Manappuram Finance: India’s Second-Largest Gold Finance Company

Viraj Mehta of Equirus Long Horizon Fund presented his in-depth investment thesis on Manappuram Finance Limited (India: MANAPPURAM) at Asian Investing Summit 2019.

Thesis summary:

Manappuram Finance is India’s second largest gold loans NBFC. The company has a consolidated AUM of INR 178 billion (December 2018) with 30% coming from microfinance, commercial vehicles, and mortgage & housing finance. The tenure of loans has come down significantly, shielding Manappuram from losses arising due to sever gold price correction. Additionally, the company is focused on expanding the business portfolio beyond gold loans. Approximately 70% of the business focuses on gold loans, followed by 18% in microfinance, 5.5% in housing finance, and the remainder in miscellaneous.

Outlook for company: improvement in growth in core gold loan business, operating leverage to kick in with one-time expenses behind, provisioning to reduce substantially in coming years aid profitability, and valuation gap with other NBFCs can reduce. The risks to consider: RBI has tightened regulations in the past, big adverse movement in gold prices or interest rates, or loss of customer trust from theft in branches. The ROA/ROE of 5.2%/23% commensurate with the asset quality. The company has a P/B of 2.3x compared to a competitor’s P/B of 2.6x.

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About the instructor:

Viraj Mehta serves as Fund Manager of the Equirus Long Horizon Fund, a long-only fund. Viraj has over eight years of experience in the field of investing. He was selected by the Wall Street Journal as part of “Asia’s Master Stock Picker” series for India. He was previously a member of the fund management team at Franklin Templeton Investments, managing $6 billion in assets. Viraj was the lead analyst for the small companies fund at Franklin Templeton.