Technical guys are happy buying stocks on breakouts and happy making 10% to 20% on a breakout.
The problem with some of the poor investors like me is, they don’t give weightage to price movement of a stock much on daily basis , or even in some cases for yearly basis as well, as long as company’s earnings and valuation give the comfort.
It’s not been a value creater for past few years, but not been a value destroyer. One could argue about the opportunity cost etc.
But we know sometimes stock makes up for lost decade in a month or a quarter.
For a foolish investor like me, a secured loan book, growing north of 20-30% YOY usually, being offered at valuation of less than 10 times earning and almost at book value . If that’s not the bargain or a place to hide, I don’t know what is.
I could be wrong, we all have been wrong at some point in time. But I’m comfortable untill I don’t see earnings disappointing.
How many lenders make 20% ROE on 3x leverage? Dividend payout for both Muthoot and Manappuram has been 25-30% for last decade. These companies are cash machines tbh. True that there is cyclicality in gold prices but -
GL tenures are very short for gold prices to meaningfully affect the asset quality.
LTV is 60-70% of total collateral. If gold prices fall by 30-40%, company may lose principal but what are the base rates?
On why not Muthoot over Manappuram? A 20% ROE business bought at 4x book earns 5% yield. Similar business bought at 2x book will earn 10% yield. While Muthoot historically has superior network, better profitability, at the end of the day gold lending is a cyclical business susceptible to competition and regulatory risk. Both are great brands but at 3x book, its not as attractive. I would prefer to buy at book value or below.
Edit: I was intending to reply to @ashutosh37 , replied to @Riyansh2112 instead. Sorry about that.
It’s fascinating to observe how people’s perspectives on book value vary. When the book value was less than 1, many argued that the business was unsustainable. Now that the book value has risen above 1, some feels it’s bit expensive. Meanwhile, Manappuram continues to grow steadily at a long-term average rate of 15-20%, with its price-to-earnings ratio consistently remaining below 10 as it keeps growing more than the price movement
Cyclicality tends to balance out over time, often leading to significant growth following periods of flat performance. The long-term upward trend in gold prices provides an additional boost to growth. Inflation also contributes to this growth. As a developing country, India will continue to have a strong demand for money, and it will take decades for India to reach the status of a developed nation when growth may slow ( but even in developed nations microfinance sector is growing )
These differing perspectives are what keep the market dynamic, ensuring that at any given time, there are always both buyers and sellers actively trading.
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Typically, when a business trades below its book value, it’s often due to some underlying issues the company is facing, leading people to wait for clarity and resolution before investing. However, once the situation improves and clarity emerges, the stock often becomes more expensive. If you buy at a price below book value and the issue remains unresolved, the price may drop further, making it a risky move. Therefore, it’s rarely a guaranteed win. Luck plays a significant role when investing in a company dealing with multiple challenges—if the issues are resolved, it can result in substantial returns.
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Anything can happen but current valuation ( single digit pe and double-digit growth ) seems paradoxical to me
And I am accumuling it at regular intervals )
Over the past 8 to 10 years, Manappuram has proven to be a reliable asset for wealth generation, consistently rewarding its investors with dividends that have seen an increase over time. From dividends of less than 25 Paisa per share to now 1 per share, alongside a stock price that has multiplied sixfold from the 30s to present, plus dividends, it’s clear that Manappuram has provided numerous opportunities for long-term investors at various price points such as 60s, 80s, 120s, 170s. With anticipated Federal rate cuts potentially boosting gold prices, and the prospect of gold reaching 10K INR per gram in the next 3 to 5 years, Manappuram appears to remain an attractive investment for the coming 15 to 18 months. Any dip in its share price should be seen as a chance to invest more.
Seeing the current situation of Fusion microfinanace , I got little worried about MFI division (Asirvad) of Manappuram. I again read the concall and got this…
VP Nandkumar : "Then coming to our leverage, SROs guided us to ensure that our leverage is not promoted. They have said, yes, the maximum income per family to be kept at this thing and maximum lenders to be kept at this. And do you see that if you take our growth compared to some of the peers where the reports were already published, our growth was a little lower during the last quarter.
Whether it is micro finance, or MSME, these are especially people who are exclusive for that from top to bottom. Their underwriting requirement, these are all Secured loan, if you take the MSME, the average ticket size is around INR5 lakhs, INR6 lakhs. So these are used by small businesses – is around 7% only. That means 92%, 93% is collected by nearly presenting the NASH or check. The balance 7% we are collecting. *So around 5%, we have unsecured lending to MSMEs. These are all small ticket lending up to INR3 lakhs, INR4 lakhs. Now we havereduced that further. And we gradually we will reach 97%, 98%. So we have a team for each of these. Our business model is slightly different.
I think Manappuram is currently hold for me. I have already build up my position starting from 89 levels. Eagerly waiting to hear next concall and how it performs.
Reason - Investor sentiment has soured on Microfinance as a sector. Promoters see stark contrast between their expected valuations vs what the current market is offering.
Interesting developments, Aashirvad IPO getting delayed, Fusion Micro finance going through stress, ban on IIFL getting lifted, its really a mixed bag here ! But it does seem like the micro finance industry as a whole is still battling headwinds i.e. moderating AUM growth, higher delinquencies, tough start to the year because of elections and heat wave impact. Hopefully, H2 (Oct-March) numbers will be better as they historically have been.
