do think that if any one bank approaches gold loans seriously with heavy marketing push, they might create competition in gold loan duopoly.
I agree with your views. However, gold loans are process heavy and low value products. Compare a auto loan of 8 lakhs, home loan of 50 lakhs to a gold loan of 30,000. A manager would struggle to achieve his monthly targets selling gold loans and that is one of the major reasons for banks to avoid gold loans. But if a renewed push is given by the government, PSU banks might take it seriously in the next few months. At 8-10% interest rates and cumebrsome evaluation process, I see little threat from banks even after today’s news. However, if banks are able to pull enough customers, the scenario may change in the medium term.
Looks like ,Everyone including Bajaj finance and psu banks are going to try their luck in gold finance
Let’s see ,as in the past many have tried with not much success
One thing is sure gold loan demand is going up post covid
Advantage of Manappuram over psu banks is fast processing
It will be Interesting to watch next 12 months
But I think the winner was /is and will always be the local non branded gold loan lender who lends at extremely high rate …but most local farmers go there due to convenience and fast processing
And these local guys will always beat Manappuram and psu
with 8 Pe and 1-2% dividend yield ,anyhow market is not expecting any miracles from Manappuram(Market expectations is just high single digit groth )
Manappuram and muthoot both runs in opposite time frame
When safety matters muthoot runs
When growth matters Manappuram runs
Another set of insider trading violations from the employee’s of the company. This time there is an error in the company filing where they report the same PAN for two different employees. Will contact the CS about this. The person Vishva Prakash Tiwari seems to have traded again in these set of violations, will have to confirm with the PAN no.
Even though the offences are minor these violations are getting ridiculous now and an investor needs to question how hard it is for the management to give out organization wide guidelines whenever such trading windows close.
