Manappuram Finance, an NBFC primarily engaged in gold loans, shows mixed financial indicators. While it boasts a high OPM of 67.8%, stable promoter holding at 35.2% with no pledged shares, and a low P/E of 8.10 compared to the industry average, the debt-to-equity ratio is concerning at 3.11. The company’s ROCE and ROE stand at 11.7% and 16.6% respectively. CWIP is at ₹24 Cr. Despite the low P/E, the high debt levels warrant caution, and further analysis of the company’s growth prospects and ability to manage its debt is necessary before making an investment decision.
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TLDR of the article
Key Financial Data:
- Market Cap: ₹16,527 Cr
- Current Price: ₹195
- Stock P/E: 8.10
- Book Value: ₹125
- Dividend Yield: 1.54%
- ROCE: 11.7%
- ROE: 16.6% (3-year average: 19.4%)
- Debt to Equity Ratio: 3.11
- Debt: ₹32,922 Cr
- Promoter Holding: 35.2% (constant)
- Pledged Percentage: 0.00%
- OPM: 67.8%
Recommendation: CAUTION
While the company has a high OPM of 67.8% and the promoter holding has remained constant at 35.2% with no pledged shares, there are a few concerning factors:
- The debt to equity ratio is quite high at 3.11
- The P/E ratio of 8.10 is on the lower side compared to the industry PE of 20.6, indicating potential undervaluation, but this needs to be analyzed further in the context of the company’s growth and profitability
Given the high debt levels, investors should exercise caution. More analysis is needed on the company’s ability to service its debt, growth prospects, and the reasons behind the seemingly low valuation multiple compared to peers.
Company Introduction, Profile:
Manappuram Finance Ltd is a non-banking financial company (NBFC) that primarily offers gold loans and other financial services. Established in 1992, the company has grown rapidly, especially during the FY08-FY12 period when gold prices surged. As of March 2023, Manappuram Finance has a market capitalization of ₹16,527 crores and a pan-India presence with over 4,700 branches.
The company’s revenue has grown at a CAGR of 14% over the last 5 years, reaching ₹8,260 crores in the trailing twelve months (TTM). Net profit has grown at a CAGR of 17% over the same period, with a TTM profit of ₹2,049 crores. Manappuram Finance has maintained a high operating profit margin (OPM) of 67.8%.
Should We Buy, Sell or Hold This Stock and Why?
Based on the provided criteria, Manappuram Finance warrants a CAUTION recommendation. While the company boasts a high OPM of 67.8%, stable promoter holding of 35.2% with no pledged shares, and a low P/E ratio of 8.10 compared to the industry average of 20.6, the high debt-to-equity ratio of 3.11 is a concern.
The company’s ROCE and ROE stand at 11.7% and 16.6% (3-year average: 19.4%), respectively, which are decent. However, the high debt level of ₹32,922 crores and the low P/E ratio, which may indicate undervaluation, require further analysis of the company’s growth prospects and its ability to manage debt effectively.
Vital Company Ratios:
- Operating Profit Margin (OPM): 67.8% – Indicates the company’s operational efficiency in generating profits.
- Debt-to-Equity Ratio: 3.11 – Suggests that the company has a high level of debt compared to its equity.
- Return on Capital Employed (ROCE): 11.7% – Measures the company’s profitability and efficiency in using its capital.
- Return on Equity (ROE): 16.6% (3-year average: 19.4%) – Shows the company’s ability to generate profits from shareholders’ equity.
- Price-to-Earnings (P/E) Ratio: 8.10 – Indicates that the stock is trading at a lower valuation compared to the industry average of 20.6.
Investors should keep an eye on Manappuram Finance’s ability to manage its debt, maintain its growth trajectory, and improve its valuation multiples. The company’s stable promoter holding and high OPM are positive factors, but the high debt levels necessitate caution.
