16th July 2019

INITIATING COVERAGE

Retail Equity Research (South India Focus)

Manappuram Finance Ltd BUY
NBFC 12M Investment Period Rating as per Mid Cap

BSE CODE : 531213 NSE CODE: MANAPPURAM CMP Rs129 TARGET Rs154 RETURN +20%
BLOOMBERG CODE: MGFL:IN SENSEX : 38,897 (Closing: 15-07-19)

Company Data
Reclaiming the glittering growth phase…
Market Cap (cr) Rs10,839
Manappuram Finance (MGFL) is one of the leading gold loan NBFCs in Outstanding Shares (cr) 84.3
India and is well diversified into other business segments like Free Float 65%
housing loan, vehicle loan and microfinance. Dividend Yield 1.7%
• With shorter tenure products and online gold loans (OGL), we 52 week high Rs145
expect the gold loan AUM to grow at 10% CAGR over FY19-21E. 52 week low Rs66
• New synergistic product segments, which currently constitute 6m average volume (cr) 0.42
around one-third of the total assets under management (AUM), to Beta 1.32
grow at 34% CAGR over FY19-21E by leveraging strong brand Face value Rs2
equity of Manappuram Finance, supported by sufficient capital. Shareholding (%) Q2FY19 Q3FY19 Q4FY19
• Positive macros supported by rising gold prices and lowering Promoters 35 35 35
interest rate scenario to give a twin benefit to the company. FII’s 38 39 44
• MGFL’s impressive capital adequacy ratio, lower NPA levels, and MFs/Insti 7 6 4
positive asset-liability mismatches give an edge over other NBFCs. Public 20 20 17
Total 100 100 100
• With an estimated PAT growth of over 18%, both in FY20 and
Price Performance 3 month 6 month 1 year
FY21, we expect higher return ratios going ahead.
Absolute Return 1.8% 31.5% 25.8%
• We value MGFL at 2.0x on FY21E Adj. BV/Share and arrive at a
Absolute Sensex -1.0% 7.1% 6.4%
target price of Rs154 and recommend ‘Buy’ rating.
Relative Return* 2.7% 24.4% 19.4%
Gold loan business back on track after demonetisation over or under performance to benchmark index
After facing the challenging years of FY13 and FY14, MGFL has moved to short- 160 MGFL Sensex Rebased
term gold loan products that helped them to effectively manage the gold price
140
volatility and to significantly reduce the default risks and the auction losses. The
company has also launched online gold loans (OGL) back in 2015, which now 120
constitute about 39% of the total gold loan portfolio. After temporary hiccups in 100
the business caused by demonetisation and GST implementation, the gold loan
80
business is back on the growth track and we expect gold loan AUM to grow at
10% CAGR over FY19-21E. The rising gold prices, accompanied by a decrease in 60
interest rates in the latest RBI monetary policy, to act positively for the company. Jul 18 Oct 18 Jan 19 Apr 19 Jul 19
Robust growth seen in new synergistic product segments
Consolidated (cr) FY19A FY20E FY21E
The strategy that was envisioned to use the surplus capital and to leverage the
strong brand equity acquired over the years has started bearing fruit with these Interest Income 4,012 4,930 5,803
new product segments constituting almost around one-third of the total asset Interest Expense 1,319 1,559 1,803
under management of the company in Q4 FY19. Over the next few years, the
NII 2,693 3,371 4,000
company expect these non-gold businesses to contribute about 50% of the total
AUM. With a wider branch network and strong penetration, we expect these new Growth(%) 15.9 25.2 18.6
businesses to grow at 34% CAGR over FY19-21E, with microfinance at 28% NIM(%) 15.3 15.8 15.8
CAGR, Housing finance at 29% CAGR and Vehicle finance at 47% CAGR growth
Provisions 46 42 50
from FY19-21E.
Adj. PAT 929 1,144 1,352
Healthy capital adequacy, asset quality and return ratios
In Q4 FY19, the company has a capital adequacy ratio (CAR) of 23.9%, which is Growth(%) 37.4 23.0 18.2
much above the regulatory requirement of 15%. MGFL’s standalone GNPA stands Adj. EPS 11.0 13.6 16.1
at 0.5% in Q4 FY19, which is one of the lowest in the NBFC space. Also, the GNPA Growth(%) 37.3 22.7 18.2
levels of Microfinance, Housing Finance and Vehicle Finance stand at 0.5%, 3.9%
P/E 11.7 9.5 8.1
and 1.9% respectively. On a consolidated basis, the GNPA stands at 0.6% and
NNPA stands at 0.3% in Q4FY19. The company also have healthy return ratios, BVPS 53.8 64.9 78.0
with ROE at 23% and ROA at 5.2% in the latest quarter. Growth(%) 18.3 20.3 20.3
Valuations Adj.BVPS 53.1 63.9 77.2
At CMP, the stock is trading at P/BV of 2.0x and 1.7x respectively for FY20E Growth(%) 19.0 20.3 20.7
BVPS of Rs64.9 and FY21E BVPS of Rs78. With demonetisation impact left
behind, the company is targeting healthy growth in gold loan business going P/B 2.4 2.0 1.7
forward, supported by rising gold prices and decreasing interest rates. The new Adj. P/B 2.4 2.0 1.7
business segments are also expected to do well in the coming years. Also, the ROE (%) 22.1 22.9 22.5
company is having healthy CAR, one of the lowest NPAs among NBFC space, and
positive asset-liability mismatches. Hence, we value MGFL at 2.0x on FY21E Adj.
BV/Share and arrive at a target price of Rs154 and recommend ‘Buy’ rating.
Abijith T Cherian
Research Analyst

www.geojit.com
 27th December 2018
Industry Outlook...
Non-banking finance companies (NBFCs) form a vital part of the Indian financial system. They
help in taking credit to the unbanked segments of the society, driving financial inclusion and
nation-building, complementing the banking sector. With the Government of India (GoI)
India has seen the emergence of focussing prominently on promoting innovation and entrepreneurship, gives a wider scope for
gold loan speciality players NBFCs. NBFCs enjoy the advantages of better product lines, lower cost, wider and effective
over the last decade. reach, robust risk management capabilities to check and control bad debts and a better
understanding of their customer segments vis-a-vis the traditional banks.
Till the middle of the last decade, the unorganised sector catered to India’s gold loan market
with limited penetration of organised lenders. However, the gold loan industry is increasingly
formalising now with established and organised players gaining market share. Traditionally
known as a hyper retail local business, India’s gold loan market has started attracting large
investors since last decade. India has seen the emergence of gold loan speciality players like
Manappuram Finance during this time.
With credit demand expected to rise, the gold loan market is projected to grow between 10 to
12 per cent over the next few years to reach a market size of Rs. 2300 to 2500 billion by FY
In next few years, Gold loan 2021-22. Digital onboarding, delivery solutions and successful geographical expansion of the
market is projected to grow at a gold loan market to non-south geographies are a few key factors that facilitate the growth of
CAGR of 10 - 12%. specialised gold loan NBFCs. With the organised gold loan penetration levels below 4%, there
is headroom for growth in this market. Financial institutions with the right focus, operational
capabilities, and availability of funds, refreshing products and modern technology are
concentrating to capture a large market share and profitable returns.
Gold Loans – Are NBFCs better positioned?
Gold loans occupy a special place in the portfolio of Indian financial service provider’s book.
The potential borrowers – those in urgent need of money and possess some gold, gives a
marked preference for the service of these gold loan NBFCs compared to other institutional
options. By offering advantages in terms of cost, security, and convenience, these NBFCs meet
a vital need of the market in a way superior to other players.
The potential borrowers give a The large gold loan NBFCs stands out in this business where credibility and credentials play a
marked preference for the vital role as people entrust someone to keep family jewels that are precious to them beyond
service of specialised gold loan monetary values. These NBFCs are almost like banks and are well governed, with established
NBFCs compared to other procedures and policies. Their branches have sufficient security measures to ensure the safety
institutional players. of the collateral. The highly penetrated branch network of these NBFCs acts as an added
advantage as the borrowers may not desire to commute long distance with gold. Also, these
NBFCs ensure that the borrower enjoys the benefit of familiarity by recruiting at least some of
their staffs in each branch locally. For those borrowers who are migrants from pawnbrokers,
the rates charged by these NBFCs are considerably lower and others outweigh the benefits of
an NBFC experience against a busy bank branch.
NBFCs gaining market share from FY 07 to FY 18
60%
52%
50%
44%

40% 37%

30%

18%
20% 15% 15% 13%

10% 6%

0%
Co operatives Private Sector Public Sector NBFCs
Banks Banks

FY 07 FY 18

Source: Company, Geojit Research.

