Manappuram Finance

[maheshkumar]

75133bc4-8e70-499e-9d59-d1c82ca523cd.pdf

To me looks very positive news

18% new shares issued to Bain
So there will be 18% EPS dilution but book value will go up and professional Management will give premium to share price

New book value will be 165 from 150

-Looks like tomorrow Manappuram will touch 236
-Bain capitals global experience and professional management will change the perception about this stock

Short term price will at least touch 236
Long term price will depend on the performance

Lets see how this unfolds

Very exciting news for shareholders after long time

I looked at similar deals in past by Bain and it created a surge in price

Chemring shares jump after Bain Capital makes bid

https://www.reuters.com/technology/bain-backed-chipmaker-kioxia-muted-market-debut-2024-12-18/

[raku]

I hope the stock gets rerated from 1.5 book value to closer to muthood book value of 3.5 with now managment having deep pockets let’s see how it goes.fingers crossed

disc :invested

[TKarthik]

Rookie Question: Looks like Bain capital stake is new equity shares issued, rather than a sale from promoter holdings. What is the implication of this? Is this is a positive sign that the promoter still believes in the company? or is the negative due to the dilution for all existing shareholders?

[AKV]

Despite general underperformance of Indian share market, Manappuram Finance was consistently in uptrend, probably due to this upcoming news… Now the news is out. Will the share continue with its uptrend? If we go by the fundamentals, appears ‘Yes’.

https://www.business-standard.com/industry/news/bain-capital-to-invest-rs-4-835-crore-in-manappuram-finance-for-18-stake-125032001220_1.html

[ramesh_vishwa]

As part of the transaction, Bain Capital will be investing ~INR 4,385 cr to acquire an 18.0% stake
on a fully diluted basis via preferential allotment of equity & warrants at a price of INR 236 per
share which is at a premium of ~30% over the 6 month average trading price. The transaction will
trigger a mandatory open offer for the purchase of an additional 26.0% stake in the company on
an expanded capital basis (excluding warrants). The open offer price has been fixed at INR 236
per share. Based on the open offer subscription, Bain Capital’s stake post the investment will vary
between 18.0% to 41.7% on a fully diluted basis (including shares to be issued pursuant to
exercise of warrants). Existing Promoters will hold a 28.9% stake in the company post the
investment on a fully diluted basis (including shares to be issued pursuant to exercise of warrants).
The transaction is subject to customary closing conditions and regulatory approvals.

[bhaskarjain]

It’s a fair transaction in that even promoter holding is getting diluted along with other shareholders. They still have skin in the game and hopefully they feel they will get even better valuation in the future. Company would be professionally run and would get growth capital. Stock P/B multiples should rerate now. Don’t think many will tender at 236, so obviously Bain has to give better offer in future if they want to increase their holding

[AKV]

OPEN OFFER ANNOUNCED
:Manappuram Finance Ltd - 531213 - Announcement under Regulation 30 (LODR)-Public Announcement-Open Offer

[Gaurav_Catalyst]

Finally retail has been informed about the transaction.

Personally I stand benefitted - as the mcap of company is back where it was pre Asirvad crisis.

As an investor in the company few facts in the announced scheme and published BOD meeting minutes are as following:

1. Steeping down of Nandkumar from executive role and appointment of professional CEO - is biggest catalyst
2. Fresh issue of shares & warrants to Bain Capital will bring in the growth capital for next few year, without possibility of further dilution
3. Warrants to Bain capital, will provide liquidity to Bain capital also - as they will be paying just 25% now - and remaining 75% (of warrants money) in next 18 months

A surprising facts also came into lights i.e. Manappuram Asset Finance Limited.

I will leave the fellow shareholders to make their own views, if it is ethical or fraudulent practice on part of Mr. Nandkumar, to have another operating NBFC in the same line of segment ie. fund-based services including loans against gold, hypothecation loans, mortgage loans, business loans, etc; when Listed Entity is also in this biz.

In published documents, no mention of cost of acquisition. Seems this is the payout to Promoter family in entire scheme of things.

All in all, after a long time (may be 5 years+) breathing space and sunshine of positivity for retail investors in Manappuram.

