Brickwork reaffirms 'AA-' rating for Manappuram`s NCD issue

Brickwork Ratings has reaffirmed the rating of "BWR AA-" for Manappuram Finance Limited's Non-Convertible Debentures Issue of INR 750 crores and INR 100 crores and removes from Ratings Watch.

The rating "BWR AA-" stands for an instrument that is considered to have High degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk. A "Stable" rating outlook signifies the expectation of the rating being stable in the near term. The ratings of MFL were placed under ratings watch with developing implications in February 2012 following Reserve Bank of India’s press release dated February 6, 2012 and letter to the company dated February 1, 2012., wherein it was advised that the company is not permitted to accept/renew deposits from the public. RBI has cautioned the general public that those who deposit money with MFL or Manappuram Agro Farms (MAGRO) do so at their own risk and stated that MFL was accepting deposits from the public in its branches and offices and was issuing deposits in the name of MAGRO and directed the company to completely disassociate its name, officials, manpower, infrastructure etc. from group entities. The rating reaffirmation of BWR AA- (Stable) takes cognizance of the measures taken by MFL to address the observations made by the RBI. Mr. Jagdish Capoor, former deputy governor, RBI, has been appointed as the Non-executive Chairman of Manappuram Finance. MFL’s board constituted a committee of independent directors headed by Mr. Jagdish Capoor, to conduct detailed compliance, related party transactions, internal control and risk management, corporate governance and any conflict of interest involving the Company or its management. The committee appointed Amarchand Mangaldas and KPMG to assist in review. Manappuram is implementing the recommendations made by the committee and have taken several actions as an outcome. The company has stopped taking deposits from public in the name of MAGRO and is repaying the outstanding deposits. Mr. V.P. Nandakumar has made arrangements for INR 141.56 crores through sale of shares (4.75%) in MFL and has made repayments for INR 33.88 crores and deposited INR 119.18 crores in an escrow account maintained with a public sector bank.  MFL has disassociated the name, premises and employees/officers of the company from the promoter group entities. Manappuram is also segregating the IT system and stationery of the Company. The names of the promoter group entities have been published on the Company’s website and MFL has initiated the procedure of change of name of other group companies so that a clear distinction can be made between MFL and other promoter group entities. Manappuram Finance (formely, Manappuram General Finance and Leasing Ltd.), the group’s flagship Company, was established in 1992 in Thrissur (Kerala). It is a non-deposit taking NBFC and is mainly engaged in providing retail advances against bullion asset collaterals, in the form of Household Used Jewellery. MFL had 2908 branches across India at the end of FY 12. The company is having a strong presence in South India, ~ 73% of total branches are in southern states of Kerala, Tamil Nadu, Karnataka, Andhra Pradesh. The rating has also, inter alia, factored MFL’s recognized brand name in the niche gold loan segment, strong asset quality, consistent profit margins and capitalization. The rating is, however, constrained by geographic concentration with maximum exposure to Southern States (73% of the branches are in South), significant dependence on loans from Banks, regulatory risks and volatility in the price of gold. MFL’s AUM increased to INR 11630 crores in FY12 from INR 7549 crores in FY11. Total loan disbursement has increased by 76% in FY12. MFL’s interest income has substantially increased by 124% to INR 2616 crores in FY12 from INR 1165 crores in FY11. Due to increased cost of borrowings the interest expenses increased substantially from INR 339 crores in FY11 to INR 1089 crores in FY12. Net Profit as of March 2012 stood at INR 591 crores as against INR 283 crores as of March 2011, an increase of around 109%. MFL has a capital adequacy ratio of 23.26% and Tier I capital ratio of 20.53% as on March 31, 2012. Interest spread for the company as on FY12 stood at 14.02% as compared to 16.39% in FY11. MFL’s gross NPAs have increased to INR 64.65 crores in FY12 from INR 23.46 crores in FY11. The company’s gross NPAs as a percentage to total advances increased to 0.67% in FY12 from 0.37% in FY11 and net NPA increased to 0.37% in FY12 as compared to 0.12% in FY11. Rating Outlook
Gold loan business is exposed to the risk of volatility in price movements which calls for constant vigil and immediate appropriate action to mitigate any loss. RBI’s circular to cap on loan to value (LTV) ratio to 60% would affect the business growth of the companies in this sector. But, it would also strengthen the asset quality of the company in long term. However, MFL’s ability to manage its business well and respond to changing market conditions is displayed in its track record. BWR expects MFL to continue to demonstrate such abilities to further improve its performance. Disclaimer: Brickwork Ratings (BWR) has assigned the rating based on the information obtained from the issuer and other reliable sources, which are deemed to be accurate. BWR has taken considerable steps to avoid any data distortion; however, it does not examine the precision or completeness of the information obtained. And hence, the information in this report is presented "as is" without any express or implied warranty of any kind. BWR does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by BWR should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and BWR shall not be liable for any losses incurred by users from any use of this report or its contents. BWR has the right to change, suspend or withdraw the ratings at any time for any reasons. To read the full report click on the attachment

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