Research on Manppuram Finance Ltd

Introduction

Manappuram Finance Limited is one of India's largest gold-based NBFCs. It is the second
largest listed player in the gold loan segment with Rs. 157,650 million consolidated AUM
(FY2018), of which 117,350 million were gold loans. Through its 4,199 strong branch
network, spread across 24 states and 4 union territories, it has a broad pan-India presence,
serving a client base of more than 3.8 million.
The business has built strong brand loyalty across the country by taking a first approach to
the consumer, offering trouble-free, simple and versatile gold loan services over the years
leading to customer satisfaction. Initiatives for smart marketing, including influential
endorsements, have helped Manappuram gain recognition and grow its footprint. Well-known
film industry icons from all of India’s major regions endorse Manappuram.
The Company's fiscal year 2017-18 was a recovery year after witnessing a sharp slowdown in
sector as the demonetisation's lingering impact in November 2016. Manappuram Finance
Limited has seen a revival of growth across all segments of the company, including the main
gold loan business.

SWOT ANALYSIS
 STRENGTH WEAKNESS 1. Geographical
1. Strong track record
concentration in
in financing against
revenue
gold jewellery
2. Challenges
2. Adequate
associated with non-
capitalisation
gold loan segments

3. Stable funding
profile
4. Strong profitability

OPPORUNITIES THREAT
A sharp decline in price
1. Untapped potential of gold within a short
2. Continuing period may adversely
opportunities in the affect repayments and
unorganised sector also growth prospects
of the business.

3. Level playing field Greater competition

4. Technology from other NBFC and
innovations Banks could impact
growth in AUM and
profits.

Strength:
 1. Strong track record in financing against gold jewellery: Manappuram has been in the
gold loan business for over 60 years. Based on this experience in the industry, the
company has developed an effective approach for evaluation and underwriting. The
company in India has a strong brand value and reputation. Reputation and trust play
an important role in this segment of financing as it offers the consumer a confidence
guarantee.
2. Adequate capitalization: As of March 31, 2018, the Business has a good capital
adequacy ratio of over 26.98%. Also promoting capitalization is lower asset-side risk
(gold security, which is liquid and in the hands of lenders). Assets under management
(AUM) are expected to grow moderately in the medium term in the gold loan market.
Certain divisions also have a relatively small scale (accessible housing finance,
property loans, and commercial vehicle financing).
3. Stable funding profile: Approximately 50% of combined lending is from more than 30
banks (public and private) and financial institutions with which the business has an
established relationship. This origin is reliable and efficient in terms of cost. Funds
are collected from long-term securities on the capital market such as non-convertible
debentures and subordinated debt. Furthermore, portfolios of microfinance and
commercial vehicles are eligible for securitisation, widening sources of funding
further.
4. Strong Profitability: during fiscal 2017, profitability has increased. The substantial
improvement is due in part to reduced losses in the auction arising from the change to
three-month short-tenure items along with an emphasis on daily value collection. The
ability to reduce operating costs will be key to productivity sustainability. A key
factor will also remain the restriction of credit costs in non-gold finance segments as
they expand.

Weakness:
1. Geographical concentration in revenue: More than 50% of the portfolio is
concentrated in Tamil Nadu, Karnataka, and Kerala, South Indian states. Considering
the very large size of the gold loan book relative to other segments and the
predominant nature of the gold loan company in southern Indian states, revenue is
likely to remain geographically concentrated and in terms of asset class over the
medium term.
2. Challenges associated with non-gold loan segments: Growth, asset quality and
profitability are still to be stabilized in non-gold loan companies. During fiscal 2017,
the collection efficiency in the portfolios of microfinance and housing finance was
affected. Profitability of Asirvads may be impacted during fiscal 2018 due to
increased credit costs. Similarly, the portfolio of housing finance is not yet well
established. Delinquencies have increased in the recent past and are likely to rise
further as the seasons of the portfolio. Nevertheless, the portfolio of commercial
vehicles is growing at a rapid pace and a measure of stability has been achieved here.

Opportunities:
 1. Untapped Potential: The core business of the Company, of providing gold loans,
continues to offer good growth potential. The World Gold Council (WGC) estimates
that between 20,000 and 25,000 tons of gold in India are held privately. The business
model of gold loans is aimed at imparting liquidity to this largely untapped stock.
2. Continuing opportunities in the unorganised sector: Now that the RBI prescribes a
uniform LTV cap of 75% for both banks and NBFCs, there is a level playing field that
benefits NBFCs. Furthermore, the volatility of the gold price over the past two to
three years has visibly dampened the excitement among banks for the gold loan
sector, resulting in a less competitive market position
3. Level playing field: Proximity to home is observed as an important reason to choose a
specific type of financial institution when using gold loan. This implies that people
prefer convenience to other factors as well as reflecting the fact that transaction cost
plays a major role in a client's financial behaviour.
4. Technology Innovations: The Company launched an advanced online gold loan
product in 2015, which is cashless and available to the 24X7 customer. Considering
the convenience and the growing regulation of cash disbursements, OGL is well
positioned to gradually take on a larger market share.

Threat:
Gold loans constitute approximately 81 percent of the Company's overall advances. A sharp
decline in gold prices over a short period of time could adversely affect the company's
repayments and growth prospects.
Business is highly regulated, and future regulatory changes may adversely affect it. One risk
factor in this context is the likelihood of a squeeze on the use of money in the business that
could adversely affect future business opportunities given the general preference of small
ticket lenders for cash.
Financial performance is especially vulnerable to interest rate risk as the bulk of financing is
collected from banking networks.

COMPETITIVE ANALYSIS
 1. Shriram City is Manappuram Finance's biggest competitor. Shriram City is a public
enterprise founded in 1986 in Chennai, Tamil Nadu. Shriram City is involved in the
banking sector. There are 9,732 more workers in Shriram City than Manappuram
Finance.
2. Muthoot Finance is considered one of the biggest rivals of Manappuram Finance.
Muthoot Finance was established in 1887 in Kochi, Kerala. Muthoot Finance is in the
sector of the banks. Compared to Manappuram Finance, more revenue generated by
Muthoot Finance is $487.2M.
3. Kosamattam is seen as one of the biggest rivals of Manappuram Finance. Founded in
1987, Kosamattam has its headquarters in Kottayam, Kerala. Kosamattam is operating
in the field of banks. Kosamattam generates less revenue from $426.2 M compared to
Manappuram Finance.

CONCLUSION

At the end of FY19, the company managed to reduce NPAs across all businesses–3bps QoQ
in Gold, 31bps in MFI, 100bps in housing finance (HF) and 50bps in vehicle finance (VF).
With no bad loans after Kerala floods, marginal impact of the Odisha cyclone and higher
recoveries, we expect the overall NPAs to decline further, meanwhile, any regulatory changes
to curb tickets for gold loans, disbursements or any kind of growth and prevailing
competition in vehicle and housing loans may hinder future growth.
When non-gold companies grow resilient, there is a threat of increasing NPAs, the brokerage
added.
At the current trend Manappuram Finance Ltd is certainly considered to be a good buy.