Disc: Invested in family portfolio, no buy/sell recommendation,

[Akshat_Bhatia]

Is this Bain Capital’s first transcation in India in listed space? I tried finding out details on it but couldnt find much..

[Sidharth_Chandraseka]

I don’t know why everyone have the view that this fresh issue is growth capital. In my view this is bad decision to raise fresh money. Lending business is a leverage business. overleverage makes you very vulnerable if any asset quality spike, underleverage makes you inefficient. Every lending business has to find their right spot and work with the leverage. There is a reason why both manappuram and muthoot does not need to raise fresh capital to grow their business in last 10 years due to their high RoE and their low asset quality issue. Their RoE of near 20% takes care of all the growth. Capital is never problem for manappuram. Even without raising fresh capital, their CRAR is still 30% which itself is inefficient.

Now adding 4200 makes them more inefficient. Growth capital is needed only if you AUM growth rate is significantly higher than the RoE that you are making. If your AUM growth is less than RoE, there is no need for capital

This fresh issue purely happened because Nandhakumar not willing to sell his stake, but bain wants a meaningful stake. If bain started buying from open market, then that itself will push price above 300. So this transaction is done only to give Bain a meaningful stake. This is absolutely unnecessary from the investor perspective.

[Gaurav_Catalyst]

Your views are bang on.

However just imaging a scenario - why will Bain capital put such a large sum of private equity money at risk (that even in a business which is mismanaged by Nanadkumar & family).

Bain is not an activist investor, so no point for them to go for hostile takeover.

Now, considering a scenario - with their professional management at driving seat - AUM will be expected to grow at a rate similar / or more than that of Muthoot - to get rerating. But with that super growth, without fresh capital, grearing will be stretched and may risk monetization plan of Bain capital few years down the line.

With current gearing ratio, for sure there is room for substantial growth without fresh capital. But Private equity player is not in business of charity.

They will polish this under-nourish business, and at an appropriate time either will sell to some operator or a big business group or merge with their BFSI venture.

These are just my views as an individual. I may be wrong considering what big sharks plan & execute vs a retail investor thought process.

[Sidharth_Chandraseka]

Even with the assumption that somehow they grow higher than Muthoot, with the current adequacy ratio even if they grow AUM at 30% for next two years, their CRAR will not fall below 25%. On a steady state, 25% AUM growth will be organically taken care by the RoE that they will make with proper leverage. And with current state, that is a distant dream. Right now they dont even have license to open gold branches, they have to get that, then open branches. If we are assuming that they can do 30% growth consistently, that is one unrealistic assumption.

I am just finding this fund raise as one unattractive thing part of this deal.

[Gaurav_Catalyst]

Good calculations.

Think, why would a PE player invest in a biz like Manappuram, and once why is answered - then how they can invest when promoter is not willing to part away with holding (already owned) - in how exclude hostile takeover scenario (if it comes).

Trust you will have a better clarity.

[Ankchandak]

The peak gold tonnage holding was 72 while the current one is 57. So that itself is almost 30 % .
Plus the current ltv is 58% . This still have some scope of upside as 65 to 70 and still they would be below 75% from the regulatory requirements.
This two combined together itself can take care of 20% gold loan growth for two years even with assumption of no price increase in gold,no branch addition and no tonnage storage beyond 72.

Plus they can have 25% of Asirvad AUM in gold as per regulations for mfi.

Now any positive development such as branch expansion permission,higher gold loan price, expansion in storage/gold handling at existing branches, additional streams in hfc,cv,msme finance would be bonus.

[Ankchandak]

Also in lending business.. growth should not be the goal..the goal should be growth without compromising the asste quality.

They have been growing at 15-20% cagr without even any equity dilution.

I do not think they did dilution for capital.. probably that’s the one of options to onboard them when promoter doesn’t want to exit.

[Ankchandak]

And there has been recent challenges and issues such as microfinance,delay in ipo of asirvad,ed raid etc.
And that would have been reason it was trading cheap compare to Muthoot at discount at 50% on even today’s price,while it was very high earlier.
As an individual its our job to identify the risk associated while making such investments.

Disclosure: I have been actively buying/selling manappuram since 2016.