The next 12 months look promising for Manappuram and the gold market, with Goldman Sachs forecasting a rise in gold prices to $2,900 USD. Higher gold prices are expected to benefit gold finance companies. A recent RBI directive aimed at regularizing the gold loan sector will impact unregulated gold lenders. However, companies like Manappuram and Muthoot Finance have long been regulated and comply with most RBI guidelines. In cases where discrepancies arise, they have swiftly adapted, such as by implementing non-cash disbursements as required. Smaller players tend to take longer to adjust to these regulatory changes, making it harder for them to compete. Larger, well-established companies will thrive, while smaller ones may struggle due to the operational efficiency and high costs associated with running a gold loan business. Gradually, Manappuram and Muthoot are likely to gain more market share. In the past, companies engaging in questionable practices, like IIFL, grew rapidly. However, with tighter regulations, growth across the sector is expected to level out. Given the current conditions, Manappuram could see growth of 15-20% in medium term
You can set up a Google News alert to receive updates on Manappuram or any other company you follow every 24 hours. This way, you can check it once a day for the latest news.
For Gold, it seems Golden Days will continue the way countries are getting ready to bombard each other.
But b/w Manappuram and Muthoot … It seems Muthoot not only relatively stable but gaining as well, whereas Manappuram is behaving like a penny stock where on a bad news it corrects more but gain less on a good news.
Considering the growth (in revenue as well as profitability) and ROE, both of these companies are neck to neck … but when it comes to other ratios like P/E, P/B etc… Muthoot is more than double to that of Manappuram.
Considering both of these companies haven’t diluted equity (no bonus, no stock-split etc. recently) … Another interesting fact which I was observing (just for ease of comparing these two) - Muthoot’s CMP was less that 10 times of Manappuram’s CMP.
However, from September 2024 – CMP of 1 Muthoot share > 10*(CMP of 1 Manappuram share).
Would love to hear from fellow members, any specific reasons, for such consistent underperformance of Manappuram vs Muthoot.
Is it that Manappuram is turning into a value Trap, whereas Muthoot is turning out be Consistent Compounders (may be at 15%-20% per year in market price).
Disc: Invested from a long time (at 80, 100, 120… and even at 200) in Manappuram.
Thanks @Bhajan_Watwani for your input, and yes you are right. Muthoot has been increasing Gold Loan AUM consistently as a better growth rate vs Manappuram in FY2022, FY2023, FY2024 i.e. almost double is the growth rate.
(in Rs. Cr)
Q1FY2025
FY2024
FY2023
FY2022
FY2021
Manappuram Cons. AUM
44932
42069
35428
30261
27224
(% Growth - FY21 as base)
6.81%
18.75%
17.07%
11.16%
Manappuram Gold AUM
23647
21561
19746
20168
19082
(% Growth - FY21 as base)
9.67%
9.19%
-2.09%
5.69%
Vs
(in Rs. Cr)
Q1FY2025
FY2024
FY2023
FY2022
FY2021
Muthoot Cons. AUM
98048
89079
71497
64494
58280
(% Growth - FY21 as base)
10.07%
24.59%
10.86%
10.66%
Muthoot Gold AUM
80922
72878
61875
57531
51926
(% Growth - FY21 as base)
11.04%
17.78%
7.55%
10.79%
Out of curiosity, checked the reason behind this growth in gold loan is that double the branches (i.e. more the branches, more the visibility & accessibility to borrowers - hence more loan growth). But it seems - here in last 3 financial years (in absolute numbers) Manappuram have added more Gold loan branches vs Muthoot (i.e. 497 vs 223).
Absolute No.
Q1FY2025
FY2024
FY2023
FY2022
FY2021
Manappuram - Gold Branches
4044
4044
3985
3829
3547
(% Growth - FY21 as base)
0.00%
1.48%
4.07%
7.95%
Manappuram - Non Gold Branches
1279
1242
1247
1228
1044
Manappuram - Total Branches
5323
5286
5232
5057
4591
(% Growth - FY21 as base)
0.70%
1.03%
3.46%
10.15%
Vs
Muthoot - Gold Branches
4855
4854
4739
4617
4632
(% Growth - FY21 as base)
0.02%
2.43%
2.64%
-0.32%
Muthoot - Non Gold Branches
1904
1687
1099
962
819
Muthoot - Total Branches
6759
6541
5838
5579
5451
(% Growth - FY21 as base)
3.33%
12.04%
4.64%
2.35%
Wondering what could be the reasons for such different pattern:
Is it employees of Muthoot are more efficient vs Manappuram’s employee
Muthoot Goodwill in customer is better vs Manappuram (may be because Manappuram auction more proactively vs Muthoot - my understanding basis management concall comments)
Lending rate of Muthoot is more affordable vs Manappuram
Muthoot branches are more strategically situated (to source better business) vs Manappuram
mannupurram has been non-aggressive even when iifl finance got ban on gold loan mannapuram had golden chance to capture market share but they failed.I have also seen mannapuram giving gold loan at 20-22 percent per annum in rural areas which is big.
the most important factor for Muthoot is the free-float availability in trade, Mannapuram’s public float is very big in percentage terms and retailers are the weak hands and one should never invest in a company with a higher free float when its equivalent is available with a very limited free float in the market. I’m sure this phenomenon is evergreen and keeps the mannapuram trade at very low levels until the Muthoot float of promoters comes down via the open market sale
