Morgan Stanley Research: Mannapuram General Finance and Leasing

A pure play on retail lending against gold:
Mannapuram General Finance and Leasing specializes
in making short-term, high-yielding personal loans to
individuals. The lending is fully secured against gold (in
the form of household used jewellery) that borrowers
deposit with the company.
Indian households are one of the biggest
consumers of gold: The stock of gold with Indian
households is about 15,000-20,000 tonnes, accounting
for about 10–13% of the world’s stock. This would
translate into a market value roughly US$600-800 billion.
According to the company, 10% of this stock has been
lent against. About 8% (of this 10%) is controlled by the
unorganized sector.
Increasing organized sector penetration: Lending
against gold has historically been controlled by the
unorganized sector – money lenders and pawn shops.
However, non-banking finance companies (like
Manappuram) and banks are making in-roads via lower
rates, service, and increased transparency.
What is a gold loan? A loan against gold typically has a
loan-to-value between 60-85%, average maturity of
three months and yields between 12-36%. Borrowers
(typically lower & middle-income) use the funding for
income generating and consumption needs.
Management plans to grow the loan book at 140%
CAGR in F2011-12. Between F2008-F1Q11, loan
growth has averaged 72%, driven by a 22% CAGR
increase in gold prices and a 41% CAGR in gold
volumes. Management expects future growth to be
driven by branch expansion and increased penetration.
Valuation: Over the past year, Manappuram has
outperformed the CNX Nifty and BSE Bankex by 202%
and 152%. It trades at 22x historical F10 earnings and
7.5x F1Q11 BV. In F2008-10, Manappuram posted 68%
average EPS growth, 4.2% ROA and 31% ROE.