Golden gain

Many NBFCs continue to reel from the collapse of IL&FS, even one year since the crisis. But one of the biggest gold loan providers, Manappuram Finance, has emerged much stronger. After the IL&FS default roiled the equity market, and especially NBFCs, Manappuram Finance had fallen from a high of Rs.126 in May 2018 to Rs.69 in October. But it has sharply recovered, gaining over 80% in 2019.

That is because despite the persisting liquidity squeeze, the NBFC has given little reason for investors to complain. In the first half of FY20, net interest income grew 23.7% YoY, AUM grew 31.9% and net profit zoomed 59.7%. Rise in the cost of borrowing, strong growth in the non-gold business segment, and an increase in gold prices have aided its performance. “The non-gold segment which is 33% of the consolidated AUM is clocking strong traction, which is expected to sustain,” states a JM Financial report. Besides, asset quality has remained stable with gross and net NPAs at 0.6% and 0.3% in September 2019 compared to 0.5% and 0.3% in March 2019. 

Analysts at JM Financial expect the company to clock RoE and RoA of 20% and 5% by FY21 driven by “high margins, lower NPA / credit cost and higher scope for improvement in operational strength”. Hence, they had raised their target price from Rs.145 earlier to Rs.185.

Meanwhile, the management and employees are seizing the opportunity to book profit. While the stock hit an all-time high, executive director BN Raveendra Babu sold shares worth Rs.67.8 million on December 12. Amid this selling, the stock hit a new all-time high of Rs.177 on December 19. According to a BSE filing — this was his first disposal in the last three years — bringing his stake down to 0.17% from 0.21%. Overall, the top management and employees have sold shares worth Rs.207 million in 2019. Overall promoter holding stood at 35.12% for the quarter-ended September 2019.

Some foreign investors are also cashing in, having reduced their stake from 44.74% in June to 43.21% in September. While the biggest foreign investor in the stock — Apax-backed Quinag Acquisition — has maintained its holding at 9.4% over the past four quarters, Fidelity Investment has diluted its holding from 3.47% in June to 3.15% in September.

However, mutual funds had increased their holding from 3.24% to 3.88% in June to 4.63% in September. L&T MF has raised its stake steadily from 0.24% in March, 1.03% in June to 1.5% in the quarter gone by. Whereas, Kotak MF has increased its stake from 0.22% in March to 0.44% in September.