Over the years, these specialised gold loan NBFCs have captured a significant market share in
India. They have also increased the overall demand for gold loans with their niche focus and
Over the years, the specialised targeted market expansion activities. Traditionally, southern India is the hub for gold loans.
gold loan NBFCs have captured However, growing economic stability in India, coupled with increasing gold prices is
a significant market share. bolstering the specialised gold loan NBFCs across the nation. Additionally, these NBFCs are
adopting an aggressive approach to expand and penetrate to the non-South geographies, while
at the same time focus on improving the productivity of their existing branches, beyond their
traditional strongholds.

www.geojit.com
 27th December 2018
Competitive advantages of gold loan NBFCs
Parameter Gold Loan NBFCs Banks Moneylenders
Loan to Value (LTV) Up to 75% Lower than NBFCs Higher than 75%

Processing Fees No/Minimal Much higher than NBFC’s Nil

Interest Charges ~ 18 to 26% p.a ~ 12 to 15% p.a ~ 36 to 60%

On various dimensions, gold
Penetration High Only Selective Branches High
loan NBFCs stand a notch
ahead compared to banks and Disbursement mode Cash/Cheque Cheque Cash
moneylenders.
Working Hours Beyond banking hours Typical banking hours Beyond banking hours

Regulation By RBI By RBI No Regulation

Customer Service High - Core Focus Non-Core focus Core Focus

Documentation Minimal/ID proof Entire KYC Compliance Minimal

Repayment Flexibility Flexible Rigid -

Turnaround time 10 minutes 1-2 hours 10 minutes

Source: Company, Geojit Research.

Gold Demand in India

India is one of the largest consumers of gold jewellery in the world, together with China it
makes up over half the global consumer demand for gold. India’s fascination for gold dates
back to ancient times, owing to the metals religious, cultural and investment significance. Gold
continues to capture the imagination of all Indian’s till date and there is an insatiable demand
for the ‘yellow metal’ irrespective of movements in its prices. Consumption, instant liquidity
and investment benefits are factors that drive people to buy and store gold. For Indian’s,
investments in gold have always been viewed as a reliable source in times of need, especially
India is one of the largest
by rural households. Gold is a means to get quick liquidity to meet any exigencies. India
consumers of gold jewellery in
continues to be one of the largest markets for gold and is estimated to hold ~12.9% of the
the world & together with
world’s total gold stock in FY18, up from 11.7% in FY12.
China it makes up over half of
the global consumer demand Jewellery demand in India
for gold.
700 35%

600 32% 30%

30%
500 28% 27% 27% 27% 25%
25% 24%
400 23% 20%

300 15%

200 10%

100 5%

0 0%
2010 2011 2012 2013 2014 2015 2016 2017 2018

Jewellery Demand (tonnes) Global Market Share (%) - RHS

Source: World Gold Council, Geojit Research.

Factors affecting demand for gold in India

There are various long term and short term factors which affect the gold demand in India,
which is explained briefly in the following table

For a 1% increase in income,

Long- Rising Income
the demand for gold will rise by 1%
Rising income, inflation and Term
Factors For a 1% increase in gold price,
excess rainfall have a positive Gold Price
demand will decrease by 0.5%
impact on the gold demand,
where as gold price have a For a 1% increase in inflation,
negative effect. Short- Inflation
demand increases by 2.6%
Term
Factors For a 1% increase in monsoon rainfall,
Excess Rainfall
gold demand rises by 0.5%
Source: World Gold Council, Geojit Research.

www.geojit.com
 Tracking the journey of gold loan NBFCs
The evolution of gold loan business in India, over the past decade, can be understood in three
phases, which are strongly influenced by gold prices and various regulatory changes from
RBI, related to priority sector lending norms (PSL) and Loan to Value (LTV) ratios.
Gold price trend over past decade

Gold Price ($/Ounce)

2000
1800
1600
1400
1200
1000
800
600
400
200
0
Jul.08 Jul.09 Jul.10 Jul.11 Jul.12 Jul.13 Jul.14 Jul.15 Jul.16 Jul.17 Jul.18 Jul.19

Source: Bloomberg, Geojit Research.

A) Phase 1 – The rapid growth phase

This phase extends from FY08 to FY12, which marked a glittering growth period for gold loan
FY08-12 marked a rapid growth NBFCs. During this period, the AUM of Manappuram Finance has grown from just Rs8 Billion
phase for gold loan NBFCs to Rs116 Billion while the number of branches has increased over 6 times. This rapid growth
supported by various regulatory was supported by higher loan to value (LTV) ratios up to 85%, lower cost of funds due to the
and macro parameters. eligibility under Priority Sector Lending (PSL), buoyant economic growth and rising gold
prices
Significant AUM growth from FY08 to FY12
140

120 116
Gold Loan AUM (Rs Bn)

100

80 75

60

40
18
20 8 12

0
FY08 FY09 FY10 FY11 FY12

Source: Company, Geojit Research.

B) Phase 2 – The turbulent phase

The period of declining gold prices from FY12 to FY14 constitute phase 2, which was also
further tightened by some of the regulatory changes adopted by the Reserve Bank of India
(RBI).
Declining AUM growth from FY12 to FY14
140

120 116
Gold Loan AUM (Rs Bn)

99
100 93
82
80
From FY13 to FY14 Manappuram
Finance has registered a de- 60
growth of around 17% in the
gold loan portfolio. 40

20

0
FY12 FY13 FY14 FY15

Source: Company, Geojit Research.

www.geojit.com
 In March 2012, the Priority Sector Lending status of these NBFCs was removed by RBI, which
led to higher borrowing cost. Apart from this, the LTV was capped at a maximum of 60%,
which means these NBFCs can lend only up to 60% of the price of the gold. This has weakened
the competitive positioning vis-a-vis banks and moneylenders as higher LTV focused
customers moved to moneylenders whereas interest rate sensitive customers moved to banks.
Thus, phase 2 is marked by fall in return ratios and profitability. From FY13 to FY14
Manappuram Finance has registered a de-growth of around 17% in the gold loan portfolio.
C) Phase 3 – The stable growth phase
From FY15 onwards, the gold loan NBFCs are on its revival path entering to the next phase of
growth, supported by stable gold prices, regulatory changes and various strategic initiatives.
RBI has increased the LTV ratio for gold loans to 75% creating an almost level playing field for
gold loan NBFCs and commercial banks. These companies started reaching out to customers
through enhanced marketing and branch activation initiatives like incentives and performance
scorecards. Some gold loan companies started delinking the gold price volatility risk by
offering more variants of lower tenure loan products.
AUM growth picking up from FY15 onwards
140 130
117
120 111
From FY15 onwards, the gold
Gold Loan AUM (Rs Bn)

101
loan NBFCs are on its revival 100 93
path entering to the next phase
of growth, supported by stable 80
gold prices, regulatory changes 60
and various strategic initiatives.
40

20

0
FY15 FY16 FY17 FY18 FY19

Source: Company, Geojit Research.

