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prabhakarkudva
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Quote prabhakarkudva Replybullet Topic: Manappuram Gen. Finance & Leasing Ltd
    Posted: 19/Jan/2010 at 10:22pm
Summary
Manappuram General Finance is a South India based NBFC specializing in lending against household gold. Promoters have 6 decades of experience in money lending business and have successfully transitioned from a relatively risky, vehicle financing/ hypothecated loans to more secured gold loan product.


Positives

1)Rapid Business growth: MAGFIL’s AUM has grown at 48% CAGR over FY07‐FY09 to Rs 12.5 bn and is expected to grow at a pace of 60% during FY09‐FY12E to reach Rs 51.1 bn by March 2012.

2)High margin business: High yields enable the company to earn higher margins. The company earned a margin of 16% in FY09 and we expect it to be maintained over the next two years as well.

3)High return ratios: Despite the expected equity dilution (approval to raise Rs 3 bn), MAGFIL is likely to generate an average RoE of 27% over FY10E‐FY12E supported by an average RoA of 5.3%.

Concerns

1)A sharp drop in gold prices can impact collateral‐value ratio and increase the chances of defaults.

2)Significant slowdown in expansion plans could impact the business growth estimates.


Scale of Opportunity

India is one of the largest holders of gold stock in the world and privately held gold stock is estimated at 15,000 tonnes. Loan against gold has been traditionally availed by rural and urban households alike generally from local moneylenders/ pawn brokers or from cooperative and regional banks.Industry interactions suggest that in India, 400‐600 tonnes of gold stock are estimated to have been utilized as collateral for loans. Banks and NBFCs view this as an opportunity to grow their secured lending book earning high yields.

The company operates in a niche segment of retail loans against gold jewellery and as a company policy, only ‘household used jewellery’ is accepted as
collateral. Funding is not provided to jewelers/ traders or pawn brokers.Manappuram Group, founded in 1949 to carry money lending business,transformed into gold lending company post 1999 and started to run down its
vehicle lending book. The company caters to the short term fund requirements of individuals with an average ticket size of ~ Rs 20,000. The key advantage
over banks lies in the network reach and the ability to cater to small ticket size loans (catering to small ticket size loan becomes cost inefficient for banks).

Vision
The promoters envision the business to scale up rapidly touching Rs 100 bn of assets under management by 2013 and make further in roads into the unorganized gold lending market in south and west India.


Private equity investors like Sequoia,
Ashmore Alchemy, Hudson Equity Holdings, Granite Hill have invested in the company since 2008.

Market Cap
Market Cap is almost half of a similar NBFC like Shriram City Union Finance and this company has better return ratios.




Edited by prabhakarkudva - 20/Jan/2010 at 11:48am
Take your chances and keep them in a box until a quieter time.
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prabhakarkudva
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Quote prabhakarkudva Replybullet Posted: 19/Jan/2010 at 10:30pm
This could probably be a hedge for Titan.If Gold goes down Titan benefits and if it goes up Manappuram does well.
Take your chances and keep them in a box until a quieter time.
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hit2710
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Quote hit2710 Replybullet Posted: 19/Jan/2010 at 11:56pm
The company has shown scorching growth in revenues from around 16 crores in 2005 to 165 crores in 09 and likely to cross revenues of around 300 crores going by the first half of current year.

Net Profit has risen from 2.69 crores in 05 to 30 crore in 09 and for

first half, sales is around 153 crores and net profits is 32 crores giving half yearly eps of around 19.

Market cap is around 1140 crores. The stock has run up from a low of around 110 in jan 09 to current price of around 680, already six bagger in 1 year.
Stockmarket is a weird place. For every person who buys a stock there is a person who sells it and both think they are very smart.
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prabhakarkudva
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Quote prabhakarkudva Replybullet Posted: 19/Jan/2010 at 9:26am
I think the opportunities for growth are huge and at cmp it is selling at about 18 times FY10 earnings.What i also liked about this company is that funding is not provided to jewelers/ traders or pawn brokers.Not even to people who get brand new jewellery.Only used family jewellery can be used to procure a loan.And since Indians attach a lot of sentimental value to family jewelllery probability of default will be relatively low.

I am interested in knowing what members think about this business?I already got kulman ji's view though the other day.

Edited by prabhakarkudva - 19/Jan/2010 at 9:27am
Take your chances and keep them in a box until a quieter time.
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hit2710
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Quote hit2710 Replybullet Posted: 19/Jan/2010 at 9:54am
While the growth looks very good especially in the last few quarters, the valuations look a bit stiff and after the recent spurt in the price, there could be some consolidation offering some good buying opportunities on corrections.
Stockmarket is a weird place. For every person who buys a stock there is a person who sells it and both think they are very smart.
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deveshkayal
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Quote deveshkayal Replybullet Posted: 19/Jan/2010 at 10:05am
Yes,valuation is a concern. Look at Banks and NBFCs from a Price-Book Value rather than PE. Lending businesses have always traded at low PE. Also, market cap will rise after its merger with its subsidiary. Nevertheless, its a great business model which i would like to buy only at a reasonable valuations.
"You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett
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prabhakarkudva
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Quote prabhakarkudva Replybullet Posted: 19/Jan/2010 at 10:08am
Deveshji,

At what price can one be comfortable buying this one?
Take your chances and keep them in a box until a quieter time.
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deveshkayal
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Quote deveshkayal Replybullet Posted: 19/Jan/2010 at 10:11am
Around 580-600. Other option is let it consolidate for some time and then it might look reasonable on FY11 earnings.
"You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett
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