I feel something strange looking at of Manappuram:
- It trades at single digit PE multiple and close to book value.
- It looks to be the safest lending operations with gold as collateral. Debt to equity of 3:1 suggests it is very conservatively leveraged.
- It is among leaders in gold loan financing for the under banked, and one of the emerging compitetor (IIFL Finance) is retired hurt after recent RBI direction not allowing IIFL to onboard new customers
- Since last few years, company is posting decent results , and competing with competition successfully
The growth if it comes can be funded by incremental profits. Aashirvaad Microfinance can fund its growth via IPO funding.
The company has excess cash of 3000 Cr that is spare, over and above of business operations/ Capital adequacy ratio.
I feel at current valuation , a massive buyback can add huge value to shareholders, including promoters who hold only 35% stake. Having said that, I have not seen any NBFC doing buyback in the past.
The price at which it trades, though not dirt cheap, makes me feel that:
- Market believes there are no growth prospects for the company or
- The financials are fudged and corrupt, or
- There is some serious hidden corporate governance issue or
- Microfinance is a time bomb that will explode one day
What are your views @sheekhuj
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