Turning point
The announcement of Bain Capital acquiring a controlling stake in Manappuram Finance (MGFL IN) earmarks a turning point for the second- biggest market leader in the gold financing space. While the long-standing overhang is behind, Bain’s investment could catalyze a valuation re-rating for MGFL (acquisition at a premium), inviting investor confidence in MGFL’s growth and governance prospects. However, the wide valuation gap as against the market leader – MUTH at 2.4x FY27E P/ABF versus MGFL’s 1.1x – may not narrow down much until MGFL corrects its structural deficiencies & meet competitive challenges. While the transaction is expected to unfurl fully by Q2-Q3FY26, we reckon kitchen-sinking for another two quarters before MGFL wends its way towards strength. For now, this development and thus, the move towards professional management and the recent price uptick (20% in the past three months) prompt us to raise our multiple to 1.3x FY27E P/ABV (from 1x) – So, we upgrade MGFL to Accumulate from Reduce.
Acquisition at significant premium reflects confidence in future growth: Bain Capital has committed to invest ~INR 43.85bn to acquire an 18% stake in MGFL on a fully diluted basis through a preferential allotment of equity shares and warrants at a price of INR 236 per share. A considerable 30% premium over the six-month average price is indicative of Bain’s confidence in MGFL’s growth potential. The deal structure also triggers a mandatory open offer, requiring Bain Capital to offer to purchase an additional 26% stake from public shareholders with the likelihood of an increase in Bain’s total ownership to 41.7-46%. Subsequently, Bain Capital would have joint control alongside the existing promoter group, led by V.P. Nandakumar, who currently holds a 35.25% stake with his family.
Acquisition to enhance scalability and professionalization: The sizeable INR 43.85bn capital injection provides MGFL sufficient ammunition to bolster its balance sheet, business expansion and address asset quality concerns in its non-gold portfolio. The deal would also imply promoter/promoter family transitioning into non-executive roles, thus paving way for Bain to shape strategic direction, potentially enhancing operational efficiency, improving governance, and introducing professional management. Moreover, capitalizing on MGFL’s core strength in gold lending (55% of overall AUM) and diversification into microfinance (via Asirvad Micro Finance), vehicle loans, housing finance, and MSME lending, Bain can scale the business with a new team. Besides, with MGFL’s non-gold businesses having faced significant challenges (regulatory hurdles in the micro finance business), Bain’s association could usher in stability and fine-tune operations.
Strategic inflection point – Upgrade to Accumulate: Bain Capital’s acquisition of a controlling stake in MGFL marks a breakthrough, with a shift towards professional governance, thus potentially catalyzing a valuation uplift. Amongst a plethora of challenges – prior regulatory scrutiny etc. – the deal timing is notable. So, we raise the multiple to 1.3x FY27E P/ABV (from 1x) and upgrade MGFL to Accumulate from Reduce, with TP also raised to INR 250 (from INR 185). While execution is key & kitchen sinking a possibility, we refrain from tweaking our estimates. Factoring in existing prospects, we maintain FY26E-27E RoE at 17.5-17.9%, RoA at 4.2% & 15% loan CAGR.
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