@maheshkumar I said ‘may’. it depends on time frame of restriction lifting. If it is 1 month like you mentioned, they may not gave liquidity issues. If it is prolonged one, then this will create such issues. In iifl case, due to this ban, even their housing finance entity faced difficulty in getting fresh loans from banks for certain time period.
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Manappuram I feel will infuse capital, and given it survived the challenges of COVID-19, I believe it can withstand any current or future hurdles. Currently, it’s trading near its book value. Similar to IIFL, once the ban is lifted, the stock could experience a rapid increase. The most attractive aspect of Manappuram is its extremely low valuation
CLSA 200
Morgan Stanley 170
Jefferies : 167
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Demerger:
- Splitting a company into two separate entities. Shareholders get shares in both companies.
- Shareholders keep their ownership in both the parent and new company.
- No new capital raised; focuses on restructuring.
IPO:
- Selling shares of a company to the public for the first time to raise capital.
- Existing shareholders may see their ownership percentage decrease as new shares are issued.
- Raises money from public investors for growth or debt repayment.
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not necessarily. for example this HRTI might be some HFT which bought at 152.28 and immediately sold it as shown here
https://www.screener.in/trades/bulk/?q=manap&o=-2
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Motilal Oswal report states that the ban lifting may take 6 to 9 months… Let’s see
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I believe it will take less than 1-2 months, as the RBI only requires confirmation and won’t be conducting a specialized audit like in the IIFL case. The key concern is how much this will impact EPS growth. Nonetheless, with a current price-to-book ratio of 1.1, the business is essentially being available at book value.
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It will all depend how much active an organisation is in responding to RBI observation with proof of compliance, and post that satisfaction of RBI to those submissions.
We all have seen, how proactive IIFL was is coordination with RBI - and still it took a good 6+ months time.
Even for JM Financials, it almost took 7.5 months time.
Being an investor in Navi debt products, I received this today morning.
"Dear Investor,
Greetings from Navi.
With regard to the Directions issued by the Honorable Reserve Bank of India dated October 17, 2024 to us, we wish to invite you to a virtual conference with the senior management of Navi Finserv. We are committed to conducting our business with the highest standards of compliance, customer service and transparency and aim to address any queries or concerns you might have with regard to your investments in our debt instruments.
Here is a virtual meeting link to join the conference. To ensure smoother coordination, we kindly ask that you follow these guidelines:
Try to join the meeting 10 minutes before the scheduled start time.
For the Q&A, feel free to post your questions and concerns in the chat, and our moderator will assist in addressing them.
Please refer to the video call details below:
Date : 21 October 2024
Start Time : 5:30 PM"
It is quite easy to understand no regulated entity be it Bank or NBFC can predict what negative action (and to what extant) RBI will take against them - but what matters is - their response that do or die situation.
Being an investor, I am yet to see that kind of action from Manappuram management - neither to their debt instrument holders, nor to equity owners.
Disc: Holding position in Manappuram considering its valuation, but trust in VP Nandkumar led management is reducing at an alarming stage 
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Based on video debt investors call minutes from Navi:
- RBI was in discussion for almost 6+ months with company
- Rates were reduced earlier also, but still RBI was not satisfied
- RBI such regulatory measures are new norm - Which is biggest Risk in current scenario to the business as a going concern.
Aside - If issuing a letter is sufficient, then I hope post quarterly results there is no need for investor con-call also. And on top of that why to waste almost 20-30 minutes of Chairman & CFO in repeating the same thing which is there in published PPT.
I believe, having a direct conversation with investors (be it debt or equity) in current scenario - will help to mitigate ongoing blood bath in equity markets for Manappuram.
Also, what do we think - If CFO will not answer a Banker’s call enquiring the state of affairs? If Yes, then why not to interact with equity investor (owner’s) too.
If I am not wrong IIFL did it the very next day and so is NAVI doing. I am sure Manappuram Management is not beyond that of IIFL or Navi.
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During the ED fiasco they had an investor call i believe the same or next day. Manappuram should have done a call this time as well. VP Nandkumar should also give confidence to the market by increasing promoter stake.
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May be due to upcoming IPO, management is not able to share information which is not disclosed in public domain.
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I’m trying to understand the concern around Asirvad, given that it operates as a microfinance company. Setting aside the recent RBI action on pricing, the risks and rewards of the microfinance business are well-known. CreditAccess Grameen, a full-fledged MFI, has commanded strong PE multiples until recently. So, I don’t quite understand why this is being perceived as a drag on valuations.
