RBI blow: Manappuram looks set to lose more than Muthoot

Thanks to the Reserve Bank of India’s (RBI’s) new norms for non-banking finance companies (NBFCs) which lend against gold, both the listed companies in the space, Muthoot Finance and Manappuram Finance, have seen their stocks tanking. Both the stocks have touched new all-time lows. However, it is Manappuram that has fallen much more than its peer.

While both the companies came out with press releases explaining that the new RBI policy will benefit them, the market does not seem to agree with the management.

Muthoot, which was trading at Rs 162.45 a day before the central bank announced the new policy, closed at Rs 139.20, a fall of 14 percent in three trading sessions. Manappuram, on the other hand, has fallen from Rs 45.20 to Rs 32.35, a drop of 28 percent, or twice as much as its peer.

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Over the weekend, Manappuram’s management conducted an analysts’ conference call to clarify their stand over the recent development. The net result was the stock got hammered by 11 percent on Monday as compared to a 5.25 percent for Muthoot.

Analysts, it seems, have turned more bearish after the clarification than they were before. Edelweiss, the broking firm which organised the investor interface, has said that the guidelines will have a significant bearing on the business model. Net interest margin is expected to come down by 3-3.5 percent over the next two years.

The threat from banks, who can also lend against gold at lower rates, will impact the growth prospects of the companies, says the report. Edelwiess, post the policy, has revised its earnings estimate downward by 28 percent in 2013 and 47 percent in 2014.

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I Unnikrishnan, managing director of Manappuram Finance, said the company would be looking at consolidating its position and not be expanding branches in order to control cost. To meet the central bank’s guideline on maintaining a loan-to-value (LTV) ratio of 60 percent, the company will have to apply the brakes on its growth plans. The company currently has a, LTV of 65 percent. Muthoot, on the other hand, has a LTV of 57 percent.

In other words, while Muthoot can continue to grow, Manappuram will have to stand still till it meets the guidelines. And while it stands still, competition will catch up and impact its margins, going forward.

No doubt then that Manappuram will be impacted more, irrespective of the brave face put up by the management.