Friday, March 7, 2014

How Manappuram’s Current NCD is Different From the Last

Manappuram Finance Ltd’s ongoing Non Convertible Debenture (NCD) issue completed its third day today, and many investors are wondering what all features are different in this issue, compared with its last NCD issue during December-January.

On several parameters, both these NCD issues from the gold loan major are quite similar. For instance on parameters like issue size, green shoe option, face value, minimum investment, NCD rating, tenures, interest payout options, and even on the highest possible yield, both the NCD issues are exactly similar.

Like the last time, issue size remains Rs. 100 crore, green shoe option remains an additional Rs. 100 crore, NCD rating remains A+, face value remains Rs. 1000, minimum investment remains Rs. 10,000, tenures range from 400 days to 70 months, payout options include monthly, yearly, or cumulative, and the highest possible yield remains at 12.61% per annum itself.

So, for all those who missed the Manappuram NCD during December-January, this is another opportunity to invest. Seasonal Magazine had, back then, correctly predicted that the December-January issue may close before the tentative deadline, due to strong demand.

However, there are important differences too, not so much in these two NCD issues, but in the business environment for Manappuram. Soon after the NCD of Dec-Jan concluded, RBI gave a big boost to gold loan NBFCs like Manappuram when it allowed them a higher Loan-to-Value (LTV) of 75% from the earlier prevailing 60%.

Closely following and mirroring this development, rating agency CRISIL re-rated Manappuram Finance’s all banking facilities from Negative to Stable. Apart from more supportive RBI regulations, CRISIL in its report cited ongoing improvement in Manappuram’s business metrics, for the positive re-rating.

Even more recently, CRISIL Research has assigned a CRISIL IER Fundamental Grade of 3/5 to Manappuram Finance, with the grade indicating that the company's fundamentals are 'good' relative to other listed equity securities in India.

CRISL also assigned a Valuation Grade of 4/5 to Manappuram indicating that the market price has upside from the current levels, since CRISIL’s discovered fair value for the stock is Rs. 28. Manappuram closed today’s trade at Rs. 22.15 in NSE.

Manappuram has been one of India’s most notable wealth creators as well as wealth sharers, with its stock appreciating by 633 times between 2003 and 2010.

Top non-promoter or public shareholders in Manappuram Finance include some of the world’s most well-known funds like Hudson, Baring, Wellington, HSBC, Smallcap World Fund, Beaver, Sanlam, and BRIC II.

Anyway, with all the new developments, it is obvious that the current NCD comes at a time when Manappuram’s business prospects have improved significantly compared with the situation two months back.

Hence, for investors looking for even more safety, this is a better opportunity than during Dec-Jan. At the same time, Manappuram has maintained the maximum yield at 12.61%, which is higher than the rest of the current NCD offers, as well as one of the highest during this fiscal.

Since the maximum tenure is 70 months for the NCD, investors would be looking closely at Manappuram Finance’s long-term prospects.

Founder, Managing Director, & CEO VP Nandakumar is working overdrive to better the long-term prospects, by tackling the firm’s only drawback of being a non-diversified player.

While launching the NCD, Nandakumar disclosed that Manappuram has set its eyes on diversifying more into affordable housing finance, auto finance, and micro finance. His aim is to make 50% of the loan assets of the company come from these new segments by 2020, and the remaining 50% to be from the firm’s mainstay of lending against gold.

Manappuram currently has around 50 tonnes of gold in its lockers as loan assets.

Though this ex-banker as well as Manappuram’s Executive Director and Deputy CEO I Unnikrishnan are far away from retirement age, they are already grooming the next generation leaders at Manappuram.

The company’s board of directors is convening an EGM on 11th March to appoint Sooraj Nandan, a postgraduate in risk management from University of East London, as the Senior Vice President (Strategies). Sooraj Nandan is the son of VP Nandakumar, and also holds an Honours Degree in Business Studies and Diploma in Business Computing, both from UK universities.

Meanwhile, like last time, the current NCD too is likely to be oversubscribed before the closing date of March 25th, and if that happens the issue may be fore-closed.

The issue is rated by ICRA at A+ with a stable outlook. ICICI Securities is the lead manager for the NCD Issue.

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