[maheshkumar]

-Usually PE funds like Bain enters with expectation of 20-25% per year return for Bain over 5-7 years timeframe

• with their experience and organisational skill set they will bring efficiency and try to maximise growth
• Investment horizon is usually 5-7 years
• Current PE is low and may rerate if they execute well
• new money may help in growth
• Risks apart from 18% dilution of EPS will be execution risk , aggressive growth affecting asset quality ,regulatory issues
  -intersting time ahead for Manappuram with fresh interest and change of perception by market
• lets see how it evolves

[Dr.Bharath_Murugavel]

Brain capital infusion might work wonders
if they can do the following

1. reduce OPEX cost because of increase capital
2. professional management
3. reduced Interest rates due to Brain Backing

[Amit2saxena]

Lot of thoughts going in my mind with this latest development. From promoter’s perspective, It’s difficult to understand and find rational for Bain becoming majority and hence controlling shareholder in Manappuram. Why?

1. Promoters are not selling their stake, they continue to hold skin in the game. But Promoters have left driving seat to Bain, while they plan to sit on sideline. Leaving control is not easy, why would promoter loose control. dilute his stake and continue to have skin in the game? There has to be some strong rational, that I am not able to understand.
2. Do manappuram need funds to grow? A quick look at the balance sheet and P&L will tell you that company is having tons of cash to take care of future growth. In fact, they generate ample cash yearly , which they don’t know what to do with.
3. Does Bain brings any expertise to run Gold loan business better? No, Promoters are running the business from generations and know in and out of it, so I find it difficult to accept it to be the cause.
4. Does Mr Nandkumar was forced to bring in Bain? There are no apparent reason for this either, but this looks to be the most plausible explanation. Why?

There are many “maybe” explanations that may fit like:
a) Maybe it provides better perceived corporate governance.
b) Maybe regulator (RBI) perceive manappuram as better & professionally managed company with Bain as controlling shareholder.
c) Maybe…
d) Maybe…
e) May be…

I dont see a definitive response that I can accept on this front.

But one thing is clear, BAIN has come to make money and leave. It will squeeze everything it can to grow the company, produce higher profits, command better valuation and leave the party. How it plans to do it? Will it be successful? Answers of these questions will emerge with time.

So, lets wait and watch.

On other side, I see the competitor, Muthoot playing a different game. If you look at Muthoot data closely, you will observe that it’s Gold Loan AUM has doubled in last five years (2020 to 2024), but profitability has moved hardly 1.4X. The reason looks to be that Muthoot is willing to lend cheaply, and it can also afford to do so, as it is lowest cost operator (Gold loan per branch is much higher than manappuram, and his servicing those loans is much cheaper. And cost of operations is huge in gold loan business).

Manappuram has stayed away from this game, in fact manappuram cannot compete in this game as it is not the lowest cost operator, and hence has targeted customer segment that’s less sensitive to price and tried to remain highly profitable. However, data also tells that manappuram is not able to increase gold loan AUM during last 5 years when compared to Muthoot (2020 to 2024).

So, I believe Muthoot is giving tough competition to Manappuram to grow , and its hard to move ahead in the game for manappuram.

Aashirvaad Microfinance remains a joker in the pack that I dont understand.

These are my thoughts for now, and may be completely irrational from other investors perspective. I would be glad to hear counter arguments.

Disclosure - Invested, biased. Not a sebi registered analyst.

[rranjan]

this is best deal for manappuram. Something similar to Thyrocare. Not much zeal left to drive company roadmap aggressively . at same time they feel that enough juice left in company growth potential .
Lets bring professional management , bring more capital for capex and opex , no more pressure of raising money via ipo for microfinance and at same time keep your holding intact to ride the share price growth . Why to invest in something else when you have a gold loan majority nbfc ?
I feel capital would be good to drive home , vehicle and microfinance. Though not sure if Bain would go in microfinance aggressively . They may want to scale vehicle and home loan more aggressively than current management.
I am more positive about new management in manappuram. though Bain’s record is not extraordinary but a mere focus on vehicle , home and gold loan with rerating should get us 25% cagr over 4-5 years.