Growth drivers for Gold Loan NBFCs

Although gold loans as a credit product is not a new phenomenon in the country, it is only in
the recent past that Indian’s have started losing their inhibitions over pledging their family
heirlooms to mainstream commercial lenders and leveraging multiple benefits, such as
instant credit, flexible schemes, lower interest rates and minimal paperwork without hassles
of rigid credit appraisals. The growing penetration of gold loans in India can be attributed to
various factors as follows:
A) Exclusion from mainstream loans
Traditional banking products are not as accessible to rural and lower-income groups as
compared to relatively higher income groups. Also, lower credit scores would undermine
Gold loan comes as a relief to one's efforts to get normal loans during distress periods. This is the situation faced by a large
those rural and lower income portion of the Indian population, especially those working in the unorganised sector in rural
groups who have lower
as well as urban areas. Gold loan offers a viable solution for them. As the gold loans are fully
accessibility to traditional
securitised, lenders have the option to recoup the full principal amount (in most cases) if the
banking products.
borrower defaults. Hence there is no need for extensive checks on borrower’s previous
payment records. Hence the relative ease in obtaining a loan approval has boosted the
popularity of gold loans
B) Changing attitude towards applying gold loans
Apart from the rural communities who are willing to put household jewellery in the market,
acceptance towards using family gold for financial needs is increasing in the relatively
untapped urban market. Using gold loans to meet household exigencies is gaining popularity
in Indian cities and metros.

Q1FY16 Q4FY19

Rural , 11
Metro, 16
Gold loans are getting more and Rural , 20
Metro, 22
more popular in nonrural areas.

Semi-
Urban, 32

Urban, 33
Semi-
Urban, 31 Urban, 35

www.geojit.com
 C) Diversifying Incomes for sustainable growth
These NBFCs are strategically diversifying their business to leverage on the vast customer
Leveraging the vast customer base developed through their mainstay gold loan business over the years. Under this strategy,
base created through mainstay Manappuram finance currently focuses on three main areas apart from the gold loan, namely
gold loan business through new housing finance, commercial vehicle loans and microfinance, with an aim to build their total
synergistic non-gold products. non-gold portfolio to around 40 to 50 per cent of their total assets under management in
coming years. In Q4FY19, these new business segments together constitute around one-fourth
of their total loan portfolio.

D) Wider network auger well for diversification

Both these gold loan NBFCs have a relatively higher number of branches in the sector. By
leveraging the strong brand name acquired through the gold loan business over the years,
these companies can effectively utilize the well-established infrastructure for further growth
and diversification.

Strong branch network of gold loan NBFCs

5000
4500
4000
3500
Gold loan NBFCs have relatively 3000
larger number of branches, 2500
which cater to the growth
2000
through diversification.
1500
1000
500
0
MUTH MGFL MMFS SHTF SCUF SUF UJJIVAN MGMA

Source: Company, Geojit Research

E) A larger share of gold held by rural communities

According to the World Gold Council (WGC) estimates, about 65 per cent of the Indian
household gold held by the rural communities. With largely unpredictable rain and harvest
seasons, accompanied by limited access to credit, farmers become cash trapped frequently.
For them, unlocking the value of their household gold is the easiest way to meet their financial
obligations. Additionally, the rising consumerism in rural areas is leading to increased gold
loans being taken for non-income generating purposes.

Valuation
The gold loan NBFCs have relatively lower valuations and higher return on assets compared to
other NBFCs.

Gold Loan NBFCs – Better positioned in ROA Vs P/BV Matrix

8

7 BAF

6
P/BV (1 yr fwd)

5
Compared to peers, Gold loan
4
NBFCs have higher ROA for SUF

relatively moderate valuation . 3

UJJIVAN
MMFS
PNBHF
2 MGFL MUTH
SCUF
1 REPCO
LICHF MGMA SHTF
0
1 2 3 4 5 6
ROA (1 yr fwd)

* Size indicates market cap

Source: Bloomberg, Geojit Research

Note: MUTH Muthoot Finance, MGFL Manappuram Finance, MMFS Mahindra & Mahindra Financial Services, SHTF Shriram
Transport Finance, SCUF Shriram City Union Finance, SUF Sundaram Finance, UJJIVAN Ujjivan Financial Services, MGMA Magma
Fincorp, CANFIN Can Fin Homes, REPCO Repco Home Finance, CAFL Capital First, BAF Bajaj Finance

www.geojit.com
 Asset Liability Management
As far as asset liability management (as per FY18 balance sheet) is considered, gold loan
NBFCs are better positioned compared to others.

ALM mismatch—Gold loan NBFCs are better positioned

30%

Gold loan NBFCs have better 20%

asset liability management,

10%
which gives them pretty
comfortable position in issues 0%
of drying liquidity.

DEWH

IHFL
PNBHOUSI

HDFC

SUF
CIFC

MGFL

MMFS
LICHF

MAGMA
REPCO

SCUF

BAF

SHTF

MUTH
UJJIVAN
CANF
-10%

-20%

-30%

-40%

-50%
3 year mismatch 5 year mismatch

Source: Company, Geojit Research.

Industry Risks
A) Reduction in collateral value
Decrease in gold prices and the steep decline in the asset value, which in a way diminishes the
sentimental attachment to the collateral, can pose a serious threat to gold loan business.
Companies across the industry are implementing robust risk management mechanisms to
meet the contingencies of fall in collateral value with shorter tenure products and duration
linked loan to value ratios.
B) Adverse Regulatory Changes
Even though ample guidelines have been framed for regulating the industry, any further
change in the regulations can have the capacity to adversely affect the growth of gold loan
Competition from banks and
business. In such cases, the players may find the business less profitable which may in-turn
unorganised sector, a sharp
disturb their sustainability.
decrease in the price of gold
over a shorter span of time, C) Alternate loan products
some adverse regulatory Popularisation and availability of other loan products like personal loan, loan against property
measures, and introduction of and home loan, among others can reduce the demand for gold loan. Additionally, diminishing
some alternate loan products the availability of gold jewellery with borrowers and their unwillingness to pledge, serve as a
forms the key risk to this potential threat to the growth of this sector.
industry. D) Competition
Banks which have a significant advantage in cost of funds and can grow their gold loan business
by offering lower interest rates compared to NBFCs, thereby imposing a threat to the NBFCs
gold loan business. Besides. Also, even today, the unorganised sector caters to a large segment
of customers and retains their niche customer segment thus limiting the growth opportunities
of NBFCs.

Note:
REPCO Repco Home Finance, CANF Can Fin Homes, LICHF LIC Housing Finance, DEWH Dewan Housing Finance,
PNBHOUSI PNB Housing Finance, CIFC Cholamandalam Investment and Finance Company, UJJIVAN Ujjivan Financial Services,
HDFC Housing Development Finance Corporation, SCUF Shriram City Union Finance, BAF Bajaj Finance,
IHFL Indiabulls Housing Finance, SHTF Shriram Transport Finance, MGMA Magma Fincorp, MGFL Manappuram Finance,
SUF Sundaram Finance, MMFS Mahindra & Mahindra Financial Services, MUTH Muthoot Finance

www.geojit.com
 Investment Rationale...
Gold loan business on a revival path
After going through the challenging years of FY13 and FY14, the company decided to change
its strategy in FY15, to strengthen the gold loan business and protect the business from
volatility in gold prices and drive volume growth. Accordingly, the company introduced short
tenure gold loans and over the last couple of years, it has managed to shift more than 90% of
gold loan portfolio to the short term bucket of three months.
Earlier Scenario
Loan Tenure 1 year
Gold Value 100
LTV 75%
Gold Loan 75
Interest Rate 24%
Interest Cost 21
Total 96
Source: Company, Geojit Research.

