American PE major Bain Capital's deal with Manappuram enters final lap

Deal negotiations got delayed owing to differences over loss-making segments of the Indian company

Talks between Manappuram Finance and American private equity major Bain Capital have reached the final stage, with the latter expected to pick up a significant part of the promoter stake in India's second-largest gold loan company, according to multiple sources privy to the development.

 

In November 2024, the two players initiated talks to acquire a complete or partial stake from the promoter family led by V P Nandakumar. The value of the deal is yet to be known, and Nandakumar did not respond to Business Standard’s queries. Bain Capital declined to comment.

 

Nandakumar and his family hold a 35.25 per cent stake in Manappuram Finance, which is valued at around Rs 5,992 crore based on the current market cap of Rs 17,000 crore. An open offer by Bain Capital is expected for the rest of the shareholders after it buys part of the promoters' stake.

 

"It is quite common to have discussions, but discussions don't mean that we have reached anywhere," Nandakumar said in an earnings call on February 13. 

 

The deal reportedly got delayed due to differences between both parties over the loss-making and less profitable segments of the company, including microfinance, vehicle loans, housing loans, and MSME loans. Bain Capital was keen to acquire the lucrative gold loan business, which contributed Rs 24,504 crore, or 55 per cent, to the consolidated assets under management (AUM) of Rs 44,217 crore as of December 31, 2024. The global major was reportedly willing to pay a premium for the gold loan business, but promoters believed that a partial sale would be unviable as residual businesses underperform.

 

One of the major bottlenecks was believed to be the loss-making microfinance arm Asirvad Micro Finance, which contributed around 23 per cent, or Rs 10,013 crore, to its total AUM. Adding to the woes, the Reserve Bank of India had barred Asirvad Micro Finance from sanctioning and disbursing loans effective from October 21 last year, citing non-compliance with regulatory guidelines. The restrictions on the Chennai-registered Asirvad were lifted only on January 8 this year.

 

During the third quarter, the write-offs on the MFI business stood at Rs 400 crore versus zero write-offs last year and a mere Rs 40 crore during the second quarter of the current financial year. The portfolio is expected to see more write-offs.

 

Nandakumar, who is also the managing director and chief executive officer of the company, indicated in the earnings call that steps were taken to improve the efficiency of Asirvad. This includes tightening the underwriting process, capping the maximum number of lenders, and reducing loan size. 

 

"We are giving loans only to our good customers now, who have had a good track record all these years. In the next two years, we expect growth of around 10-12 per cent for MFI with a collection efficiency of 99 per cent," Nandakumar said. The company is also looking to bring down employee costs and other costs this year.

 

The share of vehicle loans comes to 12 per cent of total AUM, housing loans around 4 per cent, and the remaining comes from MSME loans.