Promoter Holding: Stable at around 35% from Mar 2021 to Dec 2023
FII and DII Holding:
- FII holding decreased from 38.58% in Mar 2021 to 28.95% in Dec 2023
- DII holding increased from 8.88% in Mar 2021 to 12.15% in Dec 2023
Sales Trend: Increasing consistently from ₹1,484 Cr in Dec 2021 to ₹2,305 Cr in Dec 2023
Profit Trend: Increasing consistently from ₹261 Cr in Mar 2022 to ₹575 Cr in Dec 2023
Debt Trend: Increasing from ₹23,327 Cr in Mar 2021 to ₹32,922 Cr in Sep 2023
Margin Trend: Fluctuating between 26% to 42% from Dec 2020 to Dec 2023
Company PE: 8.10 Industry PE: 20.6
Gap between Intrinsic Stock Value and Current Market Price:
- Intrinsic Value: ₹547.33
- Current Market Price: ₹195
- Difference: ₹352.33
Market Cap:
- Manappuram Finance: ₹16,527 Cr
- Peers:
- Bajaj Finance: ₹447,593 Cr
- Bajaj Finserv: ₹272,014 Cr
- Cholamandalam Inv. & Fin.: ₹100,116 Cr
- Shriram Finance: ₹95,008 Cr
Cash in Hand: Increased from ₹926 Cr in Mar 2021 to ₹1,093 Cr in Sep 2023
Dividend Payout: Decreased from 19% in Mar 2022 to 17% in Mar 2023
Competing Companies and Performance
Manappuram Finance’s main competitors include Muthoot Finance, Bajaj Finance, and Shriram Finance. Compared to its peers, Manappuram Finance has a lower market capitalization of ₹16,527 Cr, while Bajaj Finance and Bajaj Finserv have significantly higher market caps of ₹447,593 Cr and ₹272,014 Cr, respectively.
However, Manappuram Finance has a lower P/E ratio of 8.10 compared to the industry average of 20.6, indicating potential undervaluation. The company’s operating profit margin (OPM) stands at 67.8%, which is higher than most of its peers. The ROCE and ROE are decent at 11.7% and 16.6%, respectively.
One area of concern is the high debt-to-equity ratio of 3.11, which is higher than many of its competitors. Despite this, the company has maintained a stable promoter holding of around 35% with no pledged shares.
Recommendation: Based on the provided data and criteria, Manappuram Finance warrants a CAUTION recommendation. While the company has a high OPM, stable promoter holding, and a low P/E ratio compared to the industry average, the high debt-to-equity ratio is a concern. Investors should monitor the company’s ability to manage its debt levels and maintain its growth trajectory. Further analysis of the company’s financial health and future prospects is advised before making an investment decision.
Is This Stock Overvalued or Undervalued?
Based on the data provided, Manappuram Finance Ltd appears to be undervalued. The stock’s current market price is ₹195, while the intrinsic value of the stock is estimated at ₹547.33. This suggests that the stock is trading at a significant discount to its intrinsic value, indicating potential undervaluation. Additionally, the company’s P/E ratio of 8.10 is considerably lower than the industry average of 20.6, further supporting the notion that the stock may be undervalued relative to its peers.
Should We Buy This Stock and Why?
Given the data and criteria provided, Manappuram Finance Ltd warrants a CAUTION recommendation. While the company has several positive factors, such as a high operating profit margin (OPM) of 67.8%, stable promoter holding at 35.2% with no pledged shares, and a low P/E ratio compared to the industry average, there are concerns regarding the high debt-to-equity ratio of 3.11. This high level of debt could potentially impact the company’s financial stability and growth prospects. Investors should carefully analyze the company’s ability to manage its debt, maintain its growth trajectory, and improve its valuation multiples before making an investment decision.
How Is the Industry of This Company Growing?
The data provided does not give a clear indication of the industry’s growth. However, we can infer from the company’s financial performance that the NBFC sector, particularly gold loan financing, has experienced growth in recent years. Manappuram Finance Ltd has shown consistent growth in sales, with a 5-year sales growth rate of 14.3% and a TTM (Trailing Twelve Months) sales growth rate of 29%. Additionally, the company’s profit has grown at a 5-year CAGR of 17% and a TTM growth rate of 52%. These growth figures suggest that the industry has been growing steadily, and Manappuram Finance Ltd has been able to capitalize on this growth. However, investors should also consider the regulatory environment, economic factors, and competition within the industry when assessing the overall growth potential.