Introduction of shorter tenure In this case, if the customer does not pay or close the loan, there is only a very little margin of
products to reduce the risk from safety to recover the principal as well as the interest. In order to overcome this, the product
volatility in gold prices and to structure was recalibrated by linking Loan to Value (LTV) to the loan tenure.
drive business growth.
Current Scenario
Loan tenure 3 months 6 months 9 months 1 year
Gold Value 100 100 100 100
LTV 75% 70% 65% 60%
Gold Loan 75 70 65 60
Interest Rate* 24% 24% 24% 24%
Interest Cost 7.5 11.2 14.3 16.8
Total 82.5 81.2 79.3 76.8
Source: Company, Geojit Research.

In the current scenario, the maximum permissible LTV of 75% is available on loans of shorter
tenure rather than one year as was the standard practice earlier. In case of default, this would
ensure ample margin of safety in order to recover principal as well as interest. This has
helped the company to improve the credit quality of the gold loans.
Online gold loans (OGL) accounts With the brick and mortar branches less relevant in today’s world, MGFL has launched Online
for about 39% of total gold loan Gold Loan (OGL) back in 2015. These loans are offered at the convenience of the borrower,
where only one-time branch visit is required to deposit the gold and loans up to Rs1.5cr can
assets under management.
be availed online at anytime from anywhere in the world. With features like instant approval
and free safe custody of gold, OGL is gaining popularity and currently account for about 39%
of the total gold loan AUM.

Gold Loan AUM to grow at 10% CAGR over FY19-21E

18000 12%
16000 10.4% 10.5% 10.5%
10.0% 10%
14000
12000 8%
10000
6%
8000 5.5%
6000 4%
4000
2%
2000
0 0%
FY 17 FY 18 FY 19 FY 20E FY 21E

Gold Loan AUM (Rs Cr) YoY Growth (%) - RHS

Source: Company, Geojit Research.

* Interest rate may vary depending upon the loan tenure

www.geojit.com
 The Company’s gold loan portfolio registered a YoY growth of 27th 5.5%December 2018
to increase from
Rs11,125cr to Rs11,735cr as of March 31, 2018, which further increased to Rs12,961cr in Q4
FY19. The growth in gold loan business was backed by moderate growth in gold tonnage which
increased by 4.8% to reach 64 tonnes in FY18, presently standing at around 67.5 tonnes. The
average gold prices were relatively firm during the past year, helping the AUM growth to an
extent. The momentum of growth picked up in the third and fourth quarters of FY18 as the
first two quarters faced the after effects of demonetisation, particularly its lingering impact on
the rural and unorganised sector which is a key market for the company. It is expected that the
pick-up in volumes seen in the second half of FY18 will be sustained going ahead. With
increasing gold prices and declining interest rates, we expect the gold loan AUM to register a
10% CAGR growth in FY19-21E, with about Rs14,250cr in FY20.
Robust growth in new product segments
With comfortable Capital Adequacy Ratio (CAR) levels, much above the regulatory
requirement of 15%, and by leveraging the strong brand equity acquired through the mainstay
gold loan business over several years, reinforced with the existing retail customer base and
pan India distribution presence, the company has ventured into new synergistic product
segments like Microfinance (MFI), Housing Finance (HF), and Vehicle Finance (VF) back in
The company has acquired FY15. The company has acquired Milestone Home Finance in 2014 (later renamed to
Milestone Home Finance in Manappuram Home Finance), Asirvad Microfinance in 2015, and has organically initiated
2014 (later renamed to commercial vehicle lending and loan against property during FY15.
Manappuram Home Finance),
The strategy that was envisioned to utilise the surplus capital to build or acquire new lending
Asirvad Microfinance in 2015,
products relevant to the prevailing retail customer base started bearing fruit with these new
and has organically initiated
businesses currently representing around one-third of the total assets under management. In
commercial vehicle lending and
FY19, the new businesses helped the overall AUM growth as microfinance (57.6% growth),
loan against property during
home loans (38.5%), commercial vehicle loans (78.2%) and other (Non-gold) loans (69.2%)
FY15.
portfolios have marked notable performance. With all these new businesses getting stabilized,
we expect the total AUM from these businesses to grow at 34% CAGR in FY19-21E. As per the
latest quarterly result of Q4FY19, the asset under management of microfinance has reached
Rs3,841cr, that of vehicle finance has reached Rs1,115cr, and the housing finance AUM has
reached Rs519cr, which is as per our expectations.
New businesses AUM to grow at 34.3% CAGR over FY19-21E
7000 100%
90%
6000 87%
80%
YoY Growth (%)

5000 70%
AUM (Rs cr)

4000 59% 61% 60%

50%
3000 40%
39%
2000 30% 30%
20%
1000
10%
0 0%
FY17 FY18 FY19 FY20E FY21E

Microfinance Housing Finance

Vehicle Finance New Business growth - RHS

Source: Company, Geojit Research.

Over the years, company targets Over the years, MGFL expects the non-gold portfolio to contribute around 50% of the total
50:50 mix in gold and non-gold assets under management, thus mitigating the risk of being a single-product NBFC. We
business, to mitigate the risk of estimate the new businesses to constitute about 43% of the consolidated AUM by FY21E.
being a single-product NBFC.
New business to have ~43% of AUM mix by FY21E
45% 42.6%

40% 38.7%

35% 33.3%

30%
25.6%
25%

20% 18.5%

15%

10%

5%

0%
FY17 FY18 FY19 FY20E FY21E

Source: Company, Geojit Research.

MFI - Leading player in non-gold business

Spread across 22 states/union In February 2015, MGFL acquired an 85% stake in Asirvad Microfinance Ltd. and subsequently
territories with 942 branches, increased it to 90%. Spread across 22 states/union territories with 942 branches, Asirvad has
Asirvad has a pan India a pan India presence catering to the needs of 1.80 million customers, making it the sixth
presence catering to the needs largest NBFC-MFI in India. Three types of loans are offered at present, which are Income
of 1.80million customers generating programme (IGP) loan, Product loan and SME loan, with tenure of up to 24 months.

www.geojit.com
 The company exhibited a spectacular performance soon after the acquisition, with a five-fold
AUM growth from FY15 to Q2FY17. From Q3FY17 onwards till the 1 st half of FY18, the sailing
was difficult for microfinance sector with the rural economy and the unorganised sector
continued facing the after effects of demonetisation and GST implementation. In fact, it was
only in the 2nd half of FY18, Asirvad could get back on the growth track and since then it picked
up quite well. With an AUM of Rs2,437cr in FY18 as compared to Rs1,796cr in FY17, Asirvad
registered about 36% YoY growth. In Q4FY19, the microfinance AUM has reached about
Rs3,841cr, registering 58% YoY growth.
MFI AUM to grow at 28% CAGR over FY19-21E
7000 90%
80%
6000 80%
70%
5000
With both micro and macro 58% 60%
factors playing well, we expect 4000 50%
the AUM of Asirvad to reach a 3000 40%
36%
little above Rs5000cr in FY20 32% 30%
2000 24%
with a CAGR growth rate of 28% 20%
from FY19 to FY21E. 1000
10%
0 0%
FY 17 FY 18 FY 19 FY 20E FY 21E

Microfinance AUM (Rs Cr) YoY Growth (%) - RHS

Source: Company, Geojit Research.

