We have recommended Manappuram Finance (NSE Code – MANAPPURAM) to our Premium members. It’s also part of our Model Portfolio with an average price of Rs 100.53.
Since our initial recommendation on the stock in Jul’17, the company has witnessed the worst of NBFC crisis in India and has emerged stronger. The company is primarily into short term gold loan business and on the back of positive ALM (asset liability mis-match) it could handle the crisis better.
Currently, the company is doing well and unlike the other NBFCs, isn’t facing any liquidity crunch.
Since the few years now, the company has been diversifying into other segments like Microfinance, housing finance, commercial vehicle finance, etc. In fact, in the micro-finance segment, company’s subsidiary Asirvad Microfinace is amongst the largest companies and the growth has been good in other segments as well.
While the new segments don’t have the robustness of Gold loan business, they are helping the company leverage its strong brand equity, balance sheet, existing retail customer base and wide branch network.
All the new businesses are profitable and their share has now grown to more than 30% of the consolidated AUM of the company.
The stock is currently trading around 11 times FY 20 (E) earnings and 2.5 times FY 20 (E) book value. We believe Manappuram is likely to remain a good investment opportunity for the next few years, especially till the time the microfinance business becomes a large pie of the overall business of the company. Once microfinance business becomes really large, the risk profile of the company will change completely and will have to be evaluated accordingly.
We also draw some comfort from the fact that in the last 10 years the company has faced all kinds of crises: gold loan crisis of 2011-12, de-monetization, NBFC issues, etc and has emerged stronger every time. The bad experiences should probably help the management deal with the future adversities better.
Detailed initiation report can be downloaded here:
Disclosure: I have personal investment in Manappuram Finance.
Positive – Expected return of ~15% + on annualized basis in medium to long term for investment recommendations and in short term for Special situations
Neutral – Expected Absolute return in the range of +/- 15%
Negative – Expected Absolute return of over -15%
Coverage closure – No further update on the stock
% weightage – allocation in the subject stock with respect to equity investments
Short term – Less than 1 year
Medium term – Greater than 1 year and less than 3 years
Long term – Greater than 3 years
Research Analyst Details
Name: Ekansh Mittal Email Id: firstname.lastname@example.org Ph: +91 727 5050062
Analyst ownership of the stock: In Manappuram Finance
Details of Associates: Not Applicable
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Disclosure (SEBI RA Regulations)
Whether the research analyst or research entity or his associate or his relative has any financial interest in the subject company/companies and the nature of such financial interest – Yes, investment in Manappuram Finance
Whether the research analyst or research entity or his associates or his relatives have actual/beneficial ownership of 1% or more securities of the subject company (at the end of the month immediately preceding the date of publication of the research report or date of the public appearance) – No
Whether the research analyst or research entity or his associate or his relative has any other material conflict of interest at the time of publication of the research report or at the time of public appearance – No
Whether it or its associates have received any compensation from the subject company in the past twelve months – No
Whether it or its associates have managed or co-managed public offering of securities for the subject company in the past 12 months – No
Whether it or its associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months – No
Whether it or its associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months – No
Whether the subject company is or was a client during twelve months preceding the date of distribution of the research report and the types of services provided – No
Whether the research analyst has served as an officer, director or employee of the subject company – No
Whether the research analyst or research entity has been engaged in market making activity for the subject company – No