People in India consider gold as their best option to investment, for ensuring their financial security. They even use gold as a symbol of prestige. This mind-set continues from traditional times till present.Of-coarse gold prices corrected in some years, but from a long-term perspective gold increased the wealth of the investors. Here by saying 'long-term' I mean, to hold gold for at least 5-8 years.
So now the question comes to our mind is, whether can we invest in gold stock like gold loan providers and jewelry companies. The answer is, if you believe that the prices of gold might rise even more, then it is absolutely correct to buy such stocks. Now investors were targeting stocks like Muthoot, Manappuram, Kalyan Jwellers,etc..
The main reason for this is, they expect a strong rally in gold prices which can be triggered by several factors. The one of the main triggers is US Fed-rate cuts, which is expected to happen by the mid of 2024.
This blog post explores more on Manappuram Finance ltd. This only for long-term investments only [at least 3 years]. Do not take any buying or selling decisions based on this blog post. I request the readers to do their own research or consult a SEBI registered advisor before investing in any stock. This blog is just for knowledge purposes.
Introduction:
Manappuram is one of the largest nbfcs in India. Of the company's total loan portfolio, 51% of their total lending represents gold loans and the other 49% of their lending includes other forms of lending like microfinance, housing finance, vehicle finance and so on. The company claims that they are the number 2 lender in gold loan in India. However the company is trying to make their loan portfolio as a mix of 50% gold loans and the remaining 50% as non-gold loans.
This company has a wide branch network with over more than 3,500 branches which are spread across 28 states of the country. It has also launched online gold lending. Of the total number of branches 35% are in urban areas, 21% in metro cities, 34% in semi-urban areas and 10% in rural areas.
The company is involved in micro finance business through its subsidiary Ashirvad Micro Finance ltd. Ashirvad raised $15 million and the proceeds are to be utilized for expanding its business in rural areas. Ashirvad is said as 4th largest NBFC-MFI in the country.
Industrial outlook:
Before we analyse any company on the basis of fundamentals, it is important to look at the performance of the industry over the past and their anticipated growth in the future.
As said above, majority of Indians consider gold as safe investment and symbol of status. So, they do not prefer selling them, instead buy loans with their gold.
From a
report by KPMG, we could find that rural people mostly hold gold and it is said that it accounts to 2/3rd of the entire gold demand of the company. Also, it states that organised gold loan market, that consist banks, nbfcs and nidhi companies accounts only for 35% of the total Indian loan market, and the remaining 65% represents unorganized loan markets. The report also points the increase in the demand for the online gold loans and micro finances.
An
article in Economic Times says that, gold loan disbursal has doubled from Rs 46,791 crores in September of 2020 to Rs 80,617 crores in September 2022. Further, we could also find that the penetration of organised loan markets have increased over time.
There is trend of people shifting from unorganized loan providers to organised loan providers. The main reasons can be due to lack of safety with unorganized loan providers and the high interests that they charge.
Manappuram has many branches in rural and semi-urban areas where there is need for the presence of organised loan providers. But, in comparison with nbfcs, banks have expanded their gold loan business in these areas.
Fundamentals:
- Market cap : Rs 15,579 crore [as on 3rd April,2024]
- ROCE : 11.7%
- ROE : 16.6%
- Stock P/E : 7.66
- Industry PE :20.1
- Price to book value: 1.47
- EPS : Rs 24.1
[The above data on fundamentals is taken from the Screener website.]
The company has reduced its both gross NPA[GNPA] and net NPA[NNPA] on a year-on-year[Y-o-Y] basis. However its GNPA and NNPA increased on quarter on quarter[Q-o-Q] basis. The company's Capital Adequacy Ratio [CAR] is at 31% as on q3 of FY 2023-24. So, even if NPA on Q-o-Q basis has increased, since the company has a decent CAR it is not under great risk.
The company's income from operations has increased 6.6% on Q-o-Q basis and 34.4% on Y-o-Y basis. Even the company's Net Interest Income rose by 6.1% on Q-o-Q basis and 35.4% on Y-o-Y basis.
Further the company has reduced its gold lending and increased its customer base in micro finance and vehicle loans. The main reason for this is, the company is trying to overcome a tight competition from banks and other NBFCs. So, it is highly important for the company to diversify its loan portfolio and offer new loan products like micro finance, vehicle loans,etc. The another important reason could be the price fluctuation of gold. So, with their wide market presence they are capable to overcome the competition from other banks and NBFCs.
Conclusion:
Manappuram is a NBFC that has a diversified loan portfolio and a wider market presence. Increase in vehicle loan and micro finance lending helps the company to increase their customer base. Moreover, the company is fundamentally strong. The company has acquired Ashirvad Micro Finance ltd., which also has a dominating position in the micro finance market.
Last year, the company faced ED raids in its premises. But later on the Kerala High Court quashed the ED's case and ED was directed to return all documents. Then the company was released.
So the overall outlook of the company looks positive. But whether to invest in this company or not should based on your own research and due diligence. I have just shared insights on the company and my views on it.
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