In India, the MFI industry is at a robust growth phase for the past few years (except for the
small period during demonetisation) and has the potential to grow even stronger. The lower
penetration of microfinance lending coupled with relentless efforts of the Government of India
(GoI) and the Reserve Bank of India (RBI) to nurture the growth of formal finance enhance the
prospects of organised lenders, which currently constitute only about 28% of the 6 lakh crore
industry. Asirvad Microfinance, being a leading player, is effectively tapping this opportunity
catering to the needs of a larger segment of the people at the bottom of the pyramid via
microfinance route using collateral-free, joint liability model. With both micro and macro
factors playing well, we expect the AUM of Asirvad to reach a little above Rs5000cr in FY20
with a CAGR growth rate of 28% from FY19 to FY21E.
Housing finance– focusing affordable segment
Manappuram Home Finance, a wholly owned subsidiary of Manappuram Finance, was
incorporated as Milestone Home Finance Company Pvt. Ltd. (Milestone), which was acquired
in February 2014 and renamed as Manappuram Home Finance Ltd. The company started
commercial operations in January 2015 with focus on affordable housing finance segment, for
mid to low-income group. Currently, HF has 35 branches across 6 states majorly concentrated
in southern and western India. The company offers two types of products, namely home loans
Currently Manappuram Home and loan against property with an average ticket size of about Rs10 lakh and Rs. 8.00 lakh
Finance has 35 branches across respectively.
6 states majorly concentrated in India’s housing finance market is worth an estimated Rs9.7 trillion and has achieved steady
southern and western India. growth over the last 3 years. In spite of this, the housing finance market continues to face
considerable supply constraints, particularly in the lower income segment, due to the
perceived high risk of lending to the informal sector. The lower income housing market is
worth over Rs1,100,000cr, comprises of approximately 2.2cr households consisting of both
salaried and self-employed individuals. The housing finance market in India has the potential
to expand and include these borrowers who are currently not being served by financial
institutions. The Bing Bang reforms implemented in 2017, though caused some hiccups in the
sector, have also brought significant changes in the tax, regulatory, and business environment
in India. Post demonetisation, the introduction of RERA and GST has improved the
transparency and accountability in the sector. Also with increasing urbanisation and the
expanding urban fabric of tier II and tier III cities in the country, affordable housing finance is
promised to grow at a higher rate.
HF AUM to grow at 29% CAGR over FY19-21E
1000 160%
900 140%
800 141% 120%
700
600 100%

500 80%
400 60%
300
38% 40%
200 33%
21% 25% 20%
100
0 0%
FY 17 FY 18 FY 19 FY 20E FY 21E

Housing Finance AUM (Rs Cr) YoY Growth (%) - RHS

Source: Company, Geojit Research.

www.geojit.com
 Housing Finance has grown from Rs129cr AUM in FY16 to Rs375cr in 27thFY18, at 2018
December a remarkable
rate of over 70% CAGR. With a focus on steady phase growth, the company has an AUM target
Housing Finance business is of Rs1,000cr over the next 2-3 years while maintaining the profitability and credit quality
expected to grow at 29% CAGR upbeat. The comparatively lower ticket size also gives an added advantage for the company in
over FY19-21E. the housing finance sector. In Q4FY19, the company has shown a 39% YoY growth in housing
finance AUM, reaching at Rs518cr.
Given the strategic importance of affordable home finance to MGFL’s future plans, as it
proceeds with the diversification of the range of its financial products, it is reasonable to
expect strong support from the parent. The business is scalable and is expected to grow
substantially, to the tune of 29% CAGR over FY19-21E.
Vehicle Finance to cross Rs1,700cr AUM in FY20E
In order to diversify and de-risk the portfolio, Manappuram Finance had entered into
commercial vehicle financing activity in FY15, operating from southern and western regions
The vehicle finance portfolio is and subsequently entering into other regions, catering to the needs of underserved customers
about Rs11 billion, spread who do not have access to the formal banking system.
across 168 locations in 21 The vehicle finance portfolio is about Rs11 billion, spread across 168 locations in 21 states as
states. on March 31, 2019. The portfolio mainly comprises commercial vehicles, and has a smaller
share of two-wheeler and used cars, with an average ticket size of around Rs7.3 lakhs.
VF AUM to grow at 47% CAGR over FY19-21E
3000 160%

140%
2500 136%
120%
2000 104% 100%

1500 78% 80%

60%
1000 55%
40% 40%
500
20%
We expect the vehicle finance
0 0%
AUM to reach above Rs1,700cr FY 17 FY 18 FY 19 FY 20E FY 21E
in FY20E, registering a 47% Vehicle Finance AUM (Rs Cr) YoY Growth (%) - RHS
CAGR growth in FY19-21E.
Source: Company, Geojit Research.

The AUM of vehicle finance business almost doubled in FY19 to Rs1,115cr compared to FY18,
owing to healthy traction and improved demand momentum in the pre-owned commercial
space. The company is leveraging the existing gold loan branches to expand vehicle finance
business and hence will incur very little expenditure leading to greater profitability. Going
forward, with sustained growth momentum and by leveraging the existing customers, we
expect the vehicle finance AUM to reach above Rs1,700cr in FY20E, registering a 47% CAGR
growth in FY19-21E.
Total AUM to grow at ~19% CAGR over FY19-21E
30000 23% 25%

19% 20%
25000 18% 20%
15%
20000
AUM (Rs. cr)

15%
15000
10%
10000

5%
5000

0 0%
FY 17 FY 18 FY 19 FY 20E FY 21E

Gold New Business YoY Growth (%) - RHS

With gold loan AUM growing at
10% CAGR and new businesses Source: Company, Geojit Research.
AUM growing at 34% CAGR, we
With gold loan AUM growing at 10% CAGR and new businesses AUM growing at 34% CAGR,
expect the total AUM to grow at
we expect the total AUM to grow at around 19% CAGR in FY19-21E.
~19% CAGR in FY19-21E.
Significant reduction in auction losses
With the introduction of shorter tenure gold loan products in recent years, the company was
able to significantly bring down the auction losses. With an auction loss of around 17% in
FY14, the company was able to reduce the auction loss to 0% and in fact had an auction gain in
FY18. The relatively stable nature of gold prices over the years also helped the company to
achieve this.

www.geojit.com
 Auction losses to auction gain 27th December 2018

35000 10%
30000 5%
4%
25000
0% 0%
20000
-5%
15000
-9% -10%
10000
5000 -15% -15%
-17%
0 -20%
FY 14 FY 15 FY 16 FY 17 FY 18

Outstanding loan amount (Rs. Mn)

Value Fetched in auction (Rs. Mn)
Auction Loss/Profit (%) - RHS

Source: Company, Geojit Research.

Healthy asset-liability management

As per the latest annual report, the company has a healthy asset-liability maturity pattern
Mainly due to the shorter tenure going forward, which is mainly due to the shorter tenure gold loan products. As of March
gold loan products, MGFL have a 2018, on a one-year, three-year and five-year basis, the total assets that get matured is about
positive asset-liability maturity 1.33, 1.24 and 1.26 times the total liabilities that get matured in the same time period,
pattern. respectively. This gives a much safer and comfortable position for the company in case of a
difficult situation like as of liquidity crisis.
Asset liability maturity pattern
140000

120000

100000

80000

60000

40000

20000

0
Upto 3 yr Upto 5 yr Total

Asset (Rs mn) Liability (Rs mn)

Source: Company, Geojit Research.

