NBFCs have not been the flavour of the season for almost two years, ever since the market was hit by the IL&FS default. But it’s been raining gold for one kind of NBFCs because when the market is volatile, investors flock towards the yellow metal. Naturally, one of the biggest gold loan providers, Manappuram Finance, has been a key beneficiary of this trend. Since the IL&FS crisis, the stock has surged nearly 3x, hitting an all-time high of 194 in the last week of January 2020. Besides the fact that investors are finding this space attractive, the company has also maintained a strong performance in FY20. It posted 30% growth in gold AUM in Q3FY20 while keeping credit cost under check with net NPA at 0.2% of the loan book. The spread on gold financing rose by 80 bps because of the reduction in the cost of funds.
As the stock continued its rally, investors cashed in. Rahul Bhasin’s Baring PE India disposed off shares worth 7.21 billion in three transactions in February, bringing its stake down from 9.23% to 4.26%. More than half of this stake was picked up by Key Square Master Fund II, Copthall Mauritius Investment and Societe Generale, who bought shares worth 1.39 billion, 1.50 billion and Rs 1.04 billion, respectively. In December last year, Manappuram Finance ED, BN Raveendra Babu also sold shares worth 67.8 million.
According to BSE, Baring PE India had entered the stock in September 2011 with a 1.40% stake. Since then, the stock has proven to be a multibagger, giving the private equity firm huge return. Before the recent disposal, Baring PE India had sold shares worth 3.08 billion and 9.5 million in February 2017 and June 2019, respectively, but acquired shares worth 80 million in September 2018.
Even as the stock trades at 12.2x its FY21 estimated P/E, analysts are bullish on the stock and expect more upside. “Following the steady Q3FY20 performance, we raise FY20/FY21/FY22 earnings estimates by 4%/5%/2% and increase our Mar ‘21 target price to 225 (vs. Rs 195),” states a BoB Capital Markets report. It adds that the NBFC has held on to its market share in gold finance during FY15-FY19, and they “expect the business to yield a steady-state RoA of ~5%” over FY20-22.
Even as the stock price increases, foreign investors are buying into the stock. They increased their stake by 1.08% QoQ to 44.29% at the end of December 2019. The two biggest foreign investors — Quinag Acquisition and Fidelity Investment Trust — have slightly shed their holdings from 9.94% to 9.92% and 3.15% to 3.12%, respectively. Meanwhile, mutual funds have trimmed their stake from 4.63% to 4.34% in the same period. While DSP Mutual Fund has reduced its stake from 2.28% to 1.49%, L&T Mutual Fund has increased it from 1.33% to 1.85%.