Manappuram Finance - Cheap and best stock to have

 FUTURE WITH GOLD, AND BEYOND GOLD

Having reached the pinnacles of the gold loans business, it was time to re-invent as a multi faceted top-notch NBFC. Over the last two years, they took a bold decision to recompose business that would de-risk concentration from gold loan book and give new growth drivers to build upon. Manappuram decided to diversify business and add new asset classes that were complementary to their mainstay gold loans business. Today, Manappuram Finance is re-constituted to engage in four key business segments – Gold Loans, Microfinance, Housing Loans and Commercial Vehicle (CV) Loans.

Having established presence in these new areas in FY2015, they spent FY2016 focusing on developing business ecosystems, building teams with domain specific experience and setting up the right marketing channels and product configurations. Today, they are systems-ready to grow each of the businesses aggressively, without compromising on asset quality. In the field of Microfinance, they have already made a robust entry through subsidiary Asirvad Microfinance, which has grown extremely well in FY2016, with assets under management more than trebling.

Confidence comes from the depth of geographical reach, a top-notch product portfolio, best-in-class technology, rapidly expanding distribution network, motivated workforce and a highly capable management team. They can leverage brand equity and in-depth understanding of semi-urban and rural markets, to build further on proven successes.

MD & CEO’s letter to Shareholders

With the stable regulatory regime, and with gold prices holding firm, gold loan NBFCs are poised for healthy growth.

Going forward, Aadhar and Jan Dhan will hasten the shift of business in rural areas from the unorganised to the organised sector. Banks and NBFCs stand to benefit.

In percentage terms, new businesses now contribute ~12 percent of total AUM. Importantly, based on these trends, they  are well on track to having new businesses contribute 25 percent of total AUM by FY2018.

In February 2015, they acquired Asirvad Microfinance Pvt. Ltd. with AUM a little short of Rs.300 crore. Today, just a year after it became subsidiary, the company’s AUM has tripled to Rs.1,000 crore.

Commercial vehicle loans and mortgage based finance (housing loans and loans against property) have contributed about Rs. 300 crore to the total business as compared to about Rs. 45 crore in the preceding fiscal year.

PERFORMANCE OF THE COMPANY: 

Manappuram Finance has reported outstanding results for the fiscal year 2015-16. Consolidated net profit increased by 30.2 percent to Rs.353.36 crore in March 31, 2016, as compared to Rs 271.31 crore in FY 2014-15. Total Income from

Operations also reported a growth of 18.8 per cent to Rs 2,360.23 crore, as compared to Rs.1,986.42 crore during same period last year. The number of live gold loan customers surged to 19.32 lacs at the close of FY 2015-16, against 17.47 lacs the year before. Total gold holdings increased to 59.61 tonnes during FY2015-16 as compared to 53.13 tonnes a year ago.

 It is a fact worth noting that the quantum of gold they hold as security has increased consistently over each quarter, for the last two years, and this indicates the depth of recovery in the market.

Branch Distribution: 15% North, 6% East, 10% West, 69% South.

Capital Adequacy Ratio in FY16 stood at 24.0 %, far ahead of statutory Capital requirements, giving ample capacity to grow loan book size in the foreseeable future.

Key Financial Indicators: Manappuram’s Gross NPA’s stood at 1.0% and its Net NPA’s was a low 0.7% in FY16. The Total Income from Operations, Net Interest Income and PAT in FY16 were ` 23,602 mn, ` 14,128 mn & ` 3,534 mn respectively. The Company produced an ROA of 3.0% in FY16, with an ROE of 12.8% for the same period.

As a company that always tagged its gold loans as “Make Life Easy”, they have now gone a step furher – by making loans even more simpler with Online Gold Loans. They now hope to extend the concept even further by launching a co-branded debit card – one that will allow the customer to withdraw the loan amount from an ATM anywhere across India.

Their aim is to become the next big disruptor in the financial technology space, transforming conventional perceptions about gold loans. They wish to radically alter the day-to-day processes of gold loans.

NBFC’s grew better than banks in FY2016, as loan growth remained lacklustre while NPL (nonperforming loan) formation and credit costs continued to rise.

In the financial year FY2016, NBFC’s with core focus on the Gold Loan segment have seen healthy volume growth and loan book growth.

The splendid growth achieved by microfinance companies in recent years have been supported by key positive developments that have taken place in the system including regulatory actions taken by the RBI.

Manappuram Finance Limited has an evolving and robust risk management model of proven effectiveness, aligned with regulatory standards and international best practices, and proportional to the scale and complexity of its activities.

With economic growth is expected to sustain at ~7.5% as per IMF, the outlook for FY2017 is positive. This growth rate would make India the fastest growing major economy in 2017, placing India as an outlier within the global economic landscape. 

Why most investors are mostly wrong most of the time?

• Very well read bright people who pay close attention to the market often make pretty bad investing decisions. There is usually one simple reason for this: They inadvertently get sucked into the consensus view.

• Group think can happen no matter how careful and studied your methods are. Many folks see investing as a discipline, art or science, which sounds good, but their methods morph into the conventional wisdom- usually dangerous in investing. All follow the rules dictating the same result.

• Many doctors, lawyers and engineers are prone to this. Not because there is anything wrong with them as people. It isn’t their fault! But their professional training leads them there. In their professional lives, they used rule-based methodology, and there it works but in market it doesn’t. They expect market to be linear and rational, just like the systems they build and work with daily.

• Rule based investors usually use similar logic and reach similar conclusions. They use the same patterns, the same if then assumptions. They end up expecting similar things, and it morphs into the consensus view point. It usually appears very logical! But markets often defy logic, as we’ll soon see. Theory and principles can be useful if you layer on the independent thought. But many turn theory to dogma, textbooks to rule books. We think that whatever the literature says is good or bad for stocks must be true, always and everywhere. E.g Low P/E stocks are cheap.

• Markets price in the consensus pretty quickly and do something else. That “Something else” is what the true contrarian wants to figure out. Some investors use old saws and rules of thumb as a guide – the “Playbook”. Here, too, the approach might seem fine. The playbook is supposedly full of time –tested wisdom! If it didn’t work, it wouldn’t be in the playbook! But more you base decisions on the maxims, proverbs, and things everyone just knows, the less likely you are to think independently- and less likely to have the true contrarian views.

• The approaches based on widely known information and common interpretations of that information, no matter how intuitive and logical, they’re what “everyone” does. The true contrarian moves beyond consensus views and conventional wisdom. Life is way more exciting there, in the wide open air.

“If most believe something will happen in markets, the contrarian simply believes something else will. Note I didn’t say the opposite happens. Just something different”