Manappuram is no longer a single-product company, but it seems the broader market hasn’t fully recognized this shift. Many analysts still categorize it as a single-product company. However, the business now offers a diversified mix, including gold loans, microfinance, commercial vehicle (CV) loans, affordable housing, and MSME lending. Specialized NBFCs operating in each of these segments are trading at much better valuations—typically in the range of 20x-30x trailing PE.
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I’ve been tracking Manappuram Finance for a long time, and I’ve noticed that analysts tend to downgrade the stock quickly with each new crisis. For example, during the Covid pandemic, it was downgraded to Rs. 70. Every time there’s a challenge, the downgrades come fast, but once the risks fade and the stock price rebounds, the valuations are upgraded again. This makes it a very volatile stock, often swinging from its 52-week low to high within a year. The high number of free-floating shares in the market also adds to the volatility. Additionally, the company seems to face repeated challenges—whether it’s Covid, the ED Fiasco, or microfinance issues. However, on the positive side, their gold business is performing well, they’re diversifying, and the management consistently navigates through crises. The book value continues to grow, and they pay strong dividends
I buy on each dip
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The problem is that the continuous issues that Asirvad faces reflect the management quality and competency.
Leaving the ED issues aside, while Muthoot Microfin has been able to list without a hitch, Asirvad has been in the SEBI approval loop for years. Either they don’t meet some listing criterion or the valuations are not conducive to the IPO at the time, is my guess.
Now the RBI’s actions again reflect the inability to work under the purview of the regulator. Which can be potentially problematic for the gold business as well.
Yes it is difficult to change one’s image in the market. Even SFBs will face the same problem when they become majority diversified and secured lender, the market may still see them as risky microlenders for years.
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IIFL Finance announced Q2FY2025 results … and they too have a Microfinance subsidiary having AUM approx. equal to that of Asirvad Microfinance.
And in there results deck, against each of RBI observation (against 4 NBFC’s while putting ban on new business) - they have mentioned their compliance.
Page 45/57 - https://www.bseindia.com/xml-data/corpfiling/AttachLive/38f4007e-3324-4747-b365-c19e61a27f1f.pdf
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Let’s each of us email, call the CS and demand about clear communication on how they are going to resolve this RBI issue, investor call, presentation etc Lets share this IIFL example as well.
Mr. MANOJ KUMAR V.R
Company Secretary & Compliance Officer
(Nodal Officer for IEPF)
Manappuram Finance Limited
IV / 470 (old) W638A (New),
Manappuram House,
Valapad, Thrissur,
Kerala, India - 680567
Email : cs@manappuram.com
FOR GENERAL QUERIES
Phone – +91 487 3050413 / 417
Mail - cosecretary@manappuram.com
CIN - L65910KL1992PLC006623
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Manappuram stock is down 37.5% from its recent highs. Thanks to Reserve Bank of India’s (RBI’s) ban on Asirvad Microfinance.
Asirvad, which constitutes approximately 27% of Manappuram’s consolidated assets under management (AUM), has been barred from disbursing loans due to “material supervisory concerns”. This is not an isolated incident, neither for Manappuram nor for the microfinance industry. In 2019, the RBI imposed a penalty of ₹5 lakh on Manappuram and Muthoot Finance due to non-compliance with ownership verification protocols for gold jewellery used as collateral. More recently, in 2023, following an RBI inspection, Manappuram Finance faced a penalty of ₹42.78 lakh for failing to comply with directives on distributing surplus proceeds from auctions of pledged gold items back to borrowers.
However, the recent ban by RBI on Asirvad is by far the most damning. Here’s why.
In October 2023, Asirvad Microfinance filed its Draft Red Herring Prospectus (DHRP) with the Securities and Exchange Board of India (SEBI) as Manappuram aimed to list its microfinance subsidiary by September 2024. However, due to certain ‘observations’ from SEBI, the listing plans were initially delayed. Additionally, as financial stress within the microfinance sector became apparent throughout the year, proceeding with the listing under these conditions was deemed unviable.
According to a media report, there was a disconnect between the valuation demanded by the “promoter and what the market was willing to pay" to Asirvad Microfinance Ltd.
The listing was anticipated to result in ‘value unlocking.’ However, recent regulatory restrictions seem closer to ‘value destruction.’ Lending restrictions create a ripple effect, particularly affecting shorter tenure loans like those in the microfinance and gold sectors. A case in point is IIFL Finance, whose gold loan portfolio plummeted from ₹23,354 crore in FY24 to ₹10,979 crore in Q2FY25—a sharp decline of over 50%.