Ample space for AUM growth

The total asset under management of Muthoot Finance is nearly double to that of
Manappuram Finance, which can be mainly attributed to the history as well as size of the
their businesses. The gold loan AUM per branch of Muthoot is almost 2 times to that of
Manappuram in FY19. This signifies that there is a lot of scope for the company to
enhance the productivity of the business, which can lead to better operating leverage
going forward.
Wider scope for increasing business
80

70

60
AUM/Branch (Mn)

50
Significant scope for scaling up 40
AUM/Branch. 30

20

10

0
FY 14 FY 15 FY 16 FY 17 FY 18 FY 19
Manappuram Finance Muthoot Finance

Source: Company, Geojit Research.

www.geojit.com
Financials...
Well diversified borrowing mix
MGFL has a well-diversified borrowing mix across commercial paper, non-convertible
debentures and bank finance. The company has reduced the dependency on bank finance from
more than 80% in FY15 to the range of about 62% in FY19. The company has increased the
share of commercial paper from 0% in FY14 to 25% in FY19, whereas the share of Non-
Convertible Debentures (NCDs) is almost at the same level around13%.
Borrowing Mix
100%

80%

60%

40%

20%

0%
FY14 FY15 FY 16 FY 17 FY 18 FY 19

Commercial Paper Subordinate Bond NCD Bank Finance Others

Source: Company, Geojit Research.

Besides, the company also enjoys good credit ratings for its long term and short term
borrowings, which is depicted below.

CREDIT RATING
Manappuram Finance
Long Term AA- (Positive) CRISIL
Long Term AA- (Stable) ICRA
Long Term AA+ (Stable) Bricwork
Long Term AA (Stable) CARE
Short Term A1+ CARE
Commercial Paper A1+ CRISIL, CARE
Asirvad Microfinance
Long Term A+ (Positive) CRISIL
Long Term A+ (Stable) CARE
Short Term A1+ CRISIL
Housing Finance
Long Term A+ (Positive) CRISIL
Long Term AA- (Stable) CARE
Short Term A1+ CRISIL
Source: Company, Geojit Research.

We expect the total borrowings of the company to grow at a CAGR of 19% from FY19-21E,
which will strongly support the total AUM growth estimated around 19% CAGR over the same
period.

Total Borrowings to grow at 19% CAGR over FY19-21E

25000 23% 25%

20%
20000 18% 20%

14% 15%
15000 15%

10000 10%

5000 5%

0 0%
FY 17 FY 18 FY 19 FY 20E FY 21E

Borrowings (Rs Cr) YoY Growth (%) - RHS

Source: Company, Geojit Research.

www.geojit.com
 Net Interest Margin to be maintained around 14%
The company has significantly brought down the cost of borrowing from 11.7% in FY14 to
8.7% in FY18. With Interest rate and bond yield on a higher side for a significant portion of
FY19, with repo rate at 6.50% till the 6th bimonthly monitory policy on 6th February 2019,
the cost of borrowing has increased by 57 bps to 9.27% in FY19. Going forward, with three
consecutive rate cuts in the last two monetary policy review meeting (repo rate currently
standing at 5.75%), along with the benefits from using credit rating for assigning risk
weighted assets by the lending institutions, we expect the cost of borrowing to decline to the
tune of around 50 to 60bps in the coming years. Also, we expect the interest yield to
We expect the cost of borrowing marginally decline by around 20bps, with increasing share of new businesses with
to decline by around 50-60bps, comparatively lower yields going ahead. With these effects, we expect the total spread to be
with a marginal decline in yield, maintained around 14% in FY20E and FY21E.
the spread to be maintained
Interest spread to marginally improve going ahead
around 14% in the coming
years 30% 16%
15.4%
25% 16%

20% 15%

15% 15%
14.0% 14.0% 14.0%
10% 14%
13.5%
5% 14%

0% 13%
FY 17 FY 18 FY 19 FY 20E FY 21E

Interest Yeild Cost of Borrowing Spread - RHS

Source: Company, Geojit Research.

The company has exhibited a continuous increase in net interest margin from FY13 to FY17
and showed some decline in FY18 as the business was affected by the repercussions of
demonetisation and GST implementation. It further declined marginally in FY19 due to the
side effects of liquidity crisis and rising cost of funds. However, with a declining interest rate
scenario we expect NIM to marginally improve going ahead.
NIM to be maintained above 15% over FY19-21E
20%
17.5%
18%
15.7% 15.3% 15.8% 15.8%
16%
14% 13.4%
12.2%
11.5%
12% 10.4%
10%
8%
6%
4%
2%
0%
FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20E FY 21E

Source: Company, Geojit Research.

Healthy capital adequacy ratio (CAR)

The company have a capital adequacy ratio of 23.9 per cent in FY19, which is far above the
regulatory requirement of 15 per cent. In fact, the company has ventured into new business
segments to effectively utilise this excess capital.
CAR to be maintained well above regulatory requirement
30%
Capital adequacy ratio (CAR)
consistently maintained much 25% 28%
26% 27%
26%
above the regulatory 24% 24%
20%
requirement of 15%.
15%

10%

5%

0%
FY 14 FY 15 FY 16 FY 17 FY 18 FY 19

CAR (%)

Source: Company, Geojit Research.

www.geojit.com
 One of the lowest NPAs among NBFC space
Gold loan being a low risk business, as the company have the option to auction the gold in case
of a default, the gross non-performing assets of the standalone business stood at just 0.7% in
FY18. In FY19, the company was able to maintain the reduce this to 0.5%. We don’t expect the
company to overshoot the current NPA levels in the years ahead. As far as microfinance
business is considered, GNPA stood at 2.33% as of FY18, and further reduced to 0.48% in Q4
FY19, whereas the Net NPA was maintained at 0% for the past few quarters. Considering the
housing finance business, the GNPA stood at 4.8% in FY18, and reduced to 3.9% in Q4 FY19.
The GNPA and NNPA of vehicle finance stands at 1.9% and 0.8% respectively inQ4FY19. In
Q4FY19, the consolidated GNPA and NNPA stood at 0.6% and 0.3% respectively. We expect
both gross & net NPA to decline in the upcoming years.
NPA’s expected to improve going forward
2.5% 2.26%

2.0%

1.5%
In Q4FY19, the consolidated 1.19% 1.16% 1.57%
GNPA and NNPA stood at 0.6% 0.91%
1.03%
1.0%
and 0.3% respectively. 0.99% 0.97% 0.56% 0.53% 0.47%
0.5%
0.63%
0.50%
0.34% 0.33% 0.26%
0.0%
FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20E FY 21E

GNPA (%) NNPA (%)

Source: Company, Geojit Research.

Attractive return ratios going ahead

As per our analysis, we expect a gradual increase in the return on assets (ROA) and return on
equity (ROE) ratios going forward supported by a PAT growth of 23% and 18.2% in FY20E and
FY21E respectively.
Return ratios to be well maintained
30%
24.7%
25% 22.1% 22.9% 22.5%
18.8%
20%

15% 13.1%
10.6%
8.6% 9.2%
10%
5.4% 4.8% 4.9% 4.9%
4.2%
5% 2.4% 2.9%
1.7% 1.9%

0%
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E

ROE ROA

Source: Company, Geojit Research.

