The company expects to dilute 17% of its equity to raise ₹1,500 crore in an initial public offer (IPO) for its subsidiary Asirvad Micro Finance.
“Microfinance is an unsecured cyclical business and so risky. We do not want to go beyond 10% capital allocation for this business. But given its growth momentum, it will need capital in the future, so the best way is to list it separately, so it becomes self-sufficient. Market conditions are also good for a public listing,” Nandakumar said.
Earlier this month Manappuram filed a draft red herring prospectus (DRHP) to list Asirvad Micro Finance, its microfinance subsidiary. The company plans to raise ₹1,500 crore from the sale of fresh shares which will be used to augment its capital base. Manappuram will not sell any of its 98% stake in the company.
The separation of microfinance from the parent will mean that the company will take at least five years to get to its aspired 50:50 mix of gold and non-gold loans. Gold loans make up 56% of its assets under management (AUM) of ₹37,086 crore at the end of June. Nandakumar said that the pace of growth in gold loans will be half the average growth.
“Overall our AUM will grow at 20% to 25% but gold loans will grow at 10% or less because we service customers at the lower end of the pyramid and they have not fully recovered from the pandemic. Our other businesses like microfinance, MSME loans and vehicle finance are growing between 35% to 50% which will make up for the slow growth in gold loans,” Nandakumar said.
Microfinance is the second-largest component of the company’s AUM at ₹9,310 crore followed by vehicle loans at ₹2,804 crore. Nandakumar said demand for used cars, and two-wheelers and the infrastructure-led growth in commercial vehicles and equipment will maintain its net interest margin around 9% despite a slowdown in its gold loan business.
In a report last month, Dolat Capital said Manappuram has been losing market share in its core gold loan business due to increased competition and lower branch efficiency. “The non-gold book is driving growth…however, these businesses are on a par or subpar relative to the industry in our view, with gold business driving profitability. Credit risks also increase as the company ventures away from gold. Weak growth prospects in gold limit valuations despite robust return ratios,” Dolat said.