Risk Factors and Key Risks Associated with Manappuram Finance Ltd and the NBFC Industry:
- Regulatory Changes: The NBFC sector is heavily regulated by the Reserve Bank of India (RBI). Any unfavorable changes in regulations, such as the reduction of the loan-to-value ratio for gold loans (as seen in 2012), can significantly impact the company’s business and growth prospects.
- Competition: The gold loan industry is highly competitive, with numerous NBFCs and banks vying for market share. Intense competition may lead to reduced interest rates and lower margins, affecting the company’s profitability.
- Fluctuations in Gold Prices: As a gold loan NBFC, Manappuram Finance’s business is closely linked to gold prices. Volatility in gold prices can impact the company’s loan portfolio, asset quality, and profitability.
- Economic Slowdown: A slowdown in the economy can lead to reduced demand for loans, higher defaults, and increased non-performing assets (NPAs), which may adversely affect the company’s financial performance.
- High Debt Levels: Manappuram Finance has a high debt-to-equity ratio of 3.11, which increases the company’s financial risk. High debt levels can limit the company’s ability to raise additional funds and may impact its credit ratings.
- Geographical Concentration: The company’s business is primarily concentrated in southern India, which exposes it to regional economic and political risks.
Management Quality Assessment
Based on the information provided, there is no mention of any criminal cases against the promoters or management of Manappuram Finance Ltd. The promoter holding has remained stable at around 35% over the past few quarters, with no pledged shares, which is a positive sign. However, more detailed information about the management’s background, experience, and governance practices would be needed to make a comprehensive assessment of the management quality.
Recommendation: Considering the high debt-to-equity ratio, the company’s exposure to regulatory and market risks, and the limited information available on the management’s background, a CAUTION recommendation is warranted for Manappuram Finance Ltd. Investors should carefully evaluate the company’s ability to manage its debt levels, navigate regulatory challenges, and maintain its growth trajectory in a competitive market environment before making an investment decision. More detailed analysis of the management’s quality and the company’s risk mitigation strategies would be beneficial in making a more informed assessment.
Long-Term Performance (6-10 years)
Predicting a company’s long-term performance is challenging, as it depends on various factors such as market conditions, regulatory environment, and the company’s ability to adapt to changes. However, based on Manappuram Finance’s historical data, the company has demonstrated consistent growth in sales and profits over the past 5-10 years. The company’s sales have grown at a CAGR of 14% over the last 5 years, while profits have grown at a CAGR of 17%. If the company can maintain its growth trajectory, improve its debt management, and navigate regulatory challenges, it may continue to perform well in the long term. However, investors should monitor the company’s progress closely and assess its ability to adapt to changes in the market and regulatory environment.
Short-Term Performance (2-5 months)
Predicting short-term performance is even more challenging, as it can be influenced by various external factors such as market sentiment, economic conditions, and company-specific events. The data provided does not give a clear indication of the company’s expected short-term performance. However, investors can monitor the company’s quarterly results, management commentary, and any significant developments in the industry to gauge its short-term prospects. It is essential to note that short-term performance can be volatile and may not necessarily reflect the company’s long-term potential.
Medium-Term Performance (2-6 years)
Manappuram Finance has shown steady growth in sales and profits over the past few years. The company’s 3-year sales growth stands at 7%, while its 3-year profit growth is 1%. The TTM sales growth and profit growth are impressive at 29% and 52%, respectively. If the company can maintain its growth momentum, improve its operating efficiency, and manage its debt levels effectively, it may continue to perform well in the medium term. However, investors should keep an eye on the company’s ability to navigate regulatory challenges, maintain its asset quality, and adapt to changes in the competitive landscape.
Recommendation: Based on the provided data and criteria, Manappuram Finance warrants a CAUTION recommendation. While the company has demonstrated consistent growth in sales and profits, its high debt-to-equity ratio of 3.11 is a concern. The company’s stable promoter holding and high operating profit margin (OPM) are positive factors, but the low P/E ratio compared to the industry average may indicate potential undervaluation, which requires further analysis. Investors should carefully assess the company’s ability to manage its debt, maintain its growth trajectory, and navigate regulatory challenges before making an investment decision. A thorough analysis of the company’s financial health, management quality, and competitive position would be beneficial in making a more informed recommendation.