I have been following the conference calls of both companies for many years.
Both management teams have different communication styles, but both walk the talk and maintain high transparency.
I have not observed any issues with Manappuram’s management so far.
Can you point any particular issue you observed( apart from communication style and enthusiasm )
Regarding the valuation difference between Manappuram and Muthoot, I would say the markets s perception varies at different times. There was a period when Manappuram traded at higher valuations than Muthoot, whereas recently, Muthoot has been valued higher.
Muthoot has separated its microfinance business, making it relatively safer, while Manappuram has yet to launch an IPO for its microfinance segment. Although Muthoot has a microfinance subsidiary, which carries inherent risks, the microfinance sector typically experiences cycles of challenges followed by periods of strong growth that compensate for previous losses.
Both companies have their own advantages and disadvantages. This is similar to the debate over whether large-cap stocks deserve higher valuations than mid- and small-cap stocks. At times, mid-caps trade at a premium to large caps, while at other times, large caps command higher valuations. Market perception will continue to shift, and I wouldn’t be surprised if Manappuram trades at a higher valuation than Muthoot again in the future.
Regarding competition:
The gold loan business is highly operationally intensive, making it unlikely for fintech to completely disrupt or break into the industry. Instead, I believe Manappuram and Muthoot will leverage fintech solutions, and their hybrid model will ultimately outperform pure fintech models. Banks and NBFCs cater to different customer segments, ensuring that both have a long growth runway. Manappuram and Muthoot, in particular, still have significant business potential ahead. This is my perspective.
Miscellaneous
Challenges in the microfinance sector can indirectly benefit the gold loan business, as some borrowers who struggle to secure unsecured loans may turn to gold loans for liquidity. However, this is not a universal trend, as not all microfinance borrowers possess sufficient gold to pledge. The growth of gold loans depends on multiple factors, including gold price trends, consumer sentiment, and overall market liquidity.
As the situation in microfinance stabilizes, Manappurams consolidated profits are also expected to improve. While a well-balanced portfolio between gold loans and microfinance provides resilience, prolonged stress in microfinance could offset some gains. That said, looking ahead, achieving double-digit growth over the medium to long term seems feasible, supported by the increasing demand for secured lending. Additionally, the upward trend in gold prices driven by factors such as inflation and central bank buying provides further support to gold-backed financing.
Initially, Warren Buffett was skeptical about gold as an investment, as it does not generate cash flow. There was also a phase where Bitcoins rise led to speculation about its potential to replace gold as a store of value. However, gold has retained its traditional role, particularly among institutional investors and central banks. The U.S. freezing Russian reserves has further reinforced gold s status as a global safe-haven asset, leading to increased purchases by central banks worldwide. While this may challenge Buffet’s s traditional view, his investment philosophy focuses on productive assets rather than speculative price movements.
Several factors contribute to the long-term growth of the gold finance industry. The gradual increase in gold prices, inflation, and the constant demand for liquidity ensure that gold loans remain relevant. While interest rates can influence borrowing behavior, the need for quick access to cash often outweighs rate considerations, making gold loans a preferred choice for many.
I feel as a result, the gold finance sector remains well-positioned for sustained growth, regardless of short-term fluctuations in economic conditions.
I feel golds rally is in the early stages of a potential long-term trend
I feel that golds rally is still in its early stages. Limited supply and rising demand suggest the rally could continue, driven by increasing central bank purchases.
May be this is the first step of gold surge in a larger trend