Manappuram Finance Detailed Stock Analysis
How is the present outlook for Gold Financiers like Manappuram Finance Ltd with the rising Gold prices in the weak market sentiments amidst current coronavirus crisis. Here is the detailed stock analysis of Manappuram Finance Ltd.
Manappuram Finance Ltd – Stock Analysis
- Manappuram Finance is India’s one of the leading gold loan NBFC, incorporated in 1992.
- It offers a diversified product portfolio including Gold Loan, Micro Finance Loans, Vehicle and Equipment Finance, Housing Finance and Other on-lending and insurance brokerage business.
- Earlier Manappuram Finance had a focus on gold loans, so the company was prone to the concentration risk. Financial sector regulators in India have been expressing concern over the concentration risk inherent in the mono-line business model.
- Due to which the company initiated bold moves to become a multi product company with a diversified presence across new business areas like Microfinance, vehicle and housing finance and SME lending.
Q3 FY2019-20 Financial Highlights
- Total AUM
- The total asset under management (AUM) of Manappuram Finance has seen a robust growth of 35.5% YoY from Rs.17,800 in Q3 FY19 Cr to Rs.24,100 Cr in Q3 FY20.
- AUM has increased by 6.3% QoQ from Rs.22,700 Cr in Q2 FY20.
- Income from Operation
- In Q3 FY20, Income from Operation of the company increased by 29.4% from Rs.1,081 Cr in Q3 FY19 to Rs.1,399 Cr in Q3 FY20.
- It is mainly because of the substantial growth in the loan book.
- Net Interest Income (NII)
- We can calculate, Net Interest Income = Total Interest Income – Interest Expended
- NII for the quarter ended December 30, 2019 stood at Rs.952 Cr as compared with Rs.727 Cr in Q3 FY19, with a growth of 31%. It is the core income for the company.
- Operating Profit
- In Q3 FY20, Operating Profit has increased by 53.4% from Rs.377 Cr in Q3 FY19 to Rs.578 Cr in Q3 FY20.
- The QoQ growth in operating profit is 16.5%. Operating profit has given such a robust growth on account of flat growth in operating expenses as compared with NII and improved operational efficiency.
- Profit Before Tax (PBT)
- The company has posted a 40% rise in its profit before tax (PBT) at Rs.544 Cr during the quarter ended December 31, against Rs.387 Cr during the same period a year ago.
- Net Profit
- Manappuram Finance Ltd has reported a 63% Y-o-Y growth in consolidated net profit at Rs.399 Cr for the December quarter of FY20. While, the company had posted Rs.245 Cr profit in the corresponding quarter last year ie. in Q3 FY19.
- Due to corporate tax rate cuts, the tax rate in Q3 FY20 is decreased to 26% from 36% in Q3 FY19. The net effect is improved profit after tax (PAT).
Asset under Management (AUM) Mix %
- As we can see in the above graph, the company is trying to develop a well-diversified portfolio along with its core business of Gold Loan.
- It is building AUM under its other heads like Microfinance, Housing Finance, Vehicle Finance and other loans.
- Gold loan is the highest contributing head in building AUM with almost 67.4% share in AUM for Q3 FY20. Gold loan AUM rose by 7% YoY.
- After Gold loan, Microfinance is the second highest head with a % contribution of 20.8% of overall AUM in Q3 FY20.
Manappuram Finance – Key Ratios
- Asset Quality
- Asset quality in gold loans is steady and improving QoQ with Gross NPA at 0.5%.
- While the asset quality continues to be volatile in other segments like Micro Finance (MFI), Vehicle Finance etc. Gross NPA in MFI book rose to 1.34% in Q3 FY20 (0.84% in Q2 FY20) and in vehicle finance to 2.87% in Q3 FY20 (1.9% in FY19).
- The emerging risks warrant a cautious outlook on these segments. Manappuram Finance is ramping up its AUM well, but we need to check for the volatility in asset quality.
- Capital Adequacy Ratio (CAR)
- CAR is improved at 23.4% in Q3 FY20 from 22.7% in Q2 FY20.
- Company is not facing any liquidity issue, as they are getting funds from all the sources. Company has raised $300 Million through medium term notes programme in order to diversify borrowing profile and reduce dependency on short term borrowings.
- Return on Equity (ROE)
- ROE is improving consistently QoQ and at 30.4% in Q3 FY20 increased from 28% in Q2 FY20 and 23.3% in Q1 FY20.
- Return on Assets (ROA)
- Similarly, ROA is also an important parameter for banking and NBFCs. There is an increasing trend seen in ROA (consolidated) QoQ. For Q3 FY20 ROA was 6.3%
- Manappuram Finance Ltd’s performance for first 9 months of FY20 (9M FY20) was robust.
- Company is continuously gaining advantage from rising gold prices as its core gold loan business is continuously accelerating.
- Amidst the current coronavirus outbreak, there have been a number of uncertainties resulting into the weaker sentiments in the stock market. Due to which India’s major Indices BSE Sensex and NIFTY had crashed by almost 6-7% in the last week.
- As a result, the gold prices are rising as the investors are switching to safer asset class. Such favourable market sentiments for Gold can offer a great advantage to the Gold Financiers like Manappuram Finance, Muthoot Finance etc.
- In addition to this, the company is well poised to deliver strong return ratios with all round strong performance from core as well as non-core portfolio.
- With its strong operating efficiency, adequately capitalized and high yielding business, the company is expected to deliver strong loan growth with improved margins in the coming quarters.
- Key risks to company’s business are :
- Any major fall in Gold price
- Asset quality risk in Micro Finance Institution (MFI) portfolio
Frequently Asked Questions (FAQs)
Mr. V.C. Padmanabhan, late father of Mr. V.P. Nandakumar, current MD & CEO
The gold loan, also referred as a loan against gold, is a secured loan that a borrower takes from a lender in lieu of gold ornaments such as gold jewelry. The loan amount sanctioned to you by lenders is generally a certain percentage of the gold’s value. You can repay it through monthly installment after which you get your gold articles back.
Anyone who owns gold ornaments can avail gold loans.
To obtain the loan, to need to submit your gold jewellery (within a karat range of 18 to 24) at the branch. The loan amount that is sanctioned will be based on the gold valuation, which involves the verification of its purity.
One document of Identity proof such as Ration card, PAN Card, Driving License, Voter ID Card, Passport etc. There are no end-use restrictions in gold loans.