KOCHI: The report that Bain Capital is in talks with the reputed Manappuram Finance to take a controlling stake in the latter has made headlines today.
Talking to businessbenchmark.news, a market expert said, there have been other similar rumours too doing rounds in the market for some time.
Attractive P/E
Many investment companies and private equity entities were viewing Manappuram as an ideal target due to the favourable valuation perceivably triggered by a series of adverse news that hit the company in the past two years or so.
Year-to-date (YTD), the share has fallen by 10 per cent, closing at Rs160.20 on the NSE today. At this closing price, the P/E ratio stands at just 5.91, really attractive for value buyers, according to market experts.
Over the past two years, Manappuram Finance has gone through a challenging period, with a series of allegations persistently stalking both the company and, at times, its primary promoter, VP Nandakumar, some for wrong reasons too.
This has indeed impacted its market reputation, especially as these untoward developments were making headlines when the group’s subsidiary, Asirvad Microfinance, was readying itself for its initial public offering (IPO), though ultimately it never took off.
First hit
In early 2022, VP Nandakumar, the founder and CEO of Manappuram Finance, got entangled in a legal dispute concerning an old transaction with a group company.
This case involved cash transactions in the form of public deposits acceptance by Nandakumar through his sole proprietorship, Manappuram Agro Farms (MAGRO), allegedly without the necessary approval from the RBI prior to 2012.
Although the case was ultimately found to have no merit, it caused some market disruption for a few weeks taking a toll on the group.
The Kerala High Court quashed the Enforcement Directorate’s (ED) case and, instructed the Enforcement Directorate to return all original documents of the frozen properties in connection with the case.
Employee fraud
Around mid-2023, Manappuram Finance faced an internal scandal when an employee allegedly siphoned off funds from the company.
This incident raised significant concerns about the strength of Manappuram’s internal controls and risk management protocols.
The employee, whose identity was not widely disclosed in media reports, managed to misappropriate funds, which cast doubt on the company’s operational safety and reliability.
The company responded by investigating the incident and reviewing its internal systems, but the incident left a mark on its reputation, especially in the eyes of investors and customers.
Challenges at Asirvad
The biggest hit in the series was taken by Asirvad Microfinance when the company figured as one among the four NBFCs that faced RBI action three weeks ago.
But prior to this, Asirvad Microfinance’s IPO exercise had taken a severe beating.
Regulatory and market conditions led to the postponement of Asirvad’s IPO, which had been anticipated to boost capital, and fuel expansion.
Following this delay, Asirvad’s lending operations encountered additional difficulties; and by early 2024, the company reportedly had to suspend certain loan disbursements temporarily. The combined effect of the IPO delay and loan suspension placed Asirvad in a challenging position.
RBI action
On October 21, Asirvad Microfinance, along with three other NBFCs were asked by the Reserve Bank of India (RBI) to cease and desist from sanction and disbursal of loans, marking the latest in a series of regulatory developments.
“This action was based on material supervisory concerns observed in the Pricing Policy of these companies in terms of their Weighted Average Lending Rate (WALR) and the Interest Spread charged over their cost of funds, which are found to be excessive and not in adherence with the regulations as laid down in the Master Direction.”