Cost to be controlled by co-locating businesses

Over the last few years, by co-locating HF and VF businesses with gold loan branches, the
The cost to income ratio
company was able to significantly reduce the cost to income ratio and keep the cost to AUM
expected to reduce to 48.2% by
ratio at almost constant level. We expect both cost to income ratio and cost to AUM ratio to
FY21E.
reduce to 48.2% and 7.8% respectively by FY21E.
Synergistic business expansion to reduce costs

70% 64.1%
60.4% 58.5%
60% 50.4% 48.5% 48.3% 48.2%
50% 43.1%

40%
30%
20%
7.7% 7.6% 7.9% 7.7% 8.4% 7.9% 7.9% 7.8%
The cost to AUM ratio to 10%
marginally reduce to 7.8% in
0%
FY21E.
FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E

Cost to Income ratio Cost to AUM ratio

Source: Company, Geojit Research.

www.geojit.com
 Valuation
After temporary hiccups in the businesses caused by the lingering effects of demonitisation
especially on the rural economy, the management is targeting healthy growth going forward.
The company is also having one of the lowest NPA’s in the non-banking finance space due to
the secured nature of lending for the gold loan business, which accounts for about 2/3 rd of
With strong macro factors of their loan book. The capital adequacy ratio of the company is much above the regulatory
rising gold prices and reducing requirement, which eliminates the need to raise any additional capital for coming few years.
interest rates, we value The company also doesn’t have any notable asset liability mismatches to be a cause of concern.
Manappuram Finance Ltd. At
At CMP, the stock is trading at P/BV of 2.0x and 1.7x for FY20E BVPS of Rs64.9 and FY21E
2.0x FY21E Adj.BVPS and
BVPS of Rs 78 respectively. With strong macro factors of rising gold prices and reducing
recommend ’Buy’ with a target
interest rates, we value Manappuram Finance Ltd. at 2.0x FY21E Adj.BVPS and recommend
price of Rs154.
‘Buy’ with a target price of Rs154.
One year forward Price to Book Value
2.5

2.0

1.5

1.0

0.5

0.0
Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19
P/BV 1 yr Fwd Avg 1yr Fwd P/BV Avg + 1 SD Avg - 1 SD

Source: Company, Geojit Research.

Company Background
The company was incorporated as Manappuram General Finance and Leasing Limited on July
15, 1992 in Kerala, and later renamed as Manappuram Finance Limited. The company’s origin
goes back to 1949, when it was founded in the coastal village of Valapad in Thrissur district of
Kerala, and was involved in pawn broking and money lending on a modest level. It is the first
non-banking finance company in Kerala to receive a certificate of registration from RBI. The
company went public in 1995, and since then it has grown substantially. At present the
company has a total asset under management of around Rs194 billion, with Rs130 billion in
gold loan business and remaining spread among microfinance, housing finance, vehicle
finance and other loans.
Management team
Mr. V.P. Nandakumar
Managing Director & CEO
Chief Promoter of Manappuram Group
Mr. B.N. Raveendrababu
Executive Director
Director since 1992
Mrs. Bindu AL
CFO
Chartered Accountant with over 20 years in the area of finance and accounts
Mr. Raja Vaidhyanathan
Managing Director – MFI
Erstwhile promoter of Asirvad Microfinance with over 33 years of experience
Mr. Jeevandas Narayan
Managing Director – Housing Finance
Erstwhile MD of State Bank of Travancore with over 37 years of experience
Mr.Subhash Samant
CEO – Housing Finance
Over 21 years of experience
Mr. K Senthil Kumar
Head – Commercial Vehicle
Over 21 years of experience
Mr. Kamalakar Sai Palavalasa
EVP – Insurance
Over 24 years of experience
Mrs. Puneet Kaur Kohli
SVP –CTO
Over 22 years of experience

www.geojit.com
 27th December 2018
Consolidated Financials

PROFIT & LOSS BALANCE SHEET

Y.E March (Rs cr) FY17A FY18A FY19A FY20E FY21E Y.E March (Rs cr) FY17A FY18A FY19E FY20E FY21E
Interest Income 3,376 3,354 4,012 4,930 5,803 Cash 589 724 1,164 1,126 1,531
Interest Expense 1,169 1,030 1,319 1,559 1,803 Loans & Advances 13,406 15,244 17,812 22,087 26,057
Net Int. Income 2,208 2,324 2,693 3,371 4,000 Investments 5 5 174 51 101
Change 57.5% 5.3% 15.9% 25.2% 18.6% Gross Fixed Assets 494 639 693 747 796
Non Int. Income 33 125 167 111 111 Net Fixed Assets 183 269 312 216 169
Operating Income 2,240 2,449 2,859 3,482 4,111 CWIP 1 0 1 0 0
Change 57.3% 9.3% 16.8% 21.8% 18.0% Intangible Assets 39 41 54 55 57
Operating Exp. 965 1,235 1,386 1,681 1,982 Def. Tax (Net) 96 110 89 144 170
Pre Prov. Profit 1,251 1,214 1,473 1,770 2,111 Other Assets 665 637 848 734 790
Prov. & Conting. 109 177 46 42 50 Total Assets 14,983 17,030 20,454 24,413 28,875
PBT 1,166 1,037 1,427 1,760 2,079 Deposits 0 0 2 0 0
Change 112.6% -11.1% 37.6% 23.3% 18.2% Debt Funds 10,781 12,487 15,176 18,086 21,525
Tax 407 360 498 616 728 Other Liabilities 813 684 697 842 989
Tax Rate 35% 35% 35% 35% 35% Provisions 25 45 55 59 63
Reported PAT 756 676 929 1,144 1,352 Equity Capital 168 169 169 169 169
Adj* 0 0 0 0 0 Reserves & Surplus 3,195 3,645 4,356 5,289 6,398
Adj. PAT 756 676 929 1,144 1,352 Shareholder’s Funds 3,363 3,813 4,525 5,458 6,566
Change 113.6% -10.5% 37.4% 23.0% 18.2% Total Liabilities 14,983 17,030 20,454 24,413 28,875
No. of shares (Cr) 84 84 84 84 84 BVPS (Rs) 40.0 45.3 53.8 64.9 78.0
EPS (Rs) 9.0 8.0 11.0 13.6 16.1 Change 21.8% 14.1% 18.3% 20.3% 20.3%
Change 113.8% -10.7% 37.3% 22.7% 18.2% Adj. BVPS (Rs) 37.4 44.7 53.1 63.9 77.2
DPS (Rs) 2.00 2.00 2.20 2.20 2.40 Change 17.0% 19.5% 19.0% 20.3% 20.7%

RATIOS
Y.E March FY17A FY18A FY19E FY20E FY21E
Profitab. & Return
Interest yield (%) 26.7 22.7 22.9 23.1 22.9
Cost of funds (%) 11.3 8.7 9.4 9.1 8.9
Spread.(%) 15.4 14.0 13.5 14.0 14.0
NIM (%) 17.5 15.7 15.3 15.8 15.8
ROE (%) 24.7 18.8 22.1 22.9 22.5
ROA(%) 5.4 4.2 4.8 4.9 4.9
Business Growth (yoy)
Gold Loan AUM (%) 10.4 5.5 10.5 10.0 10.5
Microfinance AUM (%) 79.8 35.7 57.6 32.0 24.0
Total AUM (%) 19.5 15.4 23.3 19.6 18.0
Operating Ratios
Cost to Income (%) 43.1 50.4 48.5 48.3 48.2
Cost to Assets (%) 6.9 7.6 7.2 7.2 7.1
Asset Quality
GNPA (%) 2.3 1.0 0.6 0.5 0.5
NNPA (%) 1.6 0.5 0.3 0.3 0.3
Capital Adequacy
CAR (%) 26.1 27.0 24.0 27.0 27.0
Valuation ratios
P/E (x) 14.4 16.1 11.7 9.5 8.1
P/B (x) 3.2 2.8 2.4 2.0 1.7
Adj. P/B (x) 3.5 2.9 2.4 2.0 1.7

www.geojit.com
 27th December 2018

Recommendation Summary (last 3 years) Dates Rating Target

150 16 July 2019 Buy 154

140
130
120
110
100
90
80
70
60
50
Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19

Source: Bloomberg, Geojit Research.

Investment Rating Criteria

Large Cap Stocks; Mid Cap and Small Cap;
Buy - Upside is above 10%. Buy - Upside is above 15%.
Hold - Upside is between 0% - 10%. Accumulate - Upside is between 10% - 15%.
Reduce - Downside is more than 0%. Hold - Upside is between 0% - 10%.
Neutral - Not Applicable Reduce/Sell - Downside is more than 0%.
Neutral - Not Applicable

To satisfy regulatory requirements, we attribute ‘Accumulate’ as Buy and ‘Reduce’ as Sell.

