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MANAPPURAM GENERAL FINANCE AND LEASING LTD
UNRATED (RS104, MCAP: RS40BN / US$889M)
• MGFL is a South India-based NBFC specializing in loans against gold. Its business has grown at a significant pace in
its six decades in the lending space (including more than four decades in gold loans). MGFL’s branch network
expanded rapidly from 436 in FY08 to ~1800 in Q3FY11.
• Branch network – dominant presence in South India: MGFL’s network is concentrated in South India, with ~80% of
the branches in Andhra Pradesh, Karnataka, Tamil Nadu and Kerala. The management now plans to branch out to
other geographies, especially Maharashtra, Gujarat, Orissa and West Bengal (predominantly Kolkata). Besides wider
distribution, the company also plans to sustain growth momentum by creating higher awareness about gold loans
through advertising, particularly in markets outside South India.
• Pressure on margins: As it operates in a highly under-penetrated segment, MGFL has managed to generate attractive
yields over the past few years. However, increased competition in the segment led to a ~300bp decline in yields over
the past 12 months. Further, after the recent RBI directives on gold loans (loans sanctioned to NBFCs for on-lending to
individuals or other entities against gold jewellery and securitized gold loans portfolio would not get classified as
agriculture loans), the management expects funding costs to increase by ~100bp in the near term.
• Strong growth in disbursements and AuM: Under-penetrated markets, access to multiple sources of funding, and
branch expansion have given the lender a 61% CAGR in disbursements with over FY08-10. Correspondingly, AUM
too increased (39% CAGR) to Rs26.2bn as of March 2010. With demand drivers in place and a rapid proliferation of
branch network, the management expects AuM to grow by 187% yoy (on a low base) to Rs75bn in FY11, and by ~100%
to Rs140bn in FY12.
• Credit costs to remain low: Given the high sentimental value attached to household jewellery, LTV of 75% and
shorter duration of loans, gold loan portfolios typically carry a low rate of default. MGFL’s gross NPAs on its gold
loan book too have been minuscule (0.2-0.4% over FY06-10). While there does exist a risk to this portfolio if gold prices
were to crash significantly in a very short time, the management has indicated that any decline in gold prices does not
automatically translate into higher defaults given the higher perceived value of the ornament. Apart from the
sentimental value, replacement value of household jewelry remains high as making charges (10-20%) are not
accounted for in the total valuation of gold for the purpose of extending loan.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
MANAPPURAM GENERAL FINANCE AND LEASING LTD
UNRATED (RS104, MCAP: RS40BN / US$889M)
• MGFL is a South India-based NBFC specializing in loans against gold. Its business has grown at a significant pace in
its six decades in the lending space (including more than four decades in gold loans). MGFL’s branch network
expanded rapidly from 436 in FY08 to ~1800 in Q3FY11.
• Branch network – dominant presence in South India: MGFL’s network is concentrated in South India, with ~80% of
the branches in Andhra Pradesh, Karnataka, Tamil Nadu and Kerala. The management now plans to branch out to
other geographies, especially Maharashtra, Gujarat, Orissa and West Bengal (predominantly Kolkata). Besides wider
distribution, the company also plans to sustain growth momentum by creating higher awareness about gold loans
through advertising, particularly in markets outside South India.
• Pressure on margins: As it operates in a highly under-penetrated segment, MGFL has managed to generate attractive
yields over the past few years. However, increased competition in the segment led to a ~300bp decline in yields over
the past 12 months. Further, after the recent RBI directives on gold loans (loans sanctioned to NBFCs for on-lending to
individuals or other entities against gold jewellery and securitized gold loans portfolio would not get classified as
agriculture loans), the management expects funding costs to increase by ~100bp in the near term.
• Strong growth in disbursements and AuM: Under-penetrated markets, access to multiple sources of funding, and
branch expansion have given the lender a 61% CAGR in disbursements with over FY08-10. Correspondingly, AUM
too increased (39% CAGR) to Rs26.2bn as of March 2010. With demand drivers in place and a rapid proliferation of
branch network, the management expects AuM to grow by 187% yoy (on a low base) to Rs75bn in FY11, and by ~100%
to Rs140bn in FY12.
• Credit costs to remain low: Given the high sentimental value attached to household jewellery, LTV of 75% and
shorter duration of loans, gold loan portfolios typically carry a low rate of default. MGFL’s gross NPAs on its gold
loan book too have been minuscule (0.2-0.4% over FY06-10). While there does exist a risk to this portfolio if gold prices
were to crash significantly in a very short time, the management has indicated that any decline in gold prices does not
automatically translate into higher defaults given the higher perceived value of the ornament. Apart from the
sentimental value, replacement value of household jewelry remains high as making charges (10-20%) are not
accounted for in the total valuation of gold for the purpose of extending loan.
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