Icra lens on Manappuram Finance Ltd as gold price fall hits firm

Rating agency ICRA said on Thursday it would monitor the financial performance of Manappuram Finance Ltd closely after the gold loan company said it would swing to a loss in the March quarter due to low gold prices. The agency maintained the A+ rating with stable outlook on long term debt.

ICRA said the Kerala-based company's profits were getting hit mainly because of Reserve Bank of India's March, 2012 move to cap the loan-to-value (LTV) ratio for NBFCs at 60% from 70% of the gold value. ICRA said this has lead to rise in delinquencies because of lower refinancing ability of the borrowers who were originally given loans at higher LTV. ICRA had expected some deterioration in asset quality on account of lower refinancing capacity, the quantum of delinquencies is higher than ICRA's expectations.

ICRA said it has done a preliminary evaluation of the reasons for the under recovery of revenue in the latest quarter and has estimated the capital cover for debt holders of the company is sufficient for the rating level if the gold prices were to correct by 15-18% from current levels.

Manappuram's stock has fallen 30.64% since Tuesday to R24 after the company's profit said it expects a loss of R50 crore in Q4, compared to a profit of R90 crore in the corresponding period last financial year.

ICRA also said it would closely monitor earnings in the short term as Manappuram is set to auction large quantities of gold pledged by more 380,000 customers out of 1.55 million borrowers as of 31 December.

"Ability of the company to conclude the auctioning of such a large quantum of ornaments without leading to regulatory interventions or customer backlash is also a credit sensitivity," ICRA said in a statement.

ICRA would also closely be monitoring the impact of the above events on the financial flexibility of the company.

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