Looking at all these pessimistic comments…It would appear this company is close to turn around… Company does not want to sacrifice their edge for growth. Aashirwad is a dark horse. They say they might list it or do a capital raise in future. But the bottom line is rural India is struggling which is the main customer base of manappuram for the small ticket small duration loans. Agro commodity prices are sustaining at higher levels so sooner are later demand from farmers/rural households will come back with vengeance.
True
possible probability of turnaround
Slowly market perception will change from plain gold business to diversified Buiseness
Gold business is a great cash cow, which can buffer the nbfc
An ideal combination
Great dividend yield
And close to book value
Future Growth in muthoot will be much lower than Manappuram given fast growing non gold portfolio of Manappuram and small base
Still muthoot valuations are twice the Manappuram
I feel either muthoot will halve from here or Manappuram will be 2x from here
Probability of later to happen looks more plausible
Gold loan is operationally very challenging business and this high competition Will likely fade slowly .
@maheshkumar The management prudently focuses on improving their balance sheet and diversifying their portfolio concentration risk. However, the risk of execution in microfinance business needs to be seen. Muthoot Capital Services burnt their fingers badly here. It’s a good case study. But the growth potential is immense.
The market is on wait and watch mode. Once the execution visibility comes in and they show traction. The stock might get re-rated. It’s a matter of time. The management needs to demonstrate that they can do this at scale without risking the quality of book in MFI segment.
Yes there are two things which market is watching closely
1)Can the competeitiors sustain the operational challenges of gold loan on long term .Many have tried in past and everytime everyone failed except muthoot and Manappuram .Gold loan on large scale long term is hard .Banks do it for short period and then they start losing the momentum .
microfinance has huge potential and so far Manappuram is doing well
If Manappuram succeds in either(gold/non gold) than it will be a retating.
If grows in both gold ( gold growth and microfinace growth )then it will be a multi bagger given current lowest valuations
Please provide some insight on your point no. 1, it seems that we all can learn with your experience and learning in gold loan business.
Disclosure: bought third tranche @ 115.66
Why it is operationally challenging to operate gold loans in large scale?
Each and every bank from HDFC bank wants to increase the gold loan portfolio. If each bank takes a small share of manappuram / muthoot, will it be operationally very difficult?
Also, in rural areas, rural banks which gives agricultural loans offers more value for the gold at cheaper rates than Manappuram / Muthoot.
MFI has huge potential but from their numbers from last few quarters, they had GNPA of around 6.7%. Also, we don’t have any clear data on customer quality or ratings in this category.
@krishnan1159 Exactly. That’s why I mentioned it’s a risky business with high return potential. The borrower quality will be lower only. Only time will tell how the execution will happen.
The business model and the target customer are completely different. While you can secure a loan from Manappuram/Muthoot in few hours, same is not the case when you approach a Bank. As an investor, you have to recognize the associated risk and decide where to bet
Banks also started processing gold loans faster. It may not be done for all gold loans. But they have improved a lot in recent years. You can check the websites of leading banks as well. They have also started processing in few hours.
Regarding the target customers, as per the last quarterly report from manappuram finance, they are struggling to retain their high value customers. In past before few quarters, they have provided teaser loans to retain them. With rising interest rates and increase in cost of borrowing, they have stopped that and you could see the number of customers declining gradually.
Moats of gold loan finance companies are slowly eroding. They have high cost of borrowing when compared to banks, banks can provide more amount for the same amount of gold(LTV for banks is around 80% I guess) and banks have also started processing gold loans through online and reduced the processing times.
Again, only in the coming quarters we will know how they are going to perform. Manappuram is at better valuation and diversified when compared to Muthoot finance. In last conf call as well, they mentioned demand in rural areas have not picked up fully. We need to wait and watch.
I get the valuations are cheap and the fear of competition from banks might be already priced in. But what I can’t understand is why the growth is not showing up even after 3 years of Covid. Because historically, this competition between banks and gold loan companies is a little bit cyclical. During slow times, banks aggressively pursue GLs. GL companies can’t compete due to higher rates but then in some time, banks go about their usual business and GL companies come back. Is it different this time around? From what I understand, the management of either of the GL companies is not really admitting to this bad growth.
But at the same time, I also believe if banks could take away the business of GL companies they would have done so 3 years back, or 5 years back, or 7 years back.
Also, not sure about this but I think 2point2 capital (which was a huge proponent of GL business, at least as per their past research blogs) has exited its Muthoot position (of nearly 9-10%).
Another perspective is that the target customer of GL’s is a particular segment of around 50k-5l, which has not seen a sharp recovery post covid. So as and when the recovery is more broad based we can see some growth.
I think the bet should not be on gold loan anymore, as the management said, their focus is on creating a diversified NBFC. Therefore, we need to monitor other factors while assessing it
Muthoot is twice expensive than Manappuram
Manappuram has the advantage of diversification
Gold loan of Manappuram and muthoot is almost similar
So Manappuram has edge due to ashirawad and half the Price to book of muthoot
Manappuram is almost at book value (we are not giving any valuations to it’s brand, growth, dividend )
To me Manappuram is a significant rerating candidate , while muthoot will be a slow grower with 10-15% CAGR
Both are such a big brand and leaders from decades
