Why Manappuram Finance Share Price is Falling

Imagine it was a nice work-free Saturday. You and your family planned to go out for some shopping and dinner. Just when you were about to leave the house, a few guests knock on your door and interrupt your weekend plans.

Pretty sad, no?

As Indians, we usually welcome guests with open arms but the trouble starts when uninvited guests visit.

Yesterday, a similar situation unfolded at the premises of Manappuram Finance where a few uninvited guests arrived without notice.

Manappuram Finance is a gold non-banking financial company (NBFC). The uninvited guests we're referring to here were the concerned people from the ED who raided the premises of Manappuram Finance. As a knee-jerk reaction, investors dumped shares of the companies by the fistful and shares crashed over 10%.

Let's find out more on this...

ED raid at premises of Manappuram Finance

Various media houses reported yesterday that the Enforcement Directorate (ED) conducted searches at multiple premises linked to Manappuram Finance as part of a money laundering investigation against it.

Money laundering is the process of hiding the source of money obtained from illegal sources and converting it to a clean source. It is an illegal exercise that converts black money into white money.

Prevention of Money Laundering (PMLA) Act was enacted in 2002 to prevent money laundering. According to the provision of the Act, ED can conduct raids anywhere in the country on the basis search memo given by the investigating officer following the criteria in the CrPC.

The ED is a law enforcement agency of the government of India that is responsible for enforcing economic laws and fighting economic crimes.

According to the reports, the raids at Manappuram Finance are being undertaken to gather evidence related to allegations of collecting public deposits worth over Rs 1.5 billion (bn) by the company in contravention of Reserve Bank of India (RBI) guidelines.

Allegations also pertain to cash transactions without following KYC norms.

A total of four premises, including the headquarters of the company in Thrissur and those of its promoters were searched.

The agency, according to the report, suspects large-scale cash transactions by the company and is looking at gathering documents and recording statements of the company executives in this context.

Following the news of the raid Manappuram Finance's share price went down the hill quickly.

The outcome of the raids and their possible impact on Manappuram Finance's share price cannot be known. Keeping aside the raid developments, the business prospects of the company look healthy.

Bright business prospect

It seems that the glittering gold has transferred some of its shine to Manappuram Finance.

Gold is considered a safe haven investment and it is often used as collateral for loans as it can be easily liquidated in times of financial crisis. The price of gold has been on the rise in recent times, and this bodes well for gold financiers.

The gold price has been in an uptrend in 2023 and the market is expecting that Manappuram Finance will get the benefit of a gold price rally as it has significant exposure in the gold loan business.

Due to the continuous rise in gold prices in the recently ended quarter, Manappuram Finance is expected to report better quarterly results. Higher yellow metal prices would translate into a strong order book and better profits for the company.

Apart from bright prospects in the gold business, the company's other segments are also doing well. In the December 2022 quarter, conversely, microfinance, commercial vehicles, home loan, and MSME/personal loans gave a strong performance.

The company is looking out to make the most of this strong performance from non-gold business.

The management continues to focus on being a diversified NBFC with a 50% asset under management (AUM) contribution from its non-gold loan business.

The management also believes it can achieve its guidance of 20% CAGR in consolidated AUM over the next few years (largely aided by higher growth in non-gold business) with a sustainable RoE of 20%.

For more details on the company and valuations, check out this editorial: Will Gold NBFCs Muthoot and Manappuram Finance Regain their Lustre?

How Manappuram Finance share price has performed recently

In the past two days, the stock is down around 12%.

In the past six months, Manappuram Finance's share price went up by 9.5%. In the past one year, it is up by 5.2%

Manappuram Finance touched a 52-week high of Rs 133.9 on 19 April 2023. Its 52-week low is Rs 81.5 touched on 20 June 2022.

About Manappuram Finance

Manappuram Finance, previously known as MAGFIL, is an Indian non-banking financial company (NBFC) based in Valapad, Thrissur, Kerala.

MAGFIL, the flagship company of Manappuram Group, was established in the wake of economic reforms launched by the government of India mainly to take advantage of the importance assigned to leasing as a vehicle to promote a decentralized pattern of economic growth through small and medium enterprises.

Fund-based and fee-based services are offered by the company including secured loans, gold loans, personal loans, instant money transfers, foreign exchange, bonds, non-convertible debentures, life insurance, general insurance, hire purchase and leasing schemes.

The company, through its subsidiary, Manappurm Insurance Brokers Pvt also provides life insurance products, and general insurance products, such as motor, health, travel, and property and liability insurance. Further, it acts as an agent for housing loans and car loan of banks.

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