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Manappuram Finance - The Right Time to Enter?

Updated: Mar 30, 2020

Company Overview

Manappuram Finance is an NBFC (non-banking financial corporation) that is involved mainly in the Gold Loan Market. Recently the company has diversified into the Home Finance, Insurance Brokerage and SME Financing as well. The firm's primary operations are based in Kerala. Looking at the growth prospects of the company, it provides gold loans mainly for a period within one year, due to this it has been able to heavily reduce the number of defaulting customers with a staggering low gross NPA of just 0.6% in mid 2019.

What is a Gold Loan?

This was one of the first questions I had when trying to understand the companies business model. A gold loan is essentially a loan given to families or individuals against gold in the form of jewelry or ornaments. The customers can choose to pay back this loan in installments and low rates of interest, in order to get back some of their gold articles. The end uses for this loan are unimaginable, whether the money is used to pay for a wedding, education or even fund a family vacation. India, demands approximately 30% of the world's gold supply, and due to the cultural value of gold ornaments, especially in the south of India, the market for such loans is huge.

Profit/Loss Account

In FY 2019, the company saw strong growth in all its non-gold sectors and currently, 25% of Manappuram Finance's AUM (Asset Under Management) comprises of non-gold sectors. The benefit of this growth is that since, the company already has around 4200 stores, setting up new businesses does not pose steep expenses. This can be seen through the income statement above where there is a consistent revenue growth of around 16% annually, while growth in total expenses has been minimal, especially in the past 3 years. The growth of the company is a great factor, for a long term investment.

Balance Sheet

The staggering growth in this firm's Long Term Borrowings may shock some investors, however this is counteracted by the fall in the lender's Short Term Borrowings. This could probably due to a change in accounting practices or modifications in government rules for banks.

The Balance Sheet of Manappuram Finance looks relatively healthy looking at the higher asset to debt ratio. However it is clear that the company is functioning on slim margins (like most banks and lenders), and the its asset quality is heavily determined by gold prices. Due to the current financial situation, gold prices have dropped heavily, and this is one of the main reasons why the stock price of this company has fallen in the same pattern.

Shareholding Pattern

Manappuram's shareholding pattern shows some great promise, it terms of the strength of the company. Around 35% of the shares are owned by the promoters. Furthermore, approximately 50% of the company is owned by Mutual Funds, and Institutions, including a 44% holding by FIIs. This demonstrates that this company is recognised as a fast growing and strong investment option globally.

Key Takeaways

- Diversifying into other sectors such as Insurance and Housing Finance, which is driving growth.

- Although presently solid, the balance sheet may be vulnerable due to fluctuating gold prices.

- Strong shareholding pattern with a 44% investment from FIIs


To conclude, I think that this company is fundamentally very strong, with a relatively safe business model. Its promoters have been running this company since 1949 and continue to show strength in leadership and integrity. Although current market situations have caused this company to see a drastic price fall, I believe that as gold prices start to recover this company will continue on its growth path. Hence this company is a BUY from my perspective.

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