The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return
basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. For reasons of
valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being up-
graded to BUY or downgraded to a HOLD, REDUCE or SELL.
Neutral- The analyst has no investment opinion on the stock under review

General Disclosures and Disclaimers

CERTIFICATION
I, Abijith T Cherian, author of this Report, hereby certify that all the views expressed in this research report reflect our personal views about any or all of
the subject issuer or securities. This report has been prepared by the Research Team of Geojit Financial Services Limited, hereinafter referred to as Geojit.

COMPANY OVERVIEW
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management and marketing investment products including mutual funds, insurance and properties. Geojit is a SEBI registered Research Entity and as such
prepares and shares research data and reports periodically with clients, investors, stake holders and general public in compliance with Securities and Ex-
change Board of India Act, 1992, Securities And Exchange Board Of India (Research Analysts) Regulations, 2014 and/or any other applicable directives,
instructions or guidelines issued by the Regulators from time to time.

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This document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any
other person. Geojit will not treat the recipients of this report as clients by virtue of their receiving this report.

GENERAL REPRESENTATION
The research reports do not constitute an offer or solicitation for the purchase or sale of any financial instruments, inducements, promise, guarantee, war-
ranty, or as an official confirmation of any transaction or contractual obligations of any kind. This report is provided for assistance only and is not intended
to be and must not alone be taken as the basis for an investment decision. The information contained herein is from publicly available data or other sources
believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied on as such. We have also reviewed the research
report for any untrue statements of material facts or any false or misleading information. While we endeavor to update on a reasonable basis the infor-
mation discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so.

RISK DISCLOSURE
Geojit and/or its Affiliates and its officers, directors and employees including the analyst/authors shall not be in any way be responsible for any loss or
damage that may arise to any person from any inadvertent error in the information contained in this report. Investors may lose his/her entire investment
under certain market conditions so before acting on any advice or recommendation in these material, investors should consider whether it is suitable for
their particular circumstances and, if necessary, seek professional advice. This report does not take into account the specific investment objectives, finan-
cial situation/circumstances and the particular needs of any specific person who may receive this document. The user assumes the entire risk of any use
made of this information. Each recipient of this report should make such investigation as it deems necessary to arrive at an independent evaluation of an
investment in the securities of companies referred to in this report (including the merits and risks involved). The price , volume and income of the invest-
ments referred to in this report may fluctuate and investors may realize losses that may exceed their original capital.

FUNDAMENTAL DISCLAIMER
We have prepared this report based on information believed to be reliable. The recommendations herein are based on 12 month horizon, unless otherwise
specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium
term, there could be a temporary mismatch to rating. For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. The
stocks always carry the risk of being upgraded to buy or downgraded to a hold, reduce or sell. The opinions expressed are subject to change but we have
no obligation to tell our clients when our opinions or recommendations change. This report is non-inclusive and does not consider all the information that
the recipients may consider material to investments. This report is issued by Geojit without any liability/undertaking/commitment on the part of itself or
anyof its entities. We may have issued or may issue on the companies covered herein, reports, recommendations or information which is contrary to those
contained in this report.

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 27th December 2018
The projections and forecasts described in this report should be evaluated keeping in mind the fact that these are based on estimates and assumptions and
will vary from actual results over a period of time. The actual performance of the companies represented in the report may vary from those projected. These
are not scientifically proven to guarantee certain intended results and hence, are not published as a warranty and do not carry any evidentiary value
whatsoever. These are not to be relied on in or as contractual, legal or tax advice. Prospective investors and others are cautioned that any forward-looking
statements are not predictions and may be subject to change without notice.

JURISDICTION
The securities described herein may not be eligible for sale in all jurisdictions or to all categories of investors. The countries in which the companies
mentioned in this report are organized may have restrictions on investments, voting rights or dealings in securities by nationals of other countries.
Distributing/taking/sending/dispatching/transmitting this document in certain foreign jurisdictions may be restricted by law, and persons into whose
possession this document comes should inform themselves about, and observe any such restrictions. Failure to comply with this restriction may constitute a
violation of any foreign jurisdiction laws. Foreign currencies denominated securities are subject to fluctuations in exchange rates that could have an adverse
effect on the value or price of or income derived from the investment. Investors in securities such as ADRs, the value of which are influenced by foreign
currencies effectively assume currency risk.

REGULATORY DISCLOSURES:
Geojit’s Associates consists of privately held companies such as Geojit Technologies Private Limited (GTPL- Software Solutions provider), Geojit Credits
Private Limited (GCPL- NBFC Services provider), Geojit Investment Services Limited (GISL- Corporate Agent for Insurance products), Geojit Financial
Management Services Private Limited (GFMSL) &Geojit Financial Distribution Private Limited (GFDPL), (Distributors of Insurance and MF Units).In the
context of the SEBI Regulations on Research Analysts (2014), Geojit affirms that we are a SEBI registered Research Entity and in the course of our
business as a stock market intermediary, we issue research reports /research analysis etc that are prepared by our Research Analysts. We also affirm and
undertake that no disciplinary action has been taken against us or our Analysts in connection with our business activities.
In compliance with the above mentioned SEBI Regulations, the following additional disclosures are also provided which may be considered by the reader
before making an investment decision:
1. Disclosures regarding Ownership*:
Geojit confirms that:
It/its associates have no financial interest or any other material conflict in relation to the subject company (ies) covered herein.
It/its associates have no actual beneficial ownership greater than 1% in relation to the subject company (ies) covered herein.
Further, the Analyst confirms that:
he, his associates and his relatives holds shares / has other financial interest in the subject company (ies) covered herein
he, his associates and his relatives have no actual/beneficial ownership greater than 1% in the subject company covered herein.
2. Disclosures regarding Compensation:
During the past 12 months, Geojit or its Associates:
(a) Have not received any compensation from the subject company; (b) Have not managed or co-managed public offering of securities for the subject
company (c) Have not received any compensation for investment banking or merchant banking or brokerage services from the subject company. (d) Have
not received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject
company (e) Have not received any compensation or other benefits from the subject company or third party in connection with the research report (f) The
subject company is / was not a client during twelve months preceding the date of distribution of the research report.
3. Disclosure by Geojit regarding the compensation paid to its Research Analyst:
Geojit hereby confirms that no part of the compensation paid to the persons employed by it as Research Analysts is based on any specific brokerage
services or transactions pertaining to trading in securities of companies contained in the Research Reports.
4. Disclosure regarding the Research Analyst’s connection with the subject company:
It is affirmed that the I, Abijith T Cherian, Research Analyst(s) of Geojit have not served as an officer, director or employee of the subject company
5. Disclosure regarding Market Making activity:
Neither Geojit/its Analysts have engaged in market making activities for the subject company. Please ensure that you have read the “Risk Disclosure
Documents for Capital Market and Derivatives Segments” as prescribed by the Securities and Exchange Board of India before investing.

Digitally signed by ABIJITH T CHERIAN

Date: 2019.07.16 11:31:06 +05'30'

Geojit Financial Services Ltd. (formerly known as Geojit BNP Paribas Financial Services Ltd.), Registered Office: 34/659-P, Civil Line Road, Padivattom,
Kochi-682024, Kerala, India. Phone: +91 484-2901000, Website: www.geojit.com. For investor queries: customercare@geojit.com, For grievances:
grievances@geojit.com, For compliance officer: compliance@geojit.com.

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INH200000345, Investment Adviser SEBI Reg No: INA200002817, Portfolio Manager: INP000003203, Depository Participant: IN-DP-325-2017, ARN
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