The company’s strategy of diversifying into non-gold businesses has derisked the company’s business from the vagaries of gold price fluctuations. Also, Manappuram’s strong financials make the stock an attractive investment proposition at this level.
Manappuram Finance is one of the largest gold loan companies in India. It is the second largest listed player in the gold loan segment with an AUM of ₹10,080.63 crore (FY2016). It has a strong pan-India presence through its strong branch network, spread across 23 states and four Union territories. Apart from the traditional business, the company now has diversified its business into micro-financing, housing finance and commercial vehicles loans business.
INTRODUCTION
The business operation of Manappuram Finance is largely based on gold. The company provides instant loan against gold, as the commodity can easily be accepted as a collateral. The year 2016 has been a good year for gold as compared with the last couple of years. The prices of gold are extremely important for the company as it gives loan against gold. The prices of gold corrected significantly after falling from ₹31,000 per 10 grams at the end of 2013 to less than ₹25,000 in mid-2015, and began rising since then. As on December 4, the gold has gained 14 per cent since the mid-September 2015 level. However, the company has delinked its business from the global gold prices which is one of its strategies of derisking. However, the gold prices still remain important to determine the LTV ratio (loan to value).
PEER GROUP PERFORMANCE
Although banks such as SBI, ICICI Bank do provide loans against gold, with Mahindra Finance also foraying into the business. Muthoot Finance is the only major competitor of Manappuram Finance enjoying largest market share in the industry with more than 4,265 branches across India.
This story is from the December 25, 2016 edition of Dalal Street Investment Journal.
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This story is from the December 25, 2016 edition of Dalal Street Investment Journal.
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