Manappuram General Finance and Leasing - MGFL is a niche financial services provider, specializing in providing loans against gold jewelry to retail customers. The company has a large customer base in South India (90% of business) and has total AUMs of over Rs25bn. The promoters have significant experience in the gold lending business;
Business Strategy - a) Secured lending with gold jewelry as collateral (98% of loans); b) Target lending only to families and against home use jewelry; c) Focus on strong growth in assets, through distribution expansion and geographical diversification; and d) Strong risk management systems – both operational (cash management, appraisal skills, frauds) and financial (asset quality, asset liability mismatch, leverage).
NPL ratios are quite low in gold loans (0.39% currently); b) High growth trajectory: AUM growth of 100% CAGR over the last 5yrs; c) Strong return profile: ROEs of over 30% in FY10 with an ROA of 7.5%; and d) Low leverage levels: current debt / equity of 3.0x; can increase up to 6.5- 7.0x over the medium term.
Single product focus: could lead to concentration risks; b) Scalability: difficult to ascertain market size, lack of diversification could constrain current high growth rates; c) Wholesale funding: cost of funding can rise sharply in a tight liquidity / high interest rate environment; d) Relatively high operating costs: cost/income ratio is around 43%, likely to remain stable due to aggressive distribution expansion and customer acquisition costs.
Reported EPS for FY 2010 3.5