Microfinance institutions (MFIs) borrow on a short term basis to provide loans. The average loan tenure for MFI loans can be 12-24 months and average ticket size (ATS) is ₹30,000 – 50,000. In Q2FY24, Asirvad reported that it’s ATS was approximately ₹32,000, up from ₹27,000 in the previous year. Latest ATS data is not reported in Q1FY25 presentations.
Looming liquidity crunch
When lending is restricted, cash inflows from interest income slow down, while existing liabilities—such as interest payments to lenders and bondholders—persist. This situation can lead to a liquidity crunch, particularly in cases of asset-liability mismatch (ALM), where long-term loans are funded with cheaper, short-term borrowings. While it’s unclear if Asirvad faces an ALM mismatch, reduced interest inflow in the near term could still precipitate a liquidity squeeze.
This scenario is why, just two days after RBI imposed restrictions on IIFL Finance, the company announced $200 million in liquidity support from Fairfax India, a prominent Canadian investment holding company.
In essence, about 25-27% of Manappuram’s consolidated loan book—equivalent to approximately ₹11,235 crore—is likely to shrink. This translates to a significant hit: a segment that accounted for 17.9% of Q1 FY25 profit and 20.8% of FY24 profit may contribute almost nothing to FY25 earnings.
It’s a bleak outlook. Small wonder that brokerage houses and analysts are now rushing to lower estimates and cut forecasts.
But what about the rest of the business? Is it still in good shape, or is the market overreacting, throwing out the baby with the bathwater? Let’s dig deeper.
The consolidated Manappuram finance book value as on Q1FY25 is ₹12,002 crore.
The standalone Manappuram finance houses - the legacy gold loan portfolio, the relatively newer vehicle finance, and micro, small & medium enterprise (MSME) segments. About 72% of this portfolio is made up of gold loans.
As of Q1 FY25, the book value of Asirvad Microfinance stood at ₹2,249 crore, implying that Manappuram’s net book value excluding Asirvad is around ₹9,753 crore. At the current market cap of ₹12,284 crore, Manappuram Finance (ex-Asirvad) trades at a price-to-book ratio of 1.25x, a key valuation metric for non-banking financial institutions (NBFCs) and banks.
This suggests that, even if Asirvad Microfinance were assigned a zero valuation, Manappuram’s gold portfolio, along with its relatively newer vehicle and MSME portfolios, appears reasonably valued.
But what if challenges extend to Manappuram Finance itself (ex- Asirvad)?
Core portfolio: Gold finance
Gold loans make up 70% of Manappuram Finance’s ex-Asirvad portfolio. While the legacy gold segment has grown at a modest compound annual growth rate (CAGR) of 6% since FY20, the actual gold tonnage held has decreased, indicating that growth has primarily come from an increase in average ticket size.
In an effort to modernise, the company introduced online gold loans (OGLs) in 2015, allowing customers to avail gold loans “anywhere in the world" against gold stored at Manappuram branches.
As of FY24, 57% of gold loans were through OGLs. Despite the limited growth and a potentially narrow strategy in this core segment, gross non-performing assets (GNPA) remains at a comfortable 1.9% for FY24. With a loan-to-value (LTV) ratio of 58%, indicating conservative lending, the risk of loss on the gold loan portfolio is minimal.
Vehicle & equipment finance
Vehicle finance has expanded swiftly, from ₹1,344 crore in FY20 to ₹4,110 crore in FY24, reflecting a CAGR of 25%. However, the GNPA rate stands at 3.6%, slightly above the norm for high-quality vehicle finance players.
Another potential concern is the portfolio’s limited track record. Since Manappuram’s vehicle finance portfolio has yet to experience a full credit cycle, it remains uncertain how these NPA figures will hold up long-term. With GNPA at 3.6%, the portfolio hovers at the lower end of asset quality standards.
MSME finance
Launched in FY20, Manappuram’s MSME finance segment has expanded rapidly from ₹260 crore in FY21 to ₹2,908 crore in FY24, achieving an impressive 83% CAGR, though from a small base.
However, this growth has been accompanied by a troubling rise in NPAs, which have escalated from 1.8% to 3.4% over the past four quarters. Compared to other listed peers in MSME financing, these NPA figures are the highest, raising concerns about asset quality in this segment.
Despite a consolidated price-to-book value of around 1.1x and an ex-Asirvad price-to-book ratio of 1.25x, along with a robust core business in gold finance and a standalone return-on-equity of 17% in Q1 FY25, we view Manappuram as a wait-and-watch story.
The underlying uncertainty surrounding nearly 30% of the ex-Asirvad portfolio—segments that are yet to ‘age’—casts a shadow over its otherwise promising metrics. Investors may want to tread cautiously, keeping a close eye on how these elements unfold in the coming quarters.
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