Edelweiss: Manappuram General Fin & Leasing (Capital raise key to high growth)

Manappuram General Fin & Leasing (Capital raise key to high growth): Manappuram General Finance’s (MGFL) business of providing retail loans against used household gold jewellery is growing at triple-digit rates, thanks to the management’s enterprise and under-penetration of institutional small credit in India. With a business model that ensures 30% RoE with sub-1% NPA, execution issues in scale-up are the only challenge, as long as flow of capital to support this growth remains. MGFL’s ex-issue P/B of 9.1x on FY10 translates to what we view as a reasonable 3.6x FY11ii post-issue multiple, if its proposed Rs10bn issue is successful. If the issue falls through for any reason, the company faces impaired loan growth